Session 1. Completing the funding escalator for young, small and innovative firms:
From the perspective of European Private Equity
and Venture Capital
Dr Cornelius MuellerResearch Director Invest Europe
CEPS and ECMI 2nd Task Force MeetingBrussels, 6 February 2019
Invest Europe is the voice of investors in privately-held companies in Europe
2
3
Why firms, particularly SMEs and high-growth
potential firms, prefer to not enter and raise capital
on public and private capital markets?
Venture capital in practice
4
Benefits:
• Provide funding to grow young businesses
and realise the ambitions of entrepreneurs
• Mentoring and strategic advice
• Professionalisation of management teams
• Access to market information, strategic
partners and alliances
• Sector expertise
• Secure additional funding rounds, investors
and other financing options
For consideration:
• Founders share ownership and
control with VC investors
• VC firm to take board seat
• Exit strategy matters
• VC firms are often organised in clusters of
geography and sectors
• Negotiation and contractual agreements
required
• VC firms need to be very selective
Proven ability to select promising companies and create global leaders…
Source: Company data, Capital IQ, Mergermarket, press articles, GP Bullhound analysis as at April 2016
& Invest Europe & CB insights https://www.cbinsights.com/research-unicorn-exits
5
…in Fashion, Music, Fintech, Biotech, B2B and Gaming
Country
UK Germany Sweden France Netherland Denmark Luxembourg Russia Finland Belgium Ireland Italy Switzerland
No. of unicorns 15 10 6 4 3 3 2 2 2 1 1 1 2
Emerging unicorn foals
Since the financial
crisis, European VC has
gained traction,
investment is rising and
European VCs have
demonstrated their
ability to help build
global leaders
… sourced from local opportunities and investment teams across Europe…
Source: Invest Europe / EDC 6
By country
By city
30%5% 15%
Concentration of staff working
for European fund managers
1,250 fund managers are active in Europe
every year with over €640bn Capital under
Management
Geographic diversity is key to put capital to work
… reflected in European Private Equity’s buoyant activity
7
50
33
44
38
9
1213 13
18
24
16
11
2931
20
32
25
29
43
39
59
33
46
36
39
32
26
10
15
19
2523
25
18
22
18
2322
24 24
31
2728
3536
31
17
12
87
6
910 10
20
16
14
11
1820
21
2425
20 20 2021 22
12
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 * H2
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
€ b
illion
Funds raised Investments Divestments
Source: Invest Europe / EDC
8
Does the current capital market ecosystem allow SMEs
to grow, mature and reach their full potential?
SME investments are key to Europe’s private equity and venture capital market
9
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
-
10
20
30
40
50
60
70
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
EU
R b
illion
Number of companies Equity amount invested
0%100% - 100
2…
2…
2…
2…
2…
2…
2…
2…
2…
2…
2…E U R
b i l l i o n
Buyout Growth Venture
Buyout SME % Growth SME % Venture SME %
Note: SME = less than 250 employees at initial PE investment.
% share extrapolated based on known SME status information
Source: Invest Europe / EDC
Scale-up:Importance of international capital flows
10
Seed and start-up Later-stage and growth
Location of
fund advisory:
0%
5%
10%
15%
20%
0%
5%
10%
15%
20%
% amount
% number
companies
0%
5%
10%
15%
20%
25%
30%
0%
5%
10%
15%
20%
25%
30%
0%
5%
10%
15%
20%
2007
EU 28
Rest ofEurope
Rest oftheworld
• Source: Invest Europe / EDC
Access to finance differs by geography
11
United Kingdom
Finland
Germany
Austria
Poland
Sweden
Lithuania
France
Denmark
Netherlands
Spain
Luxembourg
Belgium
Malta
Ireland
Czech Republic
Estonia
SlovakiaSlovenia
Latvia
Hungary
Romania
Portugal
Italy
BulgariaCyprus
Croatia
Greece0.000%
0.010%
0.020%
0.030%
0.040%
0.050%
0.060%
0.070%
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7
VC
Investment
as % GDP
(average
2013-2017)
SME Access to Finance Index – EIF (average 2013-2017)*
Source: Invest Europe / EDC
* EIF Working Paper 2018/49: EIF SME Access to Finance Index - June 2018 update
http://www.eif.org/news_centre/publications/EIF_Working_Paper_2018_49.htm
12
How retail and institutional investors’ participation in capital
markets can be fostered? Does the current supply of products
meet their real savings/investment needs?
Challenge and opportunity:Linking international and institutional capital with Europe’s SMEs
13
0% 5% 10% 15% 20% 25% 30% 35% 40%
Capital markets
Academic institutions &…
Banks
Sovereign wealth funds
Corporate investors
Insurance companies
Family offices & Private individuals
Fund of funds & Other asset…
Government agencies
Pension funds
0% 20% 40% 60% 80%
Outside Europe
Non-Domestic Europe
Domestic Europe
Type of LP Geographic origin of LP
Fundraising
2013 - 2017 Growth
€ 24 billion
Buyout
€ 238 billionVenture
€ 31 billion
Source: Invest Europe / EDC
Regulatory impact on financing of SMEs
14
Investors Fund
managers
SMEs
Factors/Barriers to investment in SMEs
• Taxation incentives
• Definition of an SME
Factors/Barriers to investment in funds
• Basel III
• Solvency II
• Fund legislation (passporting rights)
• EU definition of retail investor
Sale proceeds of which are returned to the investors
Seek return on capital through Which invest in
Source: Invest Europe
Access to (all types of) investors
15
CRD/CRR
Pension funds
Insurers
Fund-
of-
funds
Banks
Family
offices &
private
individuals
IORP
Solvency II
MiFID II
Source: Invest Europe
Potential barriers
FUND
REGULATION• AIFMD review
• “Omnibus” proposal
INVESTOR
REGULATION
• Solvency II
• CRD/CRR
• Sophisticated investors
VC FUNDING• VC Fund-of-Funds
• ESCALAR
TAX ISSUES• Tax transparency
• Tax fairness
OTHERS
• ESAs review
• SME definition
• Sustainable finance
BREXIT
1
2
3
4
5
16Source: Invest Europe
Thank you
Contact:
Dr Cornelius Mueller| Research Director
Invest Europe | The Voice of Private Capital
D +32 2 749 95 10
www.investeurope.eu
@InvestEurope_EU
European Transparency Register 60975211600-74