Library House’s latest Venture Cast newsletter highlights the problems raising funds from UK Pension Funds and their lack of participation in venture capital. It’s worth noting that Index’s recently announced fifth fund only highlights BP Pension Fund amongst the LPs. The basis for the poor participation levels are the historic venture returns in the UK:
… the return statistics don’t look good. Where buyout funds averaged 18.5 per cent a year over 10 years for funds raised since 1996, and mid-market funds returned 9.6 per cent, venture funds were down by an average of 2.5 per cent a year during the period, according to the British Venture Capital Association.
As every prospectus will tell you, past performance is no indicator of future performance. Just because UK venture has performed poorly compared to buy-outs and mid market funds historically over the past ten years, doesn’t mean it’s not a great time to be investing in venture here.
As Simon Cook of Esprit pointed out earlier this year,
The average European exit has taken $40m of VC backing –almost half the average $70m that the US VCs have put in to build the same value companies.
For exits over $100m in market cap, better than 1 in FOUR of the winners are in Europe despite 80% less investment.
For those $100m+ exits where the exit market cap is better than fives times the capital invested, or the ‘home runs’ which are the feature of the US VC industry that makes it so successful over 1 in THREE are in Europe despite 80% less investment.
Of these $100m+ exits, the average exit is $251m BOTH in the US and Europe -so there seem to be no discount for European companies.
Couple these stats with the AIM vs NASDAQ debate and you can begin to paint a compelling picture for European LPs.