dfj esprit - why european vc evca study

European Venture Capital:“A Coming of Age”

2

A Compelling Case for European Venture Capital

• Innovation quality and world class technology

• Growing strength of the European entrepreneurial base

• Growing maturity of the VC funds landscape with top performers now matching US top quarter peers

• Lower entry valuations and superior capital efficiency

• Market inefficiencies provide opportunity to back successful teams and generate superior returns

3

European Venture Capital’s Market Drivers

• Core technology expertise

• Global consumer markets

• Large localised markets

• Eastern European development

• Regulatory environment for VC ecosystem moving in the right direction

InnovationDrivers

FinancialMarkets

Entre-preneurial

Spirit

• IPO market temporarily closed

• Global M&A and trade sales

• Limited VC competition

• High profile successes

• Entrepreneurial activity

• Virtual hubs

• Serial entre-preneurship

4

Europe benefits from a high quality deal flow due to its Innovative Potential…

* These refer to triadic patent families, which are a set of patents registered in Europe, Japan, and the US to protect the same invention and are attributed to the country of residence of the inventor. They capture important inventions only and areinternationally comparable

Source: OECD Factbook 2008

Rank R&D as % GDP (2006 or latest available year)

Rank Researchers (2006 or latest available year) (per 1,000 employed, full-time equivalent)

Rank Patents* (2005)(per 1,000,000 inhabitants)

1 Israel 1 Finland 1 Japan

2 Sweden 2 Sweden 2 Switzerland

3 Finland 3 Japan 3 Germany

4 Japan 4 New Zealand 4 Netherlands

5 Korea 5 Denmark 5 Sweden

6 Switzerland 6 US 6 Korea

7 Iceland 7 Norway 7 US

8 US 8 Australia 8 Luxembourg

9 Germany 9 France 9 Finland

10 Austria 10 Belgium 10 DenmarkDenmark, France, UK, Belgium, Luxembourg, Netherlands, Czech Republic in next 10

Luxembourg, Austria, Germany, Switzerland, Ireland, UK in next 10

France, Austria, Belgium, UK, Norway, Irelandin next 10

5

Europe has become a predominant technology innovator in a number of high growth industries

• Biopharmaceuticals, UK

• Medical devices and equipment, Germany

• Clean / renewable energy, Germany

• Wireless telecom technologies, Scandinavia

• Open source software, Scandinavia

• Semi conductors, UK & Germany

6

Europe’s* relative drought in Venture Capital financing drives a favourable competitive landscape for both GPs and LPs

VC investment as % of GDP by geography, 2008

0.090%

0.083%

0.066%

0.057%

0.055%

0.053%

0.047%

0.042%

0.041%

0.020%

0.019%

0.014%

0.014%

0.012%

0.202%

0.091%

US

United Kingdom

Scandinavia

I reland

Spain

Benelux

France

Europe

Switzerland

Germany

Portugal

CEE

Austria

Poland

I taly

Greece

* Europe: All European countries/regions mentioned in the chartSource: PEREP_Analytics for European countries

Dow Jones VentureSource for USA

7

A growing number of funds have learned from their mistakes and have the potential for outperformance

Source: Dow Jones VentureSource

W. Europe

U.S. Ratio

2 73 334 4.6x

3 58 202 3.5x

4 28 132 4.7x

5 8 94 11.8x

6 4 65 16.3x

Time since early growth of VC industry (years)

10 - 15 50 - 60 4 – 5x

VC teams’ maturity by number of funds raised

8

US VC still has a dramatic lead over all the other global regions...

Total Capital Invested


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2002 2003 2004 2005 2006 2007 2008

USA Europe China Israel India

US Venture Capital growth beats all other regions combined

~4.5 to 5.0x~4.5 to 5.0x

USAUSA

EuropeEurope

9

…Global exits tell a different story

82%

59%

78%

64%

41%

22%

36%

18%

Europe

USA

46 home runs

82 home runs

100%

Total capital invested

Total no.of exits

No. of exits> $100m

No. of home runs: 10x cap vs. invested

Source: Dow Jones VentureSource Data 2004 - 2008

4.7xUSA/Europe 1.4x 3.4x 1.8x

10

Less capital used to build winners in Europe

Average invested prior to $100m+ exit$ millions

0

20

40

60

80

100

2004 2005 2006 2007 2008

USA Europe

Exits in the same order of magnitude need a lower amount of Venture Capital in Europe


11

European capital efficiency results both from low entry valuations…

~1.5 to 2.5x~1.5 to 2.5x

Early stage entry valuations for Venture Capital investments€ millions

0

2

4

6

8

10

2004 2005 2006 2007 2008

USA Europe


12

… And lower cost of growing businesses /tight control of cash invested

Median European investments€ millions


0

2

4

6

8

10

2004 2005 2006 2007 2008

Seed First Second Later

Median U.S. investments€ millions

0

2

4

6

8

10

2004 2005 2006 2007 2008

Seed First Second Later

13

Leading to higher return potential in Europe

Multiple of cap vs. invested ($100m+ exits)

0

5

10

15

20

2004 2005 2006 2007 2008USA USA inc GOOG Europe

Less capital invested and lower entry valuations means higher returns in Europe


14

European VCs have recently demonstrated robust exit performance by international standards

5.78 5.56USAEurope

Median time to liquidity (2002 – H1’ 2008)

US:Europe:

Median time to exit


Exits > $100mExits > €100m

15

Successful European VCs have a growing base of Serial Entrepreneurs

Companies with serial entrepreneurs as % of total European portfolio

# surveyed firms:

Source: Abingworth, Atlas Venture, Earlybird, HealthCap, Index Ventures, Sofinnova, TVM, Wellington Partners

63%

37%With SerialEntrepreneurs

Without SerialEntrepreneurs

8 (funds covered: 16)

100%

16

Europe vs US, post IPO performance of all VC backed IPOs*, 01/04 to 06/08

EU VC IPOEU VC IPO

US VC IPOUS VC IPO

FTSE 100FTSE 100

NASDAQ100NASDAQ100

US and European VC-backed IPOs – post-IPO performance

European VC companies grow faster than their US peers post IPO

* NB excludes GoogleSource: CapitalIQ, DFJ Esprit

17

Europe originated a number of companies having reached > $1Bn value post exit

CompanyName

CompanyName Industry Country

Round A

Exit Year

Software Sweden 2001 2008

Solar energy Germany 2004 2008

Internet UK 1999 2008/ 1999

Solar energy Norway 2001 2007

Internet UK 2001 2006

Clean tech Germany 2002 2006


18

Europe originated a number of companies having reached > $1Bn value post exit

CompanyName


Round A

Exit Year

Telecom Luxembourg 2003 2005

Internet France 1997 2005

Telecom France 2000 2005

Semi-conductor

UK 1999 2004

Pharma Switzerland 2000 2004

Software UK 1998 2001


19

Despite very difficult market environment Europe continues to generate exciting exits

Industry CountryRound

AExit Year Acquirer

Exit Multiple

Medical Device

France 2003 2009 Medtronic >10x

Software UK 1999 2008 Symantec 6x

Biotech Germany 2000 2008 Bayer >5x

Healthcare Germany 1998 2008 Lonza Group 13x

Internet UK 2006 2008 AOL 5x

Telecom Germany 2005 2008 KPN >5x

Communi-cations

Denmark 2006 2008 Vodafone 6x

Chemicals Portugal 2002 2008 Devan Chemicals

>5x

Source: EVCA

CompanyName

CompanyName

20

European VC-backed IPOs with an exit multiple ≥5x, 2005-2008

Source: EVCA


AExit Year

Stock Exchange

Exit Multiple

Solar energy Norway 2001 2007 Oslo >10x

Internet Germany 1999 2007 Frankfurt 22x

Financial Services

Italy 2000 2007 Milan 22x

Healthcare Germany 2004 2007 Frankfurt 9x

CompanyName

CompanyName

21

European VC-backed IPOs with an exit multiple ≥5x, 2005-2008

Source: EVCA


AExit Year

Stock Exchange

Exit Multiple

Clean energy Germany 2004 2006 Frankfurt 27x


Software France 1995 2006 Euronext Paris 9x

Biotech Austria 1998 2006 Vienna >5x


CompanyName

CompanyName

22

European VC-backed M&As with an exit multiple ≥5x, 2005-2008


AExit Year Acquirer

Exit Multiple

Software Sweden 1997 2007 TIBCO 9x

Software Sweden 2005 2007 CSR 7x

Internet Sweden 2001 2007 Digital River 5x

Healthcare Germany 2003 2007 Amgen 6x

Technology Germany 1999 2007 Celesio >5x

Pharma Germany 2001 2006/2008

Schweizerhall Holding

5x

Information Technology

Germany 2000 2006 Amadeus >5x

Biotech Switzerland 2001 2005 Roche >7x

Source: EVCA

CompanyName

CompanyName

NovosisNovosis

23

European VC-backed M&As >$100mwith a multiple of cap vs invested ≥10x,Exit year 2006-2008

CompanyName


Round A

Exit Year Acquirer

Software Sweden 2001 2008 Sun Microsystems

Internet UK 2006 2008 AOL

Software UK 1999 2008 Symantec

Internet UK 2006 2007 CBS

Internet Germany 2006 2007 Holtzbrinck Group


24

European VC-backed M&As >$100mwith a multiple of cap vs. invested ≥10x,Exit year 2006 & 2007

CompanyName

CompanyName

CodingTechnologies

CodingTechnologies


AExit Year Acquirer

Software UK 1999 2006 Amdocs

Information Services

Germany 2000 2007 Deutsche Telekom

Software Sweden 1998 2007 Dolby Laboratories

Energy UK 2004 2007 Petroleum Geo-Services

Software Norway 2002 2007 Bacou-Dalloz

Communi-cations

UK 1999 2006 Pearson


25

European VC-backed IPOs with a multiple of cap vs. invested ≥10x, Exit year 2006 & 2007


CompanyName

CompanyName

VivalisVivalis


AExit Year

Stock Exchange

Industrial Biotech

France 1999 2007 Euronext Paris

Healthcare Finland 2002 2007 Helsinki

Energy Norway 2005 2007 Oslo

Biotech France 2002 2007 Euronext Paris

Nano tech Germany 2002 2006 Frankfurt

Information technology

Germany 2001 2006 Frankfurt

26

European VC-backed IPOs with a multiple of cap vs. invested ≥10x, Exit year 2006 & 2007



AExit Year

Stock Exchange

Clean tech Germany 2001 2006 Frankfurt

Telecom France 2004 2006 Euronext Paris

Software & Hardware

Belgium 1995 2006 Euronext Brussels

Trans-portation

Spain 2004 2006 Madrid

Information Services

France 2000 2006 Euronext Paris

Internet Germany 2000 2006 Frankfurt

CompanyName

CompanyName

27

The next decade will be strong for Venture Capital in Europe

• Confirming its high potential, Europe has demonstrated strong exit performance

• Europe has recently generated multiple “home run” exits

• Europe benefits from a higher capital efficiency than the US

• European Venture Capital has very strong fundamentals within the context of an inefficient market

• Europe ranks high on a number of key technology creation indicators

• The imbalance between VC funding (Supply) and investment opportunities (Demand) drives a favourable competitive landscape

• The structure and performance of the European Venture Capital highlights the great potential of an early maturing industry

• A number of funds based in Europe have achieved US top quartile performance

• A growing number of funds have learned from their mistakes and have the potential for outperformance

28

Acknowledgements

EVCA would like to thank warmly to all the contributorsto this document, with a special thought for

• Hendrik Brandis, Earlybird

• Simon Cook, DFJ Esprit

• James McNaught-Davis, Wheb Ventures

• Vincenzo Narciso, UBP

dfj esprit - why european vc evca study

Economy & Finance

favourable

post exitcompany

exit multiple

venture capital

backed ipos

reached gt

invested 10x

gt