With all the noise coming out of New York concerning it’s pension fund scandal and it’s subsequent repurcussions, it may be useful to review what fund managers should expect from placement agents. From the 2nd edition of the Definitive Guide to Private Equity Fundraising, here’s Kelly DePonte of Probitas Partners on the very subject:
The Kauffman Foundation has just released it’s Index of Entrepreneurial Activity for 1996-2008. The document was prepared by Robert W. Fairlie of the University of California, Santa Cruz. It’s a fantastic source of information on entrepreneurship in the U.S. (rather unsurprisngly, a byproduct of the recesion is that the number of entrepreneurs is rising).
With the U.S. and the NVCA grabbing a lot of the VC headlines lately, it’s time to pay a little attention to Venture Capital in Europe. Europe saw 170 deals garner $1.18 billion (€906 million) in the first quarter, down 35% from the €1.40 billion that went into 281 deals during the same period in 2008. This marks the lowest deal count for Europe since VentureSource began reporting on the region in 2000. However, it’s important to note that the 35% decline is comparatively better than how other parts of the world faired in Q1 VC investment (the U.S., China and Israel saw drops of 50%, 58%, and 75% respectively). Europe now accounts for 21% of worldwide venture investment.
Europe’s information technology (IT) industry is being hit the hardest during the current downturn. IT saw €277 million invested in 82 deals in Q1, down 44% from the €492 million put into 129 such deals last year and the industry’s worst quarter on record. Within IT, the information services sector fared better than most as it accounted for 46% of all IT investment in the quarter with €127 million and 28 deals, which is down 16% from the year-ago period but on par with investment levels the sector has seen over the last two years.
Investment in the European health care industry outpaced that of IT in the first quarter as venture capitalists put €311 million into 42 health care deals. Even so, this marks a 39% decline from the first quarter of 2008 when there were 70 deals worth €513 million. And for the first time since 2005, Europe’s venture investment in the energy and utilities industry outpaced that of the U.S. and was the only area to see investment actually increase, up 82% to €221 million in 10 deals from €122 million in 18 deals a year ago. This growth was due to a large round raised by NorSun of Oslo, Norway, which landed €147 million in first-round financing.
In France, investors put €117 million in 43 deals, down 41% from €198 million in 53 deals a year ago. In the UK, venture investment fell 58% from €562 million invested in 98 deals last year to €234 million in 50 deals during the most recent quarter. This marks the country’s lowest deal count on record.
Also, while average deal size fell in every other part of the world it actually went up in Europe (much of this is influenced by the NorSun deal and the bigger piece of the pie that energy investments took) with the median size of a venture capital deal ticking up over 8% to €3 million from €2.8 million.
Here’s Dave Hills, general partner of KPG Ventures, talking about how now is the ideal time to start a business. He also talks about the differences/similarities between Silicon Valley and New York:
Adding fuel to Fred Wilson’s recent point concerning Venture Capital’s math problem and there being too much money going into the asset class, at the NVCA’s convention this week Rebecca Connolly, of Fairview Capital (a Fund-of-funds with $3 billion under management and 70% of that being allocated to Venture Capital) gave a talk were she said:
I hope some of you go out of business. I hope that does happen. Let’s just flush everything out and get back to less competition, less money…just not my funds.
To be fair though, while LPs are enjoying their moment in the sun of talking tough and “leveling the playing field”, they’re the ones who gave the underperforming funds money to begin with. There’s plenty of blame to go around. Ultimately if the LPs do their job right, the “bad” firms will fade away as the meritocratic elements of the industry won’t enable those in the lower rungs to raise more funds.