VC investment having positive impact on European start-ups, says new research
Invest Europe, in conjunction with venture capital (VC) investor the European Investment Fund (EIF), has released new research that highlights venture capital’s positive impact on fostering innovation, growth and job creation at start-ups across Europe.
The report entitled The VC Factor: Data-driven insights about VC-backed start-ups in Europe is the result of an ambitious research collaboration between the EIF and Invest Europe, the association representing venture capital, private equity and infrastructure sectors and their investors in Europe. The ground-breaking report tracked and analysed data on almost 9,000 young companies between 2007 and 2015, as well as some EUR35 billion of VC investment flows, offering new insights into Europe’s burgeoning start-up scene.
“We are delighted to have teamed up with Invest Europe for this data-driven project to analyse venture capital investment and its role as a catalyst for start-up success,” says Helmut Krämer-Eis, EIF’s Chief Economist. “Knowledge is power – and hence we are confident that the new report increases the understanding of the European VC ecosystem and delivers further proof of the positive impact of venture capital on start-ups.”
“We are thrilled to have worked with the EIF on The VC Factor,” says Invest Europe CEO Eric de Montgolfier. “The research shows that the benefit of venture capital funding for the vast majority of companies is substantial. Receiving VC investment enables them to unleash their full potential, growing further and faster than their peers while also creating new innovations and empowering investors into European VC as an asset class.”
The report acknowledges that not all VC-backed start-ups survive, nor do they always perform as their founders dream. However, over a third of start-ups studied were high performers, generating strong revenue growth, creating significant numbers of jobs and spurring innovation.
One in five start-ups were classified as ‘all-rounders’, generating 141 per cent revenue growth on average and a 54 per cent increase in employee numbers over four years, while 7 per cent of start-ups were classified as ‘visionaries’, performing strongly on intellectual property with intangible assets such as patents up by 534 per cent. In addition, 8 per cent were classified as superstars”, outperforming on all fronts with revenues growing 358 per cent, intangibles by 340 per cent and staff by 109 per cent.
The VC Factor compared start-ups with VC backing to those without in order to determine the impact of venture investment and expertise. It found that without VC investment, start-up performance would have been significantly poorer across all profiles, while the number of ‘laggards’ that shrink in size would have increased more than threefold. In addition, almost half of high-growth start-ups would have either fallen into a much less successful profile or defaulted in the absence of VC.
The report also made new discoveries about the locations of VC investments. The six largest VC hubs in Europe received one-third of all investment activity, led by Ile-de-France, inner London and Berlin. Meanwhile, Nordic start-ups – centred around the fourth-largest hub Stockholm – were the most innovative in terms of new patents and intangible assets. At the same time, emerging start-up hubs are shaking the status quo with 25 per cent of capital deployed into cities with fewer than 100,000 inhabitants.