Ken Olisa, Chairman Restoration Partners & President: ETT Web & Mobility Tech Tour
The European VC landscape is yet again undergoing profound change. The need to persuade LPs to stick with the asset class has driven GPs to look for faster success than that offered by the traditional 7 – 10 year cycle. This hunger for speed is being amplified by the current US-centric social networking investfest running the risk that LPs will place their precious Euros in US-facing funds.
With Europeans risking being frozen out, investors in funds have become more select, prioritising capital for those businesses which are more likely to bring those fast returns on investment. This strategy has led to spreading their finances less widely while increasing their size significantly.
For example, in March 2011 Go 4 Venture’s HTI listed seven ‘landmark’ transactions (those greater than €20mn) compared to only three for the same period last year. These are the latest figures to show the steady upward progress of European VC since September 2009, with a total of €876.5mn invested in the region so far in 2011.
This VC trend looks set to continue for some time – at least until the current US Social Networking bubble pops. So what does this mean for start-ups, or growth businesses, looking to secure VC funding?
Those businesses have two choices – accept that venture capital is not the appropriate fuel for them and that self-funding, debt or spectacular organic growth is the one true path.
Alternatively, if size matters then it’s vital to project size so they must muscle up, be it in terms of ambition, activity or sophistication.
The questions to be answered at November’s Web & Mobility Tech Tour are how can start ups achieve levels of perceived size and gravitas without over extending themselves? Should VCs look again and try to refocus on smaller, more agile companies that are likely to be more disruptive? Or is it too late for the plucky start-up – has VC become too risk averse and has the flight to size (and perceived security) already taken hold meaning that muscling up is the only option?