Venture capital (VC) firms are seeing three times more investment opportunities than private equity (PE) firms, but despite this PE firms are twice as likely to invest as VCs, according to research by qodeo.
Early stage VCs see, on average, 900 business plans per year, and deal flow is at an historic high, given the weight of capital raised since 2012.
However, ‘Time to Exit’ has extended and the UK is more risk averse than the US, at early stage investment. Less than 10 per cent of UK VC & PE firms hold pre-revenue companies in their portfolios compared to 24 per cent in the US.
Interviewees in the research by qodeo, in partnership with Cambridge University’s Judge Business School, highlighted:
· European VC and PE firms lacked experience in picking winners, compared to the US, and were not as ruthless at shutting down poorly performing investments.
· Withdrawal of institutional firms (banks and pension funds) from PE, driven by regulation and publicity to focus on their core activity.
· Emergence of London as a crowd-funding centre, along with the focus and competition it brings to early stage venture capital, and the consequences for risk and regulation.
· The return of corporate buyers as investors into private equity, and the innovative two-way relationships that are being built.
· The skew towards Internet based investments and warnings of a bubble developing in this area.
· Effects of enhanced levels of direct and indirect UK government help to support VCs and encourage entrepreneurial activity.
· Succession planning as the original PE firms see their founders retire and remodel their corporate culture and identity.
Simon Glass, CEO, qodeo, says: “This in-depth study of the London VC and PE market shows the resurgence of venture capital and private equity funding post the financial crisis, driven mainly by Internet based investments. This, in tandem with low interest rates and the influx of foreign capital, is set to position London as the key European hub for VC and PE investment.”
