Until now we have thought that the continent had a disadvantage by not having a global well-established venture capital hub like the Silicon Valley in the United States. However, this may turn out to be an advantage for Europe. Namely, there are several start-up hubs on the old continent: Amsterdam, London, Paris, Stockholm and Zurich have been riding the new waves of technological development experimenting with everything from fintech to artificial intelligence to biotech and robotics. The European venture capital sector has gained a major competitive edge globally. The World Intellectual Property Organization records Switzerland, Sweden and the UK as the world’s most innovative countries, and there are eight European countries on the top ten list.
The European stock markets are increasingly open to IPOs by companies that are backed by venture capital. The continent’s companies backed by venture capital have attracted increasing interest in the field of global acquisitions, too. China, for instance, has taken to buying out European technology companies.
The most important point in European venture capital investment is eventually its return. According to a report by the British Private Equity & Venture Capital Association, venture capital companies in the UK – many of which invest all over in Europe – booked record returns in 2016 after 13 years.
Meanwhile the biggest stakeholder in the European venture capital sector, the European Investment Fund’s (EIF) 10-year annualized return (IRRs) was 5 percent, its five-year return was 9.5 percent, and its three-year return was 12.2 percent – which shows not only strong growth but also an outstanding yield in the current environment of low yields. Moreover, the 30 biggest funds of the EIF have produced a net average yield of 27 percent since 2007 showing what good results can be achieved with well targeted investments.
Those who are not aware of the European opportunities may miss them completely. According to the opinion of the technology consulting and investment company GP Bullhound, European technology firms are still undervalued compared to their American counterparts. Yet, this pricing gap may not last too long: companies operating in the disruptive sectors promise extremely high returns to those who do not miss the European gravy train.
Coming next: Will Central Europe lag behind?