I spent two days last week in Geneva at the EVCA's Investor Forum. It was a bit more interesting than I had originally expected. First off, I thought a lot less people would show up. This was not the case. There were approximately 250 GP's and another 250 LP's. For those of you not in the know, a GP is a general partner, usually the managing level of a fund's hierarchy (be it buyout, venture or whatnot). LP's are the limited partners, usually institutional investors, who invest in the funds managed by the GP's. You still with me? Anyway, turnout was quite good so a positive note right off the bat. Second, the usual suspects were there, still representing mainly the companies they were with last year. I would of expected a bit of churn at a lot of these GP's or LP's, yet this too did not seem to be the case whatsoever. Again, another very positive sign. Third, I sensed a growing appetite for LP's to invest again in venture capital funds. I heard a lot of positive commentary in this direction. Finally, it was clear that family offices were becoming more sophisticated and have collected experience in the private equity space. They too want to invest in venture funds. Yet, before we all get too excited (at least the VC's that is) let me get to the negative points.
Very clear to me was that the appetite in regards to venture capital was at the top end (top tier as it's known in the industry). The established players with large funds such as Index, Balderton or Accel will basically be able to continue raising large funds (for deployment in Europe). They have a brand, they have size and generally they are expected to be able to source the best deals due to extensive deal flow (I'll reserve my commentary on whether these factors truly make them "better"). If you're a small, regional player it's going to be tough going once you head out for further capital. Further, it was also clear that seed stage investing was not considered sexy. It takes too long, involves too much risk, and doesn't generate the necessary returns. I basically disagree with this but when you take a look at the participant list of this event, it's clear that early-stage investing is not a top priority. US based LP's will continue to be skeptical about Europe's chances. This has always been the case but when you look at the numbers they generated investing in venture in Europe, you start to worry about how to pitch them. It can be argued that they picked the wrong funds and are to blame but try telling them that when you are pitching your fund to them. Finally, one of the most critical points was the small-talk I had with a bunch of investors, both on the venture and buyout front. Last year, I remember the topic often being based around the question of whether one would be with the same fund next year, would switch to another fund or basically go out on one's own and launch their own fund. This year, the question was totally different. No longer was it about where one would land in the private equity space. It was more a general question of whether one would remain at all in the private equity space. This was a first for me and I guess heavily reflects the current economy.
Yet, I'm not about gloom and doom in this post. This was simply an EVCA event and doesn't always reflect what's happening on the ground. The EVCA has been skewed the past years towards buyout more than venture. The attending parties have been very involved with buyout topics over the past years and venture never really was the main focus (at least for the past 10 years in which I have been in the industry here in Europe). Hence, I see a bit of a different story "on the street". I believe venture started changing years ago anyway. It's nothing new that the industry is changing, yet change always tends to hurt. It's clear that early stage investing is a different animal. The funds with 500 milion to deploy are playing a far different game than the funds with less than 100 Million. The smaller your fund, the more you look like a business angel. At the same time, the business angels are getting more organized and lookng a bit more like funds. I believe in the future, early stage investing (which includes seed) will continue pulling away from the classical style of investing we are used to from Index, Balderton or Accel. Take a look at Sequoia's investment in Y-Combinator. Or even earlier than this, look what Charles River is doing with seed companies. This has come to Europe as well when you take a look at Seedcamp. I'll save it for another post, but in a couple of years, I foresee a different investor deploying the money as well as a different class of LP's supplying the capital for the GP's to invest. It would be too much to get into that topic in this post. Stay tuned.
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