Final report of France Digitale - startups financing - web investors forum

Web Investors Forum
Boosting digital startup financing in Europe
FINAL
REPORT
A
study
prepared
for
the
European
Commission
DG
Communications
Networks,
Content
&
Technology
by:
1

This
study
was
carried
out
for
the
European
Commission
by
France
Digitale
12
rue
Vivienne
75002
Paris
–
France
www.francedigitale.org
Authors:
Emanuele
Levi
Member
of
the
Board
of
Directors
at
France
Digitale
General
Partner
at
360
Capital
Partners
Delphine
Villuendas
General
Counsel
at
France
Digitale
General
Counsel
at
Partech
Ventures
Taro
Ugen
VP
Venture
Capital
at
France
Digitale
taro@francedigitale.org
Internal
identification
Contract
number:
30-‐CE-‐0557783/00-‐36
No
SMART
number
DISCLAIMER
By
the
European
Commission,
Directorate-‐General
of
Communications
Networks,
Content
&
Technology.
The
information
and
views
set
out
in
this
publication
are
those
of
the
author(s)
and
do
not
necessarily
reflect
the
official
opinion
of
the
Commission.
The
Commission
does
not
guarantee
the
accuracy
of
the
data
included
in
this
study.
Neither
the
Commission
nor
any
person
acting
on
the
Commission’s
behalf
may
be
held
responsible
for
the
use
which
may
be
made
of
the
information
contained
therein.
978-‐92-‐79-‐39285-‐6
10.2759/64203
©
European
Union,
2014.
All
rights
reserved.
Certain
parts
are
licensed
under
conditions
to
the
EU.

Abstract
France
Digitale
was
contracted
by
the
European
Commission
to
run
the
Web
Investors
Forum
(WIF),
one
of
the
pillars
of
the
Startup
Europe
initiative.
Since
May
of
2013,
we
have
been
engaging
and
connecting
with
the
European
venture
capital
community
to
draw
a
panoramic
view
of
current
activities
and
challenges
observed
in
the
European
professional
investment
arena.
Our
research
has
been
focused
on
internet-‐driven
companies.
We
conducted
44
interviews
in
the
seven
countries
of
focus
for
this
study
(France,
The
United
Kingdom,
Germany,
Sweden,
Portugal,
Spain
and
Italy)
and
discussed
our
findings
during
a
high-‐level
workshop
in
Paris
on
June
11th,
2014.
The
first
priority
in
Europe
is
to
support
the
feeding
of
a
positive
feedback
loop
through
the
unlocking
of
the
exit
environment.
Europe’s
first
priority
is
to
create
a
support
structure
that
will
improve
the
exit
environment.
Successful
exits
allow
investors
and
entrepreneurs
to
achieve
their
goals
and
start
new
businesses
with
new
money
inflow.
Our
second
recommendation
aims
at
providing
balance
to
the
European
finance
value
chain,
which
is
currently
suffering
from
shortages
on
some
or
all
levels
depending
on
countries,
and
especially
for
those
companies
willing
to
become
Global
leaders.
As
a
third
recommendation,
cross-‐fertilization
between
hubs
would
also
need
considerable
improvement
through
facilitated
interactions
between
ecosystems.
Finally,
European
corporations
should
be
incentivized
to
play
a
larger
role
in
the
ecosystem’s
evolution
for
knowledge
acquisition
and
innovation
purposes.

Executive
Summary
Startup
Europe
is
a
Digital
Agenda
initiative
championed
by
Commission
Vice
President
Neelie
Kroes
to
promote
web
entrepreneurship
in
Europe.
France
Digitale
was
contracted
in
2013
to
lead
the
investors’
pillar
of
the
Startup
Europe
initiative
called
the
Web
Investors
Forum.
The
work
of
the
Web
Investor’s
Forum
is
focused
on
7
EU
countries:
Germany,
the
United
Kingdom,
Spain,
Italy,
Portugal,
Sweden,
and
France,
with
the
following
objectives:
• Draw
an
overview
of
the
activity
of
the
professional
investment
industry
on
a
pan-‐
European
and
local
level;
• Pinpoint
challenges
faced
by
the
industry
that
slow
down
the
evolution
of
European
funding
landscape
for
funding
and
entrepreneurial
growth;
• Showcase
European
best
practices
in
the
field
of
public
policy
and
industry
support;
• Propose
an
action
plan
to
increase
investment
in
the
European
Internet
and
mobile
tech
startups
and
grow
that
investment
throughout
Europe.
For
the
purpose
of
this
mission,
we
travelled
across
Europe
and
interviewed
over
40
General
Partners
and
business
angels
in
seven
countries,
and
drew
the
following
conclusions.
Main
conclusions
1.
THE
EUROPEAN
EXIT
MARKET
IS
THE
MOST
CRITICAL
ISSUE.
The
exit
environment
in
Europe
is
regarded
by
interviewed
venture
capitalists
(9.5
out
of
10)
as
Europe’s
most
critical
challenge.
Exits
represent
a
liquidity
event
for
investors
or
entrepreneurs
that
allows
them
to
gain
full
or
partial
return
for
their
initial
investment.
There
are
three
different
types
of
exits
in
the
VC
world:
Initial
Public
Offerings
(IPOs)
(listing
the
company
on
public
markets),
trade
sales
(selling
the
company
to
an
acquirer),
and
private
equity
buyouts
or
growth
capital
(selling
the
company
fully
or
partially
to
a
specialist
private
equity
fund).
A
favorable
exit
market
creates
a
positive
feedback
loop
that
supports
a
virtuous
cycle:
→ Exits
allow
entrepreneurs
to
find
liquidity
and
create
new
companies
and/or
invest
as
business
angels
in
new
entrepreneur.
→ They
generate
performance
for
the
venture
capital
industry
and
foster
attractiveness
of
the
asset
class
for
private
institutional
investors.
→ This
leads
to
a
smoother
path
of
capital
inflow
into
VC
funds
and
further
investment
in
startups
in
the
long
run.
→ They
create
success
stories
and
role
models
for
future
entrepreneurs.

However,
in
Europe,
there
is
a
scarcity
of
exit
opportunities
for
two
main
reasons:
First,
trade
sales
almost
always
occur
to
the
benefit
of
a
US
player
as
there
are
almost
no
European
corporate
buyers
and
few
appetites
for
purchases
in
Europe.
The
second
is
that
conditions
for
tech
IPOs
(liquidity,
limited
presence
of
peers,
demand,
pricing)
are
not
favorable.
Specific
focus
on
trade
sales
As
our
ecosystem
is
still
young,
there
is
a
lack
of
key
players
in
the
European
acquisition
market.
For
example,
as
of
April
2013,
the
total
market
value
of
the
7
largest
US
technology
companies
(Apple,
Microsoft,
IBM,
Google,
Facebook,
Amazon,
and
Yahoo)1
was
close
to
USD
1.7
trillion.
Whereas
in
Europe,
the
only
company
competing
in
terms
of
size
is
SAP
with
a
EUR
63
billion
valuation
(as
of
Q2
2014)2.
Moreover,
corporations
from
traditional
industries
struggle
to
innovate
outside
the
boundaries
of
their
own
organization.
Corporate
buyers
are
often
buying
market
shares
instead
of
integrating
companies
for
their
technology
or
talents
when
they
do
make
an
acquisition.
The
result
of
these
unfavorable
conditions
leads
us
to
an
overwhelming
statistic:
large
American
buyers
acquire
9
out
of
10
European
startup
companies.
The
industry
needs
large
European
tech
companies
that
can
compete
with
US
players.
2.
THE
FINANCING
VALUE
CHAIN
IS
UNBALANCED
FROM
A
LOCAL
AND
PAN-‐EUROPEAN
PERSPECTIVE
Southern
Europe
suffers
from
a
lack
of
early
stage
capital
at
the
seed
and
pre-‐seed
level.
Portugal
and
Italy
are
countries
where
entrepreneurs
have
a
hard
time
finding
enough
capital
to
start
developing
their
product.
For
other
countries,
equity
shortage
is
most
troublesome
at
the
later
stages
of
investment,
even
if
there
is
still
further
room
for
early
stage
capital.
Later
stage
funding
demonstrates
a
true
equity
shortage
in
Europe
as
only
four
to
six
venture
capital
firms
are
able
to
fund
these
types
of
deals.
Later
stage
investments
are
essential
when
the
ambition
of
an
entrepreneur
is
to
become
a
global
leader
in
his
or
her
field.
There
is
a
significant
number
of
premature
sell
offs
of
companies
that
are
not
able
to
find
enough
capital
to
finance
their
aggressive
growth.
In
2013
in
Europe,
deals
over
the
USD
10
million
mark
only
accounted
for
9%3
of
overall
deals
with
70
deals
out
of
772
(across
all
1 http://www.statista.com/statistics/216657/market-capitalization-of-us-tech-and-internet-companies/
2 SAP half-year report 2014
3 Clipperton/Digimind data
5

sectors).
For
the
same
year
in
the
US,
later-‐stage
and
expansion
deals
accounted
for
44%4
of
the
total
number
deals,
corresponding
to
1,795
out
of
4,077
(all
sectors
included).
The
consequence
of
this
lack
of
capital
supply
for
later
stage
companies
is
the
formation
of
an
unbreakable
barrier
for
European
startup
companies.
This
barrier
prevents
a
large
number
of
startups
from
maintaining
operations
in
Europe
while
attracting
capital
for
their
international
growth
or
pre-‐exit
financing.
Plainly
stated,
in
Europe
companies
face
difficulties
raising
funds
passed
a
certain
maturity,
and
a
large
number
of
them
either
move
operations
to
the
US
to
seek
late
stage
capital
where
it
is,
or
sell
prematurely.
3.
THERE
IS
NOT
SUFFICIENT
INTERACTION
BETWEEN
TOP
EUROPEAN
TECH
HUBS
The
development
of
a
certain
number
of
tech
hubs
in
Paris,
Berlin,
London,
Stockholm
and
Helsinki
is
improving
the
overall
quality
of
the
deal
flow
for
investors
and
is
contributing
to
develop
the
entrepreneurial/startup
culture.
But
the
competition
between
nations
for
entrepreneurial
supremacy
creates
a
lack
of
cooperation
between
hubs
that
harm
companies
in
expanding
easily
across
different
markets.
As
key
players
in
the
ecosystem,
venture
capitalists
could
play
the
role
of
communicator
across
these
hubs
if
they
invested
more
freely
outside
of
their
local
markets.
However,
we
witnessed
few
players
that
are
truly
able
to
achieve
a
pan-‐European
investment
activity.
This
lack
of
pan-‐
European
players
results
from
the
misalignment
between
the
complexity
and
cost
that
investing
in
a
multitude
of
countries
would
imply.
The
average
size
of
European
funds
does
not
generate
enough
management
fees
to
serve
those
costs.
4.
TAX
&
LEGAL
ENVIRONMENT
NEEDS
TO
BE
IMPROVED
(ADAPTED)
IN
CERTAIN
GEOGRAPHIES
In
certain
parts
of
Europe
like
Spain
and
Italy,
stock
options
and
similar
instruments
are
regarded
as
a
means
for
large
organizations
to
pay
high
compensation
to
their
top
managers
and
are
taxed
accordingly.
However,
this
view
impacts
startups
negatively.
Although
as
mentioned,
stock
option
plans
serve
a
rather
different
and
more
labor-‐friendly
purpose
for
this
ecosystem.
Throughout
Europe,
some
member
states
have
proven
their
ability
to
tackle
stock
options
with
a
positive
thinking
and
favorable
tax
treatment
such
as
in
France
(with
the
Bons
de
Souscription
de
Part
de
Créateur
d’Entreprise5)
or
in
the
United
Kingdom
(through
the
Share
Incentive
Plans
or
Company
Share
Option
Plan6)
4 NVCA 2014 yearbook:
http://www.nvca.org/index.php?option=com_content&view=article&id=257&Itemid=103
5 http://www.apce.com/cid5724/bons-de-souscription-de-parts-de-createur-d-entreprise.
6
html&pid=10324
6 https://www.gov.uk/tax-employee-share-schemes/company-share-option-plan

Unlike
American
venture
capital
funds,
European
VCs
do
not
rely
on
a
solid
base
of
European
private
investors.
Indeed,
for
many
reasons,
venture
capital,
as
an
asset
class,
has
a
poor
reputation
within
the
European
money
management
community.
This
creates
an
ever-‐higher
degree
of
public
funding
in
the
overall
capital
available
for
European
startup
companies.
Moreover,
in
some
regions
like
Spain,
capital
gain
taxes
are
not
favorable
to
the
alignment
of
interests
between
entrepreneurs,
General
Partners
(GPs)
and
Limited
Partners
(LPs),
which
negatively
impacts
the
reputation
of
the
venture
capital
profession.
5.
EUROPEAN
CORPORATIONS
ARE
STILL
FACING
THE
“NOT
INVENTED
HERE”
(NIH)7
SYNDROME
European
corporations
often
struggle
to
understand
the
rationale
behind
acquiring
external
innovation
through
procurement
or
M&A,
and
are
therefore
unable
to
efficiently
integrate
innovative
companies.
In
fact,
European
corporations
from
traditional
industries
do
not
rely
on
a
solid
experience
of
integrating
innovative
startup
companies
for
their
technology,
talents
or
market
at
all.
Even
though
corporate
co-‐working,
or
acceleration
structures
are
booming
in
Europe,
they
are
often
brought
about
as
part
of
a
public
relations
strategy
to
improve
the
company’s
image
rather
than
incorporated
into
a
long-‐term
strategic
vision.
In
the
beginning
of
the
2000s,
corporations
started
a
large
number
of
internal
VC
arms
that
did
not
survive
top
management
turnover
and
the
dot
com
bubble
burst8.
Thus,
European
Corporations
should
think
twice
before
engaging
in
an
effort
to
build
an
in-‐
house
venture
structure,
which
requires
true
engagement
and
expertise.
Another
option
that
is
often
underexplored
by
European
corporations
is
the
“platform”
approach.
The
platform
approach
means
investing
through
an
external
VC
or
acceleration
program.
Currently,
their
involvement
is
marginal,
as
demonstrated
by
the
European
Venture
Capital
Association
(EVCA),
in
2013.
Corporations
accounted
for
around
5%
of
total
funds
raised
by
VCs.
The
“platform”
approach
should
be
defended
in
Europe,
with
external
VC
funds
and
accelerators
acting
as
a
platform
for
corporations
to
gain
knowledge
on
their
disrupted
industries
and
scout
potential
targets.
7 The Not Invented Here syndrome was first introduced by Katz and Allen in 1982 in economics of
innovation and refer to the tendency of organizations to reject externally-developed solutions in favor
of internally-developed ones. The concept has been validated and refered by many economists later
on.
8 http://www.lesechos-etudes.fr/fr/catalogue/etudes/sectorielles/banque-assurance/corporate-venture.
7
html

Recommendations
With
regards
to
the
stated
conclusions
of
the
report,
the
Web
Investors
Forum
has
set
the
following
recommendations
in
a
four-‐step
action
plan
to
further
develop
the
European
venture
capital
landscape
and
allow
for
better
financing
of
European
entrepreneurs.
Policy
1:
Boost
the
European
exit
market
Purpose
The
European
exit
market
is
the
most
challenging
obstacle
faced
by
venture
capitalists
in
Europe.
European
corporations
should
be
incentivized
to
make
more
acquisitions
and
increase
their
willingness
to
innovate
through
external
means.
This
is
a
crucial
point
because
exits
generate
a
huge
amount
of
positive
feedback
within
the
European
startup
ecosystem.
They
allow
entrepreneurs
to
cash-‐in
and
either
become
angels
or
repeat
the
entrepreneurial
process
and
build
new
startups.
Moreover,
they
allow
VCs
to
gain
substantial
success
and
keep
raising
new
funds
towards
private
institutions
and
individuals.
9
out
of
10
European
startups
are
acquired
by
non-‐European
buyers,
among
which
a
large
proportion
comes
from
the
United
States.
8
Examples
(how?)
The
exit
environment
is
a
crucial
part
of
the
startup
ecosystem
and
must
be
supported.
• Incentivize
European
corporations
to
directly
or
indirectly
invest
in
startups
and
acquire
knowledge
through
external
VCs
or
accelerators
by
replicating
and
tweaking
initiatives
such
as
the
French
“Corporate
Venture
Plan9”.
• More
favorable
conditions
for
tech
IPOs
could
be
developed
throughout
Europe
as
a
secondary
target.
The
best
means
would
be
to
create
demand
incentives
(i.e.
tax
efficient
investment
vehicles
dedicated
to
listed
tech
companies).
The
objective
of
improving
the
conditions
for
IPOs
would
be
to
increase
the
number
of
financing
options
for
later
stage
companies,
and
facilitate
alternative
exit
options
for
VCs
and
entrepreneurs.
Time
to
impact
Without
action,
we
estimate
the
time
for
a
virtuous
acquisition
ecosystem
to
build
itself
from
10
years
to
15
years
in
absence
of
major
crisis.
With
high
impact
incentives
programs,
we
estimate
this
period
to
be
radically
shorter,
showing
improvements
within
the
next
5
years
to
8
years.
Comments
and
how
to
implement
This
could
be
implemented
through
dedicated
policy
programs
with
the
initiative
of
the
European
Commission
under
directives
to
unlock
the
European
exit
market
with
huge
positive
impact
potential.
Policy
2:
Reduce
equity
shortage
9 http://www.economie.gouv.fr/corporate-venture-financer-innovation

Purpose
Everywhere
in
Europe,
equity
shortages
appear
at
various
stages
of
a
company’s
lifecycle.
The
pan-‐European
ecosystem
and
more
specifically
developed
industries
from
North
and
Central
Europe
are
witnessing
a
shortage
of
capital
for
companies
that
have
the
potential
of
becoming
large-‐scale
global
leaders.
Very
few
companies
make
it
to
the
EUR
10-‐50
million
funding
landmark
as
only
a
handful
of
European
funds
are
able
to
provide
this
level
of
capital.
The
consequence
of
this
lack
of
capital
for
more
mature
startups
is
an
important
number
of
premature
sell
offs
for
companies
that
could
have
had
the
potential
to
grow
further
before
an
acquisition.
In
Southern
and
Eastern
Europe,
equity
shortages
appears
at
an
earlier
stage,
with
a
low
number
of
funding
rounds
in
the
EUR
1-‐10
million
range.
The
following
recommendations
aim
at
reducing
this
equity
shortage.
9
Examples
(how?)
• Redirect
a
small
proportion
of
European
savings
towards
innovative
companies
financing
through
adjustments
in
Basel
III
and
Solvency
II
regulations
and
tax
efficient
investment
vehicles.
• Support
the
creation
or
expansion
of
public
driven
fund
or
funds
in
Southern
and
Eastern
Europe.
Public
funds
are
not
a
tool
traditionally
employed
by
local
governments.
However,
it
has
been
proven
to
be
an
efficient
means
of
creating
momentum
for
young
industries
or
reestablishing
balance
in
local
financing
chains,
as
was
the
case
in
Barcelona.
• Support
the
creation
of
pan-‐European
later-‐stage
capital
funds
dedicated
to
internet-‐driven
and
software
companies
which
are
crucial
for
creating
global
leaders.
• Empower
smart
business
angels
through
further
support
of
the
European
Investment
Fund
(EIF),
angel
co-‐investment
program
in
terms
of
capital
and
closing
of
agreements
with
local
counterparts.
Smart
business
angels
who
are
capable
of
adding
a
significant
amount
of
non-‐financial
value
to
their
portfolio
companies
should
also
be
empowered.
• Support
the
creation
of
a
small
number
of
later
stage
capital
funds
with
a
pan-‐European
focus.
• Support
the
organization
of
a
large-‐scale
pan-‐European
event
with
strong
involvement
of
top-‐tier
public
representatives
such
as
Vice
President
Neelie
Kroes,
aiming
at
promoting
the
potential
of
internet
and
mobile
tech
companies
to
potential
limited
partners
(pension
funds,
large
corporates,
insurance
companies,
banks,
family
offices,
etc.)
and
connecting
them
with
general
partners.
Time
to
impact
Gradual
raise
in
investments
from
year
1,
up
to
5
years.

10
Comments
and
how
to
implement
For
each
countries,
the
Web
Investors
Forum
could
engage
local
VC
communities
in
order
to
measure
the
local
equity
shortage
and
drive
the
creation
of
either
public
fund
of
funds,
and/or
later
stage
direct
investment
funds.
Smart
business
angels
should
be
empowered
everywhere.
The
European
Commission
could
grant
a
mandate
to
the
EIF
to
invest
with
smart
angels
according
to
the
existing
guidelines
of
their
program
under
trial.
This
mandate
should
come
along
with
support
to
find
local
counterparts
to
the
EIF.
The
Web
Investors
Forum
is
ready
to
help
in
the
primary
identification
of
potential
local
smart
angels.
Later
stage
capital
funds
creation
could
be
supported
by
the
European
Commission
through
dedicated
envelopes
in
addition
of
private
and
other
public
capital
inflow
in
new
funds.
Policy
3:
Strengthen
the
integration
and
coordination
of
European
tech
hubs
through
a
pan-‐European
investment
vehicle
Purpose
Currently
in
Europe,
tax
treatment
and
the
marketability
of
investment
vehicles
are
very
heterogeneous
across
countries.
A
pan-‐European
tax
transparent
investment
vehicle,
marketable
internationally,
would
be
considered
by
the
Venture
Capital
community
as
a
major
achievement.
If
an
effort
were
put
in
to
place
to
create
such
vehicle,
the
Web
Investors
Forum
would
be
ready
to
engage
with
the
entire
community
in
consultations
and
support
of
the
European
Commission
with
expertise
in
the
field.
A
VC
that
invests
internationally
is
always
of
good
value
to
an
entrepreneur.
However,
only
a
very
limited
number
of
investors
work
outside
their
local
environment.
In
order
to
support
coordination
between
ecosystems,
the
European
Commission
should
support
the
creation
of
pan-‐European
GPs
with
enough
critical
mass
to
be
able
to
invest
globally.
Examples
(how?)
Create
simpler,
uniform
tax10
and
legal
environments
between
hubs
through
the
European
Commission’s
dedicated
startup
directives
by
leveling
up
the
frameworks
according
to
European
best
practices
in
terms
of:
• Attractiveness
of
the
VC
profession:
In
southern
and
eastern
countries
where
the
investment
industry
is
still
in
development
and
in
need
of
momentum,
talented
investors
should
be
incentivized
to
gather
into
teams
and
invest
in
startup
companies.
• Alignment
of
interest
between
VCs,
founders,
and
employees
(dedicated
startup
stock
option
plans
and
more
generally
employee-‐ownership
10 http://startupmanifesto.eu/files/manifesto.pdf

11
taxation)
• Attractiveness
of
the
asset
class
for
institutional
and
individual
investors
(tax
incentives
on
investments
in
VC
by
individuals,
corporates,
banks,
insurance
companies,
pension
funds,
etc.)
• Attractiveness
to
invest
in
startups
as
seed
investors:
EIS/SEIS-‐like
programs
Time
to
impact
Gradual
raise
in
investments
from
year
1
up
to
5
years.
Comments
and
how
to
implement
If
these
issues
were
addressed
(and
above
all
for
the
pan-‐European
tax
transparent
investment
vehicle),
the
venture
capital
community
in
Europe
would
consider
it
a
huge
achievement.
The
Web
Investors
Forum
is
ready
to
gather
the
VC
community
to
work
on
consultations
with
the
European
Commission
to
work
on
these
specific
issues
and
deliver
top-‐tier
solutions.
Policy
4:
Grow
public
and
private
involvement
in
the
industry
Purpose
The
interviews
and
workshop
have
demonstrated
a
lack
of
dialogue
between
large
corporations
and
the
startup
world.
A
pathway
to
further
involvement
of
corporations
and
the
public
sector
in
digital
startups
across
Europe.
Corporations
could
be
the
engine
to
power
a
faster
evolution
of
the
European
ecosystem.
Examples
(how?)
• Incentivize
European
Corporates
to
invest
in
external
accelerators,
venture
funds,
or
co-‐working
spaces
in
order
to
foster
platforms
pooling
several
Corporates
rather
than
internal
structures
that
usually
do
not
result
from
long-‐term
Corporate
strategy.
For
example,
this
could
be
done
through
Private
Public
Partnership
such
as
the
High
Tech
Gründerfonds
in
Germany
that
could
be
generalized
to
every
country
and
supported
by
the
European
Commission
or
dedicated
tax
relief
schemes.
• Push
the
“Small
business
act
for
Europe11”
further
by
integrating
procurement
measures
• Work
towards
a
Small
Business
Act-‐like
agreement
between
Corporations
and
startup
representatives
Time
to
impact
5
years
Comments
and
how
Local
replicates
of
the
High
Tech
Gründerfonds
would
also
bring
high
value:
this
could
be
implemented
through
envelopes
of
capital
unlocked
by
the
Commission
11 http://ec.europa.eu/enterprise/policies/sme/small-business-act/index_en.htm

12
to
implement
for
this
purpose
with
selection
of
local
public
counterparts
to
manage
these
envelopes
and
engage
with
local
Corporates
community.
The
Web
Investors
Forum
is
a
strong
supporter
of
the
European
Commission
DG
CNECT’s
attempt
to
implicate
professionals
and
ecosystem-‐stakeholders
in
its
effort
to
create
a
smoother
environment
for
digital
entrepreneurship
on
our
continent.
The
community
is
ready
to
work
closely
with
the
Commission
with
regards
to
above
stated
action
plan
recommendations,
especially
on
matters
requiring
particular
expertise.

13
Table
of
content
Introduction
..................................................................................................................
15
Mapping
the
European
funding
landscape
.................................................................
17
Methodology
.......................................................................................................................................................................
17
2013
Analysis
.....................................................................................................................................................................
18
Venture
capital
funding
per
industry
........................................................................................................................
18
Investments
distribution
in
European
ICT
..............................................................................................................
19
Focus:
Software,
internet-‐driven
and
mobile
tech
companies
.......................................................................
21
Outlook
for
2014
...............................................................................................................................................................
24
Current
status
of
the
European
VC
industry
...............................................................
26
Post-‐interviews
and
workshop
conclusions
..............................................................
27
The
European
Exit
market
is
the
most
critical
issue
.........................................................................................
27
Trade
Sales
............................................................................................................................................................................
27
The
IPO
market
...................................................................................................................................................................
29
Private
equity
.......................................................................................................................................................................
30
An
unbalanced
European
financing
value
chain
.................................................................................................
31
Promoting
Internet
and
mobile
tech
venture
capital
to
LPs
..........................................................................
31
Explanatory
elements
......................................................................................................................................................
33
Present
challenges
.............................................................................................................................................................
36
Difference
between
regions
...........................................................................................................................................
37
Insufficient
coordination
between
European
Tech
Hubs
...............................................................................
40
Tax
&
legal
environment
needs
to
be
improved
(adapted)
in
certain
geographies
............................
41
Between
entrepreneurs
and
employees
...................................................................................................................
41
Between
GPs
and
LPs
........................................................................................................................................................
41
Attractiveness
of
the
asset
class
..................................................................................................................................
42
Action
plan
recommendation
......................................................................................
45
Conclusion
.....................................................................................................................
50

14
Aknowledgement
We
would
like
to
express
our
deepest
gratitude
to
the
following
friends
for
their
involvement
in
our
report:
David
Dana
(European
Investment
Fund),
Isidro
Laso
Ballesteros
and
Bogdan
Ceobanu
(European
Commission),
Stephane
Gantchev
(LAUNCHub),
Jan
Borgstadt
(BDMI),
Jan
Gisbert
Schultze
(Acton
Capital
Partners),
Nicolas
Wittenborn
(Point
Nine
Capital),
Claudio
Giuliano
(Innogest),
Fausto
Boni
and
Cesare
Maifredi
(360
Capital),
Gianluca
Dettori
(dPixel),
Paolo
Gesess
(United
Ventures),
Andrea
Di
Camillo
(P101),
Alberto
Onetti
(Mind
the
Bridge),
José
Da
Franca
(Portugal
Ventures),
Tatjana
Zabasu
(RSG
Capital),
Carles
Ferrer
and
Jordi
Vinas
(Nauta
Capital),
Luis
Cabiedes
(Cabiedes
Partners),
Ricard
Soderberg
(Active
Venture
Partners),
Roque
Velasco
(Inspirit),
Klaus
Hommels
(Lakestar),
Dominique
Vidal
and
Martin
Mignot
(Index),
Haakon
Overli
(Dawn
Capital),
Nenad
Marovac
(DN
Capital),
Sitar
Teli
(Connect
Ventures),
Carlos
Espinal
(Seedcamp),
Nico
Goulet
(Adara),
Martin
Mccourt
(Gemalto),
Simon
Devonshire
(Wyra/Telefonica),
Nicolas
Dufourq
and
Paul-‐François
Fournier
(BPI
France),
Guy
Levin
(Coadec),
Pedro
Rocha
(Beta-‐i),
Marie
Ekeland
(Elaia
Partners),
Philippe
Collombel
(Partech
Ventures),
Guillaume
Dupont
(Cap’Horn
Invest),
Jean-‐
David
Chamboredon
(ISAI),
Nicolas
Celier
(Alven
Capital),
Benoist
Grossman
(Idinvest
Partners),
Melissa
Blaustein
(Allied
for
Startups),
Mathieu
Daix
(France
Digitale),
Willy
Braun
(France
Digitale).

Introduction
Startup
Europe
is
a
Digital
Agenda
initiative
championed
by
Commission
Vice
President
Neelie
Kroes
to
promote
web
entrepreneurship
in
Europe.
The
initiative’s
goal
is
to
strengthen
the
startup
ecosystem
landscape
in
Europe
to
provide
an
environment
that
fosters
the
emergence
of
future
global
leaders.
Startup
Europe
hopes
to
grow
the
business
environment
for
web
and
ICT
entrepreneurs
so
that
their
ideas
and
business
can
be
established,
grow,
and
flourish
in
the
EU.
Startup
Europe
serves
various
objectives.
The
first
objective
is
to
reinforce
the
links
between
people,
business
and
associations
who
build
and
scale
up
the
startup
ecosystem
(e.g.
the
Web
Investors
Forum,
the
Accelerator
Assembly,
the
Crowdfunding
Network).
Its
second
objective
is
to
inspire
entrepreneurs
and
provide
role
models
(e.g.
the
Leaders
Club
and
their
Startup
Manifesto,
the
Startup
Europe
Roadshow.)
Finally,
it
aims
at
celebrating
new
and
innovative
startups
(with
Tech
All
Stars
and
Europioneers),
to
help
them
to
expand
their
business
(Startup
Europe
Partnership,
ACE
Acceleration
Programme),
and
give
them
access
to
funding
under
Horizon
2020.
France
Digitale
was
contracted
in
2013
to
lead
the
investors’
pillar
of
the
Startup
Europe
initiative
(Web
Investors
Forum)
focusing
on
7
countries:
Germany,
the
United
Kingdom,
Spain,
Italy,
Portugal,
Sweden,
and
France,
with
the
following
objectives:
15
- Drawing
an
overview
of
the
activity
of
the
professional
investment
industry
on
a
pan-‐
European
and
local
level
- Pinpointing
challenges
faced
by
the
industry
that
slow
down
the
evolution
of
European
funding
and
the
creation
of
champions
- Showcasing
European
best
practices
in
the
field
of
public
policy
and
support
to
the
industry
- Gathering
the
European
VC
community
around
a
network
France
Digitale
is
a
unique
alliance
of
startups,
professional
investors
and
business
angels
who
aim
to
promote
the
potential
of
the
French
and
European
digital
startup
landscape
and
develop
the
ecosystem
to
foster
the
creation
of
future
global
leaders
on
our
continent.
As
of
June
2014,
the
association
consists
of
400
members
including
successful
French
startups
like
Criteo,
Blabla
Car,
Dailymotion,
Leetchi
and
many
more.
For
the
purpose
of
the
present
report,
we
were
able
to
connect
with
the
European
venture
capital
(VC)
community
thanks
to
the
networks
of
France
Digitale
and
the
European
Investment
Fund.
44
interviews
were
conducted
with
with
VC
partners
in
the
seven
countries
of
focus
pre-‐
determined
by
the
European
Commission:
France,
the
United
Kingdom,
Germany,
Sweden,
Spain,
Italy,
and
Portugal.
The
entire
European
VC
community
was
invited
to
discuss
our
findings
during
an
exclusive
workshop
organized
on
June
11th
in
Paris
at
the
France
Digitale
Day,
which
met
the
highest
quality
standards
in
the
industry.
Nine
countries
were
represented
with
52
investors
and
Corporations
involved
in
the
discussions
and
additional
startup
ecosystem
stakeholders.

The
following
report
aims
at
presenting
an
overview
of
the
venture
capital
activity
throughout
Europe,
and
present
the
conclusions
drawn
based
upon
interviews
and
lessons
learned
from
the
June
11th
workshop
in
Paris.
Additionally,
we
have
prepared
a
set
of
recommendations
for
the
Commission
to
bring
the
European
investment
industry
to
the
next
level
of
maturity
and
boost
investments
in
internet-‐driven
startup
companies.
In
a
final
section
of
the
document,
we
will
give
a
sound
description
of
the
tasks
that
we
have
been
performing
within
our
contract.
16

Mapping
the
European
funding
landscape
Methodology
The
following
analysis
of
the
European
venture
landscape
was
created
with
data
obtained
through
Whogotfunded.com
and
reprocessed
by
Clipperton
Finance.
The
analysis
follows
the
guideline
set
by
the
European
Commission
with
a
focus
on
seven
countries:
France,
United
Kingdom,
Germany,
Sweden,
Italy,
Spain,
and
Portugal.
Leveraging
data
provided
by
WhoGotFunded.com,
the
Digimind
text-‐mining
engine
monitoring
worldwide
funding
activity,
Clipperton
Finance,
analyzes
financing
trends
amongst
European
innovative
companies
on
a
quarterly
basis.
Digimind
is
a
SaaS
intelligence
software
company
based
in
Paris,
Boston
and
Singapore,
providing
advanced
information
management
platforms
and
technologies
that
perform
massive
data
collection,
automatic
intelligence
extraction
and
visualization.
Using
its
unique
web
mining
expertise,
Digimind
developed
WhoGotFunded.com,
the
world’s
most
comprehensive
funding
database,
discovering
over
100
fresh
funding
deals
every
day
in
real
time
all
across
the
world.
Clipperton
is
a
leading
European
corporate
finance
boutique
exclusively
dedicated
to
the
High
Tech
and
Media
industries.
Clipperton
advises
high
growth
companies
on
financial
transactions,
fundraisings,
capital
increases
or
Mergers
and
Acquisitions.
With
teams
based
in
London,
Berlin
and
Paris
and
with
an
extensive
international
reach,
Clipperton
is
a
recognized
leader
in
the
sector.
17

2013
Analysis
In
2013,
the
European
technology
landscape
showed
some
signs
of
recovery
after
several
stagnant
years
following
the
financial
turmoil.
European
tech
companies
attracted
USD
5.3
billion
in
capital
and
completed
a
total
of
1302
deals.
Venture
capital
funding
per
industry
Venture Capital funding in Europe (2013)
Number of deals Amount (in USDm)
IT
Life Sciences
Source:
whogotfunded.com,
Clipperton
Finance,
France
Digitale
Tech
financing
in
Europe
was
driven
by
ICT
companies
(hardware,
software
and
internet-‐
driven)
with
583
rounds
raised
for
USD
3.7
billion.
Number of deals in Europe (2013)
Cleantech Life Sciences IT
Amount invested in Europe (2013)
Cleantech Life Sciences IT
Source:
whogotfunded.com,
Clipperton
Finance,
France
Digitale
18
396
1203
3651
583
136
583
Cleantech
45%
10%
45%
7%
23%
70%

In
2013,
Cleantech
and
IT
both
accounted
for
45%
of
the
deals
completed
in
Europe.
Life
science
companies
represented
10%
of
the
total
number
of
funding
rounds
that
same
year.
On
the
other
hand,
IT
was
the
big
winner,
with
70%
of
the
total
funds
invested
in
startup
companies
in
2013.
Investments
distribution
in
European
ICT
Number of venture backed ICT deals per funding range in
Europe (2013)
Source:
whogotfunded.com,
Clipperton
Finance,
France
Digitale
Most
deals
in
Europe
occur
at
the
seed
and
early
stages
with
262
deals
completed
in
the
USD
500K
to
2
million
range.
Deals
over
USD
50
million
were
rare
in
Europe
in
2013
with
only
10
deals
reported.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Investment range distribution per country in Europe (2013)
Source:
whogotfunded.com,
Clipperton
Finance,
France
Digitale
The
United
Kingdom
represents
a
fair
balance
at
all
stages
and
accounts
for
around
30%
of
the
total
deals
at
all
stages
and
40%
for
all
deals
over
USD
50
million.
19
262
208
63
10
500K - 2m (USD) 2m - 10m (USD) 10m - 50m (USD) >50m (USD)
0%
500K - 2m 2m-10m 10m - 50m >50m
Other
Nordics
Portugal
Spain
Italy
Germany
UK
France

France
on
the
other
hand
is
the
top
European
market
for
early
stage
investments,
with
35%
of
all
European
deals
ranging
from
500K
to
USD
2
million
taking
place
in
the
country,
but
it
is
surpassed
by
other
countries
immediately
after
the
USD
2
million
mark.
The
German
industry
is
driven
by
large
rounds,
demonstrating
a
favorable
later
stage
environment
with
27%
of
European
deals
ranging
from
USD
10
to
50
million
taking
place
in
Germany.
However,
these
results
should
be
taken
with
caution
as
German
early
stage
deals
are
more
rarely
made
public
as
confirmed
by
Digimind’s
CEO
Paul
Vivant.
The
Nordic
region
demonstrates
a
well-‐balanced
availability
of
capital
for
internet-‐driven
startup
companies,
with
around
10%
of
global
European
funding
at
every
stages
and
capital
available
for
large
rounds
(>
USD
50
million).
100
90
80
70
60
50
40
30
20
10
Number of deals per country (2013)
Source:
whogotfunded.com,
Clipperton
Finance,
France
Digitale
In
terms
of
number
of
single
deals,
Europe
is
dominated
by
France
(154
deals)
and
the
United
Kingdom
(148
deals).
However,
both
countries
present
different
capital
distribution
profiles.
In
2013,
France
was
a
market
of
choice
for
early
stage
deals
ranging
from
USD
500K
to
USD
2m
rounds.
Passed
the
2
million
round
size,
the
United
Kingdom
demonstrated
more
intensity
with
80
deals
against
61.
In
terms
of
amounts,
capital
deployed
to
startup
companies
was
almost
two
times
higher
in
the
United
Kingdom
with
USD
715
million
in
2013,
compared
to
USD
415
million
in
France
or
USD
403
million
in
the
Nordic
regions.
20
93
70
24
7
11
5
21
52
58
22
3
7
1
19
9
19 17
0 2 0
6
0
3 1 0 1 0 2
0
France UK Germany Italy Spain Portugal Nordics
Number of deals (500K - 2m) Number of deals (2m-10m) Number of deals (10-50m) Number of deals (>50m)

Focus:
Software,
internet-‐driven
and
mobile
tech
companies
The
following
section
of
our
analysis
focuses
on
deal
activity
for
software,
mobile
tech
and
more
generally,
internet-‐driven
companies.
Country
comparison
for
2013
(software,
internet
and
mobile
tech
companies)
21
Amount
raised
by
startups
(in
USDm)
Number
of
deals
Average
investment
round
Number
of
active
VC
(21pprox.)
1000
800
600
400
200
0
France Germany Spain Nordics UK Portugal Italy
200
150
100
50
0
12
10
8
6
4
2
0
20
15
10
5
0

22
Number
of
business
angels
(source
Eban)
Number
of
deals
(USD
500K
–
2m)
Number
of
deals
(USD
2m-‐10m)
Number
of
deals
(USD
10-‐50m)
Number
of
deals
(>USD
50m)
30000
25000
20000
15000
10000
5000
0
100
75
50
25
0
70
60
50
40
30
20
10
0
20
15
10
5
0
4
3
2
1
0

Country
ranking
per
stage
(number
of
deals
in
2013)
Rank
Early
Stage
(up
USD
10m)
Later
Stage
(over
USD
10
m)
1
France
United
Kingdom
2
United
Kingdom
Germany
3
Germany
Nordics
4
Nordics
France
5
Spain
Spain
6
Italy
Italy
(ex-‐aequo)
7
Portugal
Portugal
(ex-‐aequo)
With
respect
to
results
shown
above,
our
selection
of
countries
could
be
divided
in
two
parts:
southern
countries
(Italy,
Portugal,
Spain)
and
central
and
northern
countries
(France,
the
United
Kingdom,
Germany,
Nordics).
The
north
and
center
demonstrate
a
higher
degree
of
maturity
of
their
ecosystems,
and
the
south
is
still
under
construction
and
building
a
momentum.
The
United
Kingdom
is
the
number
one
market
for
startup
funding,
with
a
well-‐balanced
financing
value
chain
at
all
stages
and
a
high
number
of
both
professional
and
angel
investors.
France,
Germany
and
the
Nordics
(considering
the
size
of
their
captive
market)
come
next.
France
is
a
very
good
market
for
early
stage
startup
financing
but
is
rather
unbalanced
and
has
not
been
able
in
2013
to
attract
as
much
later
stage
capital
as
its
peers.
Germany
on
the
other
hand
is
a
smaller
market
for
startup
funding
but
enjoys
a
greater
supply
of
later
stage
capital
with
17
deals
over
USD
10
million
and
1
deal
over
USD
50
million.
Finally
Nordic
countries
are
acclaimed
by
the
European
investor
community
for
the
quality
of
their
ecosystem.
They
are
able
to
attract
large
investments
as
demonstrated
by
the
top-‐10
deal
ranking
below
where
they
maintain
the
first
and
second
position
with
the
Spotify
and
Supercell
deals.
In
the
group
of
southern
countries,
Spain
presents
the
highest
degree
of
maturity.
With
Softonic
in
2013,
the
country
has
managed
to
attract
international
money
from
Switzerland
through
a
USD
100+
million
growth
round.
Conversely,
Italy
and
Portugal
do
not
enjoy
a
large
investment
industry
like
Spain’s.
This
spread
is
mirrored
in
the
number
of
deals
that
both
countries
showcased
in
2013
that
may
be
explained
by
a
large
number
of
factors
of
which
the
maturity
of
their
home-‐ecosystem
is
an
important
element.
The
following
table
shows
the
Top
10
European
deals
in
2013
in
software,
mobile
tech
and
internet-‐driven
companies.
23

EUROPEAN
TOP
10
DEALS
(2013)
Company
Sector
Country
24
Capital
raised
(in
USD
million)
Main
investors
Spotify
Ltd
Media
and
entertainment
Sweden
250
Technology
Crossover
Venture
Supercell
Media
and
entertainment
Finland
130
Institutional
Venture
Partners,
Index
Ventures,
Atomico
Softonic
Systems,
Software,
curated
web
Spain
109
Partners
Group
Skyscanner
Software
UK
100
Sequoia
Capital
Powa
Technologies
Retail
and
distribution
UK
76
Wellington
Management
Shazam
Media
and
entertainment
UK
53
America
Movil
Onlineprinters
GmbH
Business
products
and
software
Germany
50
Ta
Associates
Numberfour
Ag
Software
Germany
38
Allen&Company,
Index
Ventures,
T-‐Venture
Talend
Analytics
France
38
Bpi
France,
Iris
Capital,
Silver
Lake
Sumeru
Funding
Circle
Financial
services
UK
37
Accel
Partners,
Ribbit
Capital
Source:
whogotfunded.com,
Clipperton
Finance,
France
Digitale
As
demonstrated
above,
large
deals
in
Europe
are
funded
by
non-‐European
venture
capital
institutions:
Technology
Crossover
Ventures
(US),
Institutional
Venture
Partners
(US),
Partners
Group
(CH),
Sequoia
Capital
(US),
America
Movil
(Latam),
Ta
Associates
(US),
Allen
&
Company
(US),
Silver
Lake
Sumeru
(US),
and
Ribbit
Capital
(US).
European
venture
capital
funds
investing
in
top-‐10
deals
in
2013
were:
Index
Ventures
(Europe),
Atomico
(United
Kingdom),
Wellington
(Global),
T-‐Venture
(Germany),
BPI
France
(France),
Iris
Capital
(France)
and
Accel
Partners
(Global).
Outlook
for
2014
According
to
Clipperton
Finance’s
latest
half-‐year
report
for
2014,
Europe
shows
a
strong
momentum
for
Innovation
Financing,
with
a
record
Q2
at
$2
billion
(+29%
vs.
Q2
2013),
driven
by
increased
investment
levels
both
in
later
stage
and
early
stage
deals.
Europe
seems
to
have
finally
recovered
from
difficult
years
post
2007.
Activity
was
strongest
in
the
United
Kingdom,
where
companies
raised
28%
of
the
total
amount
in
the
second
quarter,
followed
by
France
with
19%
and
Germany
with
15%12.
As
of
June
201413:
12 http://blogs.wsj.com/digits/2014/07/28/european-startups-raise-highest-quarterly-vc-financing-since-2001/

25
- Internet
and
New
Media
accounted
for
a
record
46%
of
innovation
financing
in
H1
2014,
up
by
51%
vs.
last
year
- The
United
Kingdom
keeps
leading
the
race:
about
30%
of
invested
capital
in
innovation
goes
to
UK-‐based
companies.
- Confirmed
trend:
US
growth
investors
are
back
in
Europe:
nearly
half
of
deals
>$15m
(47%)
were
led
by
US
investors
Thus,
current
conditions
for
entrepreneurs
are
at
a
peak.
A
growing
number
of
entrepreneurs
in
the
more
mature
hubs
(London,
Paris,
Berlin,
Stockholm,
Helsinki)
manage
to
find
capital
to
finance
the
development
of
their
product
or
their
growth.
But,
some
countries
are
still
developing
their
ecosystem
to
a
more
advanced
level,
in
Spain,
Italy
and
Portugal
but
also
eastern
parts
of
Europe.
Nevertheless,
seven
software
and
internet-‐driven
companies
have
made
it
to
the
USD
50+
million
funding
round
in
2013,
a
figure
that
should
be
higher
in
2014
according
to
Clipperton’s
forecasts.
13 http://www.clipperton.net/clipperton-finance-releases-new-h1-2014-european-innovation-financing-newsletter/

Current
status
of
the
European
VC
industry
The
venture
capital
profession
is
often
misunderstood.
Venture
capitalists,
or
General
Partners
(GPs)
work
on
a
pool
of
money
brought
by
investors
(LPs)
that
might
be
public
(EIF,
local
funds
of
funds,
sovereign
funds,
etc.)
and/or
private
institutions
(individuals,
pension
funds,
banks,
insurers,
corporates,
endowments,
etc.).
This
pool
allows
them
to
invest
in
a
portfolio
of
startup
companies
on
the
local
market
or
internationally
according
to
their
strategy.
Venture
capitalists
not
only
bring
capital
to
finance
the
growth
of
startup
companies
but
above
all
high-‐end
expertise
and
network
that
allow
them
to
really
add
value
to
their
investments.
There
is
no
typical
background
for
a
VC
team,
but
a
reasonable
number
of
them
are
former
entrepreneurs,
strategy
consultants
or
investment
bankers.
The
European
VC
industry
compared
to
the
US
is
still
young
and
consists
in
its
core
of
venture
capitalists
that
survived
the
bubble
burst
of
the
early
2000s
and
kept
on
raising
new
funds.
The
EVCA
estimates
that
63%14
of
VC
managers
disappeared
between
1999
and
2011
due
to
a
challenging
fundraising
environment.
New
venture
capital
teams
are
now
emerging
to
form
the
next
generation
of
European
VCs
and
are
currently
managing
their
first
generation
of
funds.
We
witnessed
a
very
different
situation
between
the
northern
and
central
parts
of
Europe
and
the
south.
Ecosystems
like
Sweden,
France,
the
United
Kingdom,
and
Germany
are
able
to
rely
on
a
fairly
mature
VC
industry
whereas
Spain,
Italy
and
Portugal
are
still
in
a
process
of
building
an
ecosystem
of
their
own
(although
Spain
has
proven
to
be
slightly
more
advanced).
The
following
conclusions
support
the
above
analysis
with
key
insights
obtained
through
interviews
performed
with
44
partners
of
venture
capital
firms
among
the
most
active
in
the
digital
space
in
Europe.
These
interviews
were
conducted
and
validated
by
the
lessons
learned
during
the
workshop
organized
by
the
Web
Investors
Forum
and
France
Digitale
on
June
11th
in
Paris
during
the
France
Digitale
Day.
The
workshop
has
gathered
the
very
best
of
the
European
investment
industry
(VCs
and
business
angels)
for
high-‐end
panel
discussions
(appendix
I)
on
the
future
of
funding
in
Europe.
We
will
present
each
conclusions
supported
by
facts
and
conclude
the
document
with
a
set
of
recommendations
that
have
been
validated
during
the
workshop.
14 Source: EVCA, Earlybird, Turning venture capital data into wisdom, p.16,
http://fr.slideshare.net/earlybirdjason/earlybird-europe-venture-capital-report
26

Post-‐interviews
and
workshop
conclusions
The
European
Exit
market
is
the
most
critical
issue
The
exit
environment
in
Europe
is
regarded
by
interviewed
venture
capitalists
(9.5
out
of
10)
as
the
most
critical
challenge
in
Europe.
Exits
represent
a
liquidity
event
for
investors
or
entrepreneurs
that
allow
them
to
obtain
full
or
partial
returns
for
their
initial
investment.
There
are
three
different
types
of
exits
in
the
VC
world:
IPOs
(listing
the
company),
trade
sales
(selling
the
company
to
an
acquirer),
and
private
equity
buyouts
or
growth
capital
(selling
the
company
fully
or
partially
to
a
specialist
private
equity
fund).
A
favorable
exit
market
creates
a
positive
feedback
loop
that
supports
a
virtuous
27
cycle:
- They
allow
entrepreneurs
to
find
liquidity
and
create
new
companies
and/or
invest
as
business
angels
in
new
entrepreneurs.
Successful
entrepreneurs
usually
tend
to
give
back
to
the
ecosystem
through
personal
investments
in
new
startup
companies.
There
is
a
multiplier
effect
to
success
in
the
digital
world.
- Exits
generate
performance
for
the
venture
capital
industry
and
foster
attractiveness
of
the
asset
class
for
private
institutional
investors.
- Exits
create
success
stories
and
role
models
for
future
generations
of
entrepreneurs.
Trade
Sales
The
European
ecosystem
is
still
young
and
lacks
sizeable
tech
companies
that
generate
enough
margins
to
acquire
startups
at
decent
multiples
and
valuations,
even
if
some
examples
exist
such
as
Axel
Springer,
Schibsted,
Telefonica,
or
Dassault
Systems.
As
a
result,
it
is
difficult
to
compare
the
US
and
European
ecosystems
as
they
operate
with
very
different
degrees
of
maturity.
The
US
has
an
ecosystem
of
entrepreneurs,
funders,
and
buyers
that
is
mature
and
well
balanced.
Large
tech
companies
like
Google,
Facebook
and
others
acquire
startup
companies
and
allow
entrepreneurs
to
become
angels
and
invest
in
new
companies
and/or
build
a
new
company.
For
example,
as
of
April
2013,
the
total
market
value
of
the
7
largest
US
technology
companies
(Apple,
Microsoft,
IBM,
Google,
Facebook,
Amazon,
and
Yahoo)15
was
close
to
USD
1.7
trillion.
Whereas
in
Europe,
the
only
company
competing
in
terms
of
size
is
SAP
with
a
EUR
63
billion
valuation
(as
of
Q2
2014)16,
still
very
far
from
the
huge
acquisitive
potential
of
American
companies.
Europe
is
still
a
young
ecosystem
and
does
not
yet
benefit
from
large-‐scale
listed
digital
born
acquirers.
Some
smaller
corporations
have
begun
to
spring
up,
such
as
Criteo
or
King,
but
the
landscape
still
has
to
blossom.
Very
few
media
companies
in
Europe
have
proven
capable
of
buying
and
successfully
integrating
startup
companies
such
as
Schibsted,
Axel
Springer,
Hubert
Burda,
and
others.
However,
as
stated
by
the
entire
community
of
European
VCs,
at
present,
15 http://www.statista.com/statistics/216657/market-capitalization-of-us-tech-and-internet-companies/
16 SAP half-year report 2014

potential
acquirers
are
almost
always
in
the
US,
and
most
of
them
turn
directly
to
the
US
for
their
acquisition
searches.
Traditional
industry
players
in
Europe,
but
also
in
the
US
face
more
difficulties
in
successfully
integrating
startup
companies,
as
they
were
not
born
digital.
According
to
Schbisted
Growth’s
Managing
Director
Marc
Brandsma
“60%
of
post-‐merger
integrations
are
going
to
be
failures”.
It
is
thus
challenging
for
traditional
players
to
efficiently
acquire
startup
companies.
However,
90%
of
interviewed
VCs
believe
that
European
corporations
could
do
better.
Even
if
post-‐merger
integration
can
be
challenging,
European
corporations,
with
the
exception
of
a
handful
of
companies,
are
subject
to
the
“Not
Invented
Here”
syndrome,
and
might
see
their
industry
disrupted
by
newcomers
if
they
do
not
begin
an
effort
to
integrate
external
innovation.
As
a
result
of
this
situation,
9
out
of
10
startup
companies
financed
by
VCs
are
sold
to
foreign
acquirers
(US
and
Asia)
according
to
interviews.
Corporate
Venturing
A
smart
approach
to
allow
corporations
to
operate
more
efficiently
in
the
realm
of
venture
capital
can
be
led
by
either
dedicated
in-‐house
teams
of
investment
professionals
or
corporate
investments
in
external
venture
capital
funds.
Corporations
that
currently
account
for
only
6.5%17
of
investment
into
the
digital
startup
industry
could
take
further
interest
for
multiple
reasons:
early
targeting
of
potential
acquisition,
knowledge
acquisition
on
new
digital
trends
and
technologies,
and
pure
financial
objectives.
As
mentioned
by
interviewed
Corporate
Venture
funds,
there
are
huge
opportunities
for
Corporates
to
invest
in
a
pure
financial
and
knowledge
transfer
purpose.
However,
if
done
for
strategic
purpose,
in-‐house
strategic
corporate
venturing
initiatives
are
more
challenging
to
operate
as
they
run
under
conflicting
interest
between
Corporates
and
entrepreneurs.
Through
strategic
corporate
venture,
Corporates
are
looking
to
find
interesting
technologies
and
services
to
buy
at
the
lowest
possible
price.
On
the
other
hand,
an
entrepreneur
is
looking
for
a
partner
for
growth
and
to
sell
to
the
highest
bidder.
Even
if
there
are
some
successes
in
the
Corporate
Venture
space,
it
is
still
too
early
to
be
able
to
determine
whether
the
model
is
adapted.
Therefore,
our
interviews
have
shown
that
it
is
preferable
for
the
industry
that
Corporates
invest
in
external
venture
capital
funds
and/or
acceleration
programs
that
would
act
as
“platforms”
for
knowledge
acquisition
and
early
partnerships/m&a
scouting
to
a
multitude
of
Corporates,
thus
minimizing
the
above
mentioned
potential
conflict18.
28
It
would
be
beneficial
for
Corporates,
as
they
would
be
able
to
get
their
eyes
on
cutting-‐edge
disruptive
technologies,
as
well
as
for
the
whole
startup
industry,
which
would
beneficiate
from
increased
amounts
of
capital
inflows
from
a
segment
(Corporates)
that
has
been
shy
for
the
last
couple
of
years.
17 EVCA Yearbook 2013
18 As an illustration, French Groups Orange and Publicis have pooled their resources to invest in a
fund managed by Iris Capital : http://www.iriscapital.com/fr/content/france-telecom-orange-and-publicis-
group-partner-iris-capital-management-create-leadind

Even
if
corporate
venture,
co-‐working,
or
acceleration
structures
are
booming
in
Europe,
they
often
come
as
a
result
of
a
communications
strategies
and
not
from
a
long-‐term
strategic
vision
as
mentioned
by
one
of
the
Corporate
VCs
interviewed
during
the
workshop
panels.
In
the
beginning
of
the
2000s
Corporates
have
started
a
large
number
of
internal
VC
arms
that
did
not
survived
top
management
turnover
and
the
bubble
burst19.
European
Corporates
should
think
twice
before
engaging
in
an
effort
to
build
an
in-‐house
venture
structure.
However,
corporations’
involvement
in
external
accelerators
and
venture
funds
is
marginal.
Therefore,
the
“platform”
approach
should
be
defended
in
Europe,
with
external
VC
funds
and
accelerators
acting
as
platforms
to
Corporates
that
are
willing
to
acquire
knowledge
and
scout
potential
targets
or
partner.
The
case
of
the
German
High-‐Tech
Gründerfonds
The
High-‐Tech
Gründerfonds
(HTGF)20
is
a
venture
capital
firm
focusing
on
early
stage
and
seed
investments
established
in
2005
to
finance
young
technology
companies.
The
Gründerfonds
is
a
public-‐private
partnership
between
the
German
Federation
and
corporations
with
investors
such
as
the
Federal
Ministry
of
Economics
or
Bosch,
Bayer,
KFW
banking
group,
RWE,
SAP,
BASF,
DAIMLER,
or
Metro
Group
(and
more).
This
public
initiative
has
allowed
corporations
to
take
part
in
financing
innovation
and
gain
knowledge
out
of
their
investments.
The
second
generation
of
fund
was
closed
at
a
EUR
304
million.
HTG
is
not
only
innovative
in
its
structure
but
also
invests
at
the
seed
level
according
to
interesting
terms.
The
firm
“provides
up
to
EUR
500
K
in
the
form
of
a
subordinated
convertible
loan
and
acquires
a
15%
nominal
share”.
Additionally,
“interests
on
the
loan
are
deferred
for
4
years
to
preserve
the
company’s
liquidity”21.
In
their
first
5
years
of
existence,
HTGF
invested
in
250
companies.
As
a
professional
investor,
HTGF
not
only
provides
capital,
but
also
strategic
expertise
and
networks
to
their
companies.
This
initiative
has
been
instrumental
in
building
up
a
momentum
for
the
German
ecosystem
in
2005
and
further
on,
and
growing
awareness
of
German
industrial
investors
of
the
coming
digital
revolution.
The
IPO
market
With
regards
to
interviews
and
the
discussions
at
the
Paris
workshop,
listing
a
company
remains
a
very
rare
option.
Moreover,
the
venture
capital
community
is
quite
divided
on
the
subject,
and
19 http://www.lesechos-etudes.fr/fr/catalogue/etudes/sectorielles/banque-assurance/corporate-venture.
29
html
20 http://www.en.high-tech-gruenderfonds.de/
21 http://www.en.high-tech-gruenderfonds.de/financing/financingterms/

a
large
majority
would
recommend
boosting
the
trade
sales
before
creating
a
good
IPO
environment
in
Europe.
80%
of
interviewees
consider
the
European
IPO
market
as
currently
not
favorable
for
technology
companies
as
there
is
no
liquidity
provided
by
demand,
and
very
few
peers
listed
on
European
markets
(especially
for
those
companies
relying
on
deep
technology).
The
first
market
of
choice
for
an
IPO
is
usually
the
US
as
demand
is
higher
and
peers
more
numerous.
However,
IPOs
in
the
US
are
suited
for
a
very
limited
number
of
companies,
as
they
have
to
be
able
to
showcase
certain
minimum
value
criteria
(large
companies)
as
well
as
a
strong
operation
in
the
US.
Eric
Forest,
CEO
of
Enternext,
one
of
the
premier
European
listing
market
for
SMEs
emphasizes
the
fact
that
the
European
demand
side
is
currently
thirsty
for
new
equity
stories.
Even
if
for
the
moment,
they
do
not
always
understand
digital
and
deep
technology
business
model,
investors
are
looking
for
new
kind
of
companies
to
invest
in.
Forest
mentions
that
as
at
June
2014,
10
companies
had
listed
themselves
since
the
beginning
of
the
year
with
a
total
of
EUR
1.7
billion
raised:
eDreams
Odigeo,
Just
Eat,
Bravofly
Rumbo
Group,
Awox,
Visiativ,
Anevia,
ao.com,
Expert
System,
Triboo,
and
Rosslyn
Analytics.
It
should
also
be
noted
that
over
the
last
10
years,
only
7
European
tech
companies
went
public
in
the
US,
showing
signs
of
high
barriers
to
entry
in
this
market
in
terms
of
valuation
and
other
criteria.
Nonetheless,
the
public
market
is
an
important
part
in
the
evolution
of
an
ecosystem
in
terms
of
later
stage
financing
or
exit
options.
It
also
provides
the
opportunity
for
future
global
leaders
to
be
able
to
remain
independent
and
one
day
become
the
large
tech
acquirers
that
Europe
lacks
today.
Private
equity
The
European
private
equity
landscape
is
currently
picking
up,
with
a
large
number
of
US
based
funds
now
targeting
European
companies,
and
offering
liquidity
options
for
founders
and
VCs.
There
are
however
very
few
European-‐native
private
equity
funds
regarding
tech
as
a
potential
sector.
30

An
unbalanced
European
financing
value
chain
According
to
the
EVCA22,
the
number
of
active
European
venture
capital
managers
between
1999
and
2011
has
decreased
by
63%.
This
diminution
in
number
was
accompanied
by
diminution
in
capital
inflow
leading
to
the
current
situation
in
Europe.
According
to
Earlybird’s
estimates23,
Europe
has
today
the
highest
unbalance
in
venture
capital
availability
on
the
planet.
VCs
do
not
only
invest
their
personal
wealth,
but
largely
depend
on
capital
inflows
from
third-‐
party
institutions
commonly
named
Limited
Partners
(LPs)
in
the
industry.
LPs
usually
consist
of
public
funds,
insurance
companies,
endowments,
banks,
high
net
worth
individuals,
and
pension
funds.
Without
LPs,
there
are
no
VCs.
And
without
VCs,
startup
companies
would
have
difficulty
finding
the
right
resources
for
their
growth.
Startups
are
high-‐growth
companies
with
long-‐term
needs
for
financing.
Most
of
these
companies’
cycle
prevent
them
from
having
access
to
debt
funding
through
banks
or
even
venture
debt
funds,
which
finance
very
specific
types
of
companies.
Capital
is
the
only
source
of
financing
that
is
patient
enough
and
that
comes
with
non-‐financial
expertise
and
network
that
allows
the
handling
of
hyper-‐growth
companies.
Promoting
Internet
and
mobile
tech
venture
capital
to
LPs
Capital
invested
by
VCs
is
dependent
upon
the
ability
of
VC
managers
to
collect
funds
from
their
underlying
investors:
Limited
Partners
(LPs).
A
very
challenging
LP
environment
has
been
outlined
by
90%
of
interviewed
VCs.
This
is
one
of
the
main
challenges
faced
by
most
venture
capitalists
nowadays,
and
venture
capital
as
an
asset
class
needs
to
be
promoted
towards
money
managers
in
terms
of
performance,
future
potential
and
positive
social
welfare
creation.
LPs
are
large
money
managers
such
as
banks,
pension
funds,
insurance
companies
and
corporations,
which
allocate
a
small
part
of
their
assets
to
specialist
ICT
venture
capitalists.
An
additional
layer
of
LPs
consists
of
publics
or
semi-‐public
institutions
such
as
the
European
Investment
Fund
or
local
sovereign
funds.
In
the
last
years,
the
financial
turmoil,
as
well
as
strong
prudential
regulation
on
banks
and
insurers
(namely
Basel
III
and
Solvency
II)
have
led
to
a
melting
in
private
LPs’
appetite
for
the
VC
asset
class,
collateral
to
a
decrease
in
capital
invested
in
the
internet
and
mobile
tech
space.
22
http://fr.slideshare.net/earlybirdjason/earlybird-‐europe-‐venture-‐capital-‐report
23
http://fr.slideshare.net/earlybirdjason/earlybird-‐europe-‐venture-‐capital-‐report
31

The weight of public funding in European Venture Capital
40%
35%
30%
25%
20%
15%
10%
5%
9,0
8,0
7,0
6,0
5,0
4,0
3,0
2,0
1,0
Source:
EVCA
yearbook
2013
Today,
public
capital
accounts
for
over
35%
of
global
fund
closings
in
Europe,
almost
3.5
times
the
same
weight
in
2007,
a
figure
that
according
to
our
interviews
around
Europe
is
more
likely
to
be
around
40%.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
European LP structure
Source:
EVCA
Yearbook
2013
(unclassified
excluded)
100%
of
interviewed
VCs
consider
that
the
quality
of
their
local
or
pan-‐European
deal
flow
is
sufficient
to
manage
more
capital
following
their
strategy,
but
there
is
a
strong
reluctance
of
large-‐scale
European
money
managers
to
allocate
to
this
asset
class.
32
0%
0,0
2007 2008 2009 2010 2011 2012 2013
Public (in EUR billion)
Private (in EUR billion)
Public funding/Total fundraising
0%
2007 2008 2009 2010 2011 2012 2013
Sovereign wealth funds
Private individuals
Pension funds
Other asset managers (including PE
houses other than fund of funds)
Insurance companies
Government agencies
Fund of funds
Family offices
Endowments and foundations
Corporate investors
Capital markets
Banks
Academic institutions

Explanatory
elements
Although
public
funding
has
increased
over
the
years,
the
boom
in
the
public
restraint
of
industry
capital
is
likely
due
to
an
important
decrease
in
private
money
inflow
since
2007
and
before.
Basel
III
and
Solvency
II
The
Basel
III
regulation
is
a
series
of
initiatives
taken
to
reinforce
the
financial
system
following
the
turmoil
of
2007,
agreed
by
the
Financial
Stability
Board
and
the
G20.
The
objective
is
to
guarantee
a
minimum
level
of
equity
in
order
to
ensure
the
financial
solidity
of
banks.
Among
other
things,
this
regulation
has
led
to
a
number
of
prudential
ratios
in
relation
to
the
liquidity
risk
of
investments
made
by
banks.
As
non-‐liquid
asset,
private
equity
was
strongly
impacted
by
this
regulation,
as
it
consumes
a
strong
amount
of
the
liquidity
risk
ratio
envelope
of
banks.
This
directly
impacts
the
economy
and
financing
capacity
of
European
SMEs,
as
capital
starts
to
become
more
scarce
due
to
the
current
decrease
of
debt
financing
capacity.
According
to
the
International
Institute
of
Finance,
the
Basel
III
requirements
will
generate
an
overall
negative
impact
on
the
Eurozone’s
GDP
of
0.5%
per
annum
between
2011
and
2015,
a
cumulated
4.5%
according
to
their
predictions24.
As
a
result
of
Basel
III,
a
number
of
banks
disengaged
from
private
equity
holdings
such
as
Barclays
and
Crédit
Agricole.
This
observation
is
identical
for
European
insurers
under
the
Solvency
II
regulation
who
are
constrained
to
disengage
from
private
equity
such
as
Axa,
the
top
insurer
in
Europe
as
well
as
the
largest
private
equity
investor
prior
to
the
spin-‐off
of
its
branch.
As
a
result,
according
to
the
EVCA
in
2013,
Private
individuals
and
family
offices
amounted
for
20%
of
total
new
money
inflow
whereas
banks
and
insurance
companies
cumulatively
accounted
for
only
5.4%.
Although
these
regulations
are
considered
by
40%
of
interviewees
to
be
one
of
the
reasons
for
an
increasingly
challenging
fundraising
situation
in
Europe,
the
entire
European
community
seems
to
think
that
the
problem
lies
elsewhere.
Potential
explanations
may
be
the
asset
class’s
size,
reputation
and
global
awareness
of
Internet
and
mobile
tech
startup
companies’
growth
or
welfare
potential.
Performance
of
European
VCs
Even
if
constraints
are
high
for
the
entire
private
equity
industry,
the
risk/return
profile
of
the
VC
asset
class
is
reputed
as
not
worthy
by
European
institutional
investors.
Indeed,
returns
of
ICT
VC
funds
in
Europe
are
highly
unequal,
according
to
country,
and
even
on
local
markets.
As
venture
capital
funds’
performance
are
poorly
disclosed,
we
witness
a
very
low
visibility
of
high
performing
venture
capital
institutions.
These
institutions’
high
quality
startup
selection
and
support,
should
be
better
promoted.
24
http://www.iisd.org/sites/default/files/pdf/2012/basell3.pdf
33

The
US
industry
seems
to
suffer
less
from
such
bad
reputation.
However,
key
facts
and
information
should
to
be
highlighted
in
order
to
demonstrate
the
difference
between
the
investment
landscape
in
Europe
and
the
US.
The
bad
reputation
of
European
VCs
within
the
LP
community
is
partly
linked
to
lack
of
awareness
and
the
scarcity
of
available
data
on
the
industry’s
performance.
On
average,
the
performance
of
Europe-‐based
funds
are
equivalent
to
that
of
the
US.
34
A
small
percentage
of
US
investors
(actually
drives
up
the
statistics
to
the
benefit
of
the
whole
American
industry.
In
Europe,
statistics
also
include
VC
managers
who
were
not
able
to
raise
new
funds
following
the
bubble
burst
from
(2003-‐2006)
and
went
out
of
the
market
(probably
30%
to
40%
according
to
the
EVCA),
with
a
highly
negative
impact
on
the
performance
of
their
portfolio
constructed
between
1999
and
2003.
This
phenomenon
has
had
less
of
an
impact
on
North
American
statistics
and
so
the
comparison
between
the
US
and
Europe
should
be
regarded
with
much
care.
The
European
VC
performance
indicators
should
include
VCs
that
managed
to
continuously
raise
new
funds
over
the
years.
The
European
market
would
benefit
from
a
reliable
benchmark
with
carefully
selected
VC
managers.
One
of
the
few
European
institutions
to
concentrate
a
sufficient
amount
of
top-‐quality
data
would
be
the
European
Investment
Fund
(EIF).
As
the
largest
European
LP,
and
the
most
supportive
pan-‐European
institution,
the
EIF
has
been
investing
in
venture
capital
long
enough
to
build
efficient
consolidated
performance
statistics
for
the
European
industry.
The
EIF
has
recently
engaged
in
an
effort
to
build
an
index
that
should
be
supported
by
the
European
Commission.
Awareness
of
LPs
Money
managers
(LPs)
tend
to
invest
in
what
they
understand.
Today,
Internet
and
mobile
tech
business
models
seem
to
be
very
blurry
for
institutional
investors
in
comparison
to
their
high
quality
understanding
of
traditional
markets.
Institutional
investors
delegate
most
of
the
management
of
their
assets
to
third
party
asset
management
institutions,
but
usually
define
a
top-‐down
strategic
allocation
by
asset
class.
Considering
Europe’s
ambition
for
our
future
digital
competitiveness,
capital
has
to
reconcile
with
the
internet-‐driven
avant-‐garde.

The
case
of
US
pension
funds
CalPERS
is
an
American
pension
fund
managing
a
USD
260
billion
budget
for
public
employees’
retirement
in
California.
Listed
below
is
CalPERS’
current
asset
allocation
mix
by
market
value
and
policy
target
percentages
as
of
May
29,
201425.
35
Source:
CalPERS
2014
As
stated
by
CalPERS
its
target
allocation
to
private
equity
now
amounts
to
12%.
Previously
in
2012,
CalPERS
allocation
was
7%
of
its
allocation
to
private
equity.
With
a
budget
of
USD
290
billion
under
management,
CalPERS’
sole
commitments
to
venture
capital
was
equivalent
to
67%
of
the
capital
deployed
on
European
startups
in
2013.
CalPERS
recently
stated
that
they
plan
to
shrink
that
allocation
to
1%
of
the
private
equity
assets26,
still
at
a
high
level
of
USD
390
million
that
finds
no
equivalent
in
Europe,
except
from
public
institutions.
According
to
the
US
pension
fund’s
statement
the
venture
capital
industry
is
“too
small
to
absorb
a
larger
percentage
of
money
from
an
investor
the
size
of
CalPERS”.
A
statement
that
finds
an
echo
in
Europe.
Critical
mass
and
the
size
of
European
funds
Institutional
investors
invest
according
to
hard
guidelines
in
terms
of
minimal
investment
size
in
a
fund
and
maximum
control
ratio27
over
a
fund.
The
level
of
these
metrics
may
vary
from
an
25
http://www.calpers.ca.gov/eip-‐docs/investments/policies/asset-‐allocation/asset-‐alloc-‐strgy.pdf
26
http://www.calpers.ca.gov/eip-‐docs/investments/policies/asset-‐allocation/asset-‐alloc-‐strgy.pdf
27
Control
ratio
:
investment
of
a
single
investor/total
size
of
the
fund

institutional
investor
to
another
but
typically
most
European
venture
capital
funds
are
too
small
in
size
to
be
able
to
receive
institutional
money.
During
our
interviews,
we
have
witnessed
a
very
diverse
situation
between
countries
in
terms
of
average
size
of
funds.
Country
Average
fund
size
(in
EUR
million)
France
90
United
Kingdom
165
Germany
150
Sweden
185
Spain
68
Italy
40
Portugal
40
As
at
March
2014:
estimates
from
qualitative
interviews
Three
countries
with
developed
industries
have
an
average
fund
size
passed
the
EUR
100
million
mark
(United
Kingdom,
Germany,
and
Sweden).
France
is
the
only
country
in
the
group
of
4
to
be
under
that
mark
and
seems
to
display
a
rather
fragmented
venture
capital
industry
with
a
large
number
of
funds
managing
less
capital
than
in
the
other
core
countries.
Positive
externalities
Not
only
do
successful
startup
companies
generate
shareholder
value,
but
they
also
create
social
welfare
as
presented
in
France
through
the
France
Digitale
barometer28:
with
+22%
of
job
creation
in
2013
and
91%
of
permanent
contracts
and
32
years
old
of
average
employee
age.
As
demonstrated
by
Prf.
Enrico
Moretti
(2013)29,
Professor
at
Stanford,
for
one
tech
job
created
in
a
hub,
five
additional
jobs
are
created
outside
high-‐tech
in
the
same
city.
36
“A
tech
job
is
much
more
than
a
job”,
it
has
a
large-‐scale
multiplier
effect.
“Take
Apple,
for
instance.
It
employs
13,000
workers
in
Cupertino,
but
it
generates
almost
70,000
additional
service
jobs
in
the
region.
This
means
that,
remarkably,
Apple’s
main
effect
is
not
among
high
tech
workers.
It
is
outside
high
tech”.
LPs
like
insurance
companies
and
pension
funds
work
on
a
pool
of
capital
brought
together
by
the
labor
force.
Without
a
doubt,
this
particular
effect
on
innovative
industries
on
employment
is
representative
of
a
strong
long-‐term
alignment
of
interest
between
LPs
and
VCs
that
could
be
promoted
by
the
Commission.
Present
challenges
It
should
be
noted
that
due
to
the
challenging
fundraising
(LPs)
situation
in
Europe,
the
VC
profession
faces
great
concentration
that
may
coincide
with
a
shortage
of
available
capital
for
startup
companies
and
Europe’s
innovative
potential.
28 http://fr.slideshare.net/FranceDigitale
29 Moretti,
E.,
2013.
The
New
Geography
of
Jobs,
Reprint
edition.
ed.
Mariner
Books,
Boston,
Mass.

Venture
capitalists
have
developed
unparalleled
knowledge
and
expertise
in
web
businesses
and
investing
which
must
be
highly
valued.
The
right
investments
consist
of
capital
and
expertise:
capital
alone
will
not
lead
to
a
generation
of
value
for
companies
and
competitiveness
for
Europe.
A
concentration
of
the
venture
capital
industry
would
mechanically
lead
to
fewer
investments
made,
if
it
is
not
supported
with
growth
of
private
capital
inflow.
In
order
to
do
so,
European
savings
should
nurture
the
venture
capital
industry:
even
an
insignificant
portion
would
make
a
great
difference.
Household
savings
are
higher
in
Europe
than
in
the
US,
and
this
sleeping
capital
if
directed
the
right
way,
could
help
Europe
build
on
its
competitiveness
in
the
digital
field.
Difference
between
regions
Southern
and
Eastern
Europe:
a
need
for
momentum
creation
The
south
and
east
of
Europe
suffer
from
a
lack
of
capital
on
a
very
early
part
of
the
value
chain
at
the
seed
and
pre-‐seed
levels
(any
investment
ranging
between
100K
and
1m
euros).
Portugal
and
Italy
are
countries
where
entrepreneurs
have
a
hard
time
finding
enough
capital
to
start
developing
their
product
even
in
the
early
stage.
.
Core
countries:
still
more
to
go
For
other
countries
(core)
where
the
industry
is
further
developed,
equity
shortage
starts
to
be
felt
from
series
A
to
B
and
above
all
at
the
later
stages.
Supporting
seed
investments:
how
the
European
Investment
Fund
empowers
business
angels
The
EIF
has
launched
a
pilot
project
in
Germany
which
has
then
been
replicated
in
Spain
and
Austria
that
aims
at
co-‐investing
with
a
small
number
of
carefully
selected
top-‐tier
business
angels.
The
EIF
considers
working
with
angel
networks
and
association
to
be
more
difficult
within
the
frame
of
this
program
and
has
decided
to
focus
on
individuals
who
can
prove
their
ability
to
add
true
value
to
their
portfolio
companies.
Business
angels
go
through
a
due
diligence
process
led
by
the
EIF,
and
once
granted
the
green
light
in
terms
of
expertise
and
investment
capacity,
the
EIF
allocates
to
the
“super-‐angel”
a
pocket
of
capital
ranging
from
EUR
250
K
to
EUR
5
million
on
a
1
for
1
matching
basis.
If
an
angel
invests
1
euro
on
a
company,
the
EIF
will
invest
1
euro
in
the
same
company
with
the
same
terms,
thus
giving
to
the
angel
a
higher
investment
capacity
and
more
capital
to
the
entrepreneur
in
order
to
prove
his/her
point.
This
program
does
not
pay
any
management
fee
to
the
selected
angel,
but
if
the
investment
is
successful,
the
business
angel
earns
a
carried
interest
on
a
deal
by
deal
basis
in
order
to
incentivize
performance.
This
program
has
been
acclaimed
by
the
investment
community
and
could
be
replicated
in
more
member
states.
However,
in
order
to
grow
its
program
the
EIF
needs
the
support
of
local
37

counterparts,
which
has
slowed
down
the
expansion
process.
A
pan-‐European
equity
shortage:
creating
global
leaders
Later
stage
funding
demonstrates
a
true
equity
shortage
in
Europe
as
only
4
to
6
funds
are
able
to
support
these
types
of
deals
in
the
digital
space.
Later
stage
financing
rounds
are
essential
when
the
ambition
of
a
founding
team
is
to
become
a
global
leader
in
their
field.
The
consequence
of
this
lack
of
capital
for
more
mature
startups
is
an
important
number
of
premature
sell
offs
for
companies
that
could
have
the
potential
to
continue
to
grow
independently.
All
over
Europe,
public
fund
of
funds
have
proven
themselves
to
be
instrumental
in
providing
the
right
amount
of
capital
to
develop
a
local
or
pan-‐European
VC
industry
under
great
economic
pressure.
It
is
a
policy
tool
that
is
essential
to
consider
at
when
it
comes
to
creating
a
good
funding
environment
for
startup
companies,
especially
in
less
developed
regions
like
Southern
and
Eastern
Europe.
Local
public
fund
of
funds
and
direct
co-‐investments:
the
case
of
Bpi
France
Bpi
France
is
the
French
Public
Investment
Bank
designed
to
bring
finance
solutions
to
companies
from
the
seed
level
to
maturity.
Bpi
France
has
developed
a
large-‐scale
program
spanning
the
entire
financing
lifecycle
of
innovative
SMEs
through
15
dedicated
fund
of
funds
designed
to
boost
the
French
investment
activity
in
venture
capital
and
more.
As
an
example,
the
Fonds
National
d’Amroçage
(FNA)
is
now
endowed
EUR
600
million
to
invest
in
20
to
30
funds
dedicated
to
seed
investments
in
innovative
companies.
The
intervention
regime
was
validated
by
the
European
Commission
in
2011,
and
has
served
a
crucial
purpose:
bringing
a
solution
to
equity
shortage
at
the
seed
level
that
France
was
witnessing
at
the
time.
Funds
are
allocated
directly
by
Bpi
France
and
its
specialist
teams
to
venture
capital
teams
that
can
prove
able
to
bring
value
to
their
companies.
As
of
March
2014,
the
FNA
has
invested
EUR
308
million
in
16
funds
and
has
further
investment
capabilities.
In
2013,
Bpi
France
identified
the
lack
of
financing
for
later
stage
companies
and
created
in
January
2014,
a
large
venture
fund.
With
EUR
500
million
in
management,
Bpi
France
now
co-‐
invests
directly
in
funding
rounds
starting
from
EUR
10
million
on
companies
seeking
large
amounts
of
capital
to
finance
their
growth
and
expansion.
As
of
June
2014,
Large
Venture
has
invested
in
13
companies
in
the
ICT,
medtech
and
cleantech
fields.
This
case
is
not
isolated
in
Europe.
But
this
type
of
public
initiative
and
best
practice
is
not
generalized
to
every
country.
It
should
be
repeated
at
the
local
level
wherever
possible,
especially
in
those
countries
with
a
newly
developing
ecosystem
(Southern
and
Eastern
Europe).
At
the
local
level,
other
public
initiatives
could
be
pinpointed
such
as
Portugal
Ventures
(direct
investments
in
Portugal)
or
the
High-‐Tech
Gründerfonds
(public/private
direct
investments
in
Germany).
38

On
the
pan-‐European
level,
the
EIF
is
the
main
player
in
providing
public
capital
to
VC
funds
and
helping
them
raise
additional
capital.
The
EIF
has
been
instrumental
in
supporting
the
industry
for
over
the
past
two
decades
and
its
teams
have
among
the
most
advanced
levels
of
expertise
in
the
European
VC
field.
Public
grants:
Tekes
In
Nordic
countries,
the
digital
startup
scene
has
rapidly
evolved
thanks
to
a
number
of
aggressive
government
initiatives
dedicated
to
building
global
and
innovative
companies.
Tekes
in
Finland
was
created
in
1983
and
has
backed
a
number
of
companies
such
as
Rovio,
Nokia,
and
Supercell
via
financial
assistance
in
excess
of
EUR
135
million
per
year
(2012)30
Tekes
finances
rapid
growth
companies
with
a
strong
potential
to
expand
internationally.
In
European
public
policy
this
practice
is
unique,
in
that
most
initiatives
focus
on
a
more
local
scope.
Tekes
finances
small
innovative
companies
that
are
less
than
six
years
old
with
a
maximum
of
EUR
1
million.
Generally
starting
with
a
EUR
250
K
subsidy
or
loan
with
75%
of
the
project’s
cost
eligible
to
the
grant.
This
program
is
acclaimed
by
Nordic
venture
capitalists
as
it
has
helped
Finland
to
create
momentum
for
early
stage
investors.
30 http://www.businessinsider.com.au/running-a-startup-in-finland-2013-11
39

Insufficient
coordination
between
European
Tech
Hubs
Thanks
to
policy
programs
like
EIS/SEIS
scheme
and
London
tech
city
in
the
United
Kingdom,
BPI
France
and
La
French
Tech
in
France,
the
Gründerfonds
in
Germany
and
Tekes
in
Finland,
the
development
of
a
certain
number
of
tech
hubs
such
as
Paris,
Berlin,
London,
Stockholm
and
Helsinki
has
begun
to
improve
the
overall
quality
of
the
deal
flow
for
investors.
These
hubs
are
contributing
to
developing
the
overall
European
entrepreneurial
startup
culture
and
landscape.
However,
due
to
the
fierce
competition
between
nations
for
entrepreneurial
supremacy,
there
is
a
lack
of
sufficient
cooperation
between
hubs
that
could
help
companies
in
expanding
into
different
markets.
As
key
players
in
the
ecosystem,
venture
capitalists
could
be
the
key
facilitators
of
these
hubs
if
they
invested
more
freely
in
different
markets
beyond
their
local
ecosystems.
However,
we
have
seen
very
few
players
that
are
truly
able
to
achieve
a
pan-‐European
investment
activity.
Indeed,
discussions
during
the
Web
Investors
Forum
workshop
highlighted
that
investing
in
multiple
countries
is
a
rather
complicated
activity,
as
often,
on-‐the
ground
presence
is
required,
This
makes
the
creation
of
efficient
investment
teams
even
more
challenging.
If
it
is
not
established
as
pan-‐European,
a
venture
capital
firm
will
always
be
more
comfortable
investing
on
a
local
basis,
with
few
investments
made.
Coordination
between
hubs
could
benefit
countries
with
a
less
mature
environment
seeking
expertise
and
knowledge
transfer
from
more
advanced
hubs.
Spain,
Italy,
or
Portugal
could
develop
themselves
much
more
rapidly
via
exchanges
with
epicenters
such
as
London
and
Paris.
In
some
cases,
local
public
policy
instruments
slow
down
this
coordination.
In
fact,
in
some
countries,
public
money
inflow
comes
along
with
a
certain
number
of
constraints.
In
Portugal
for
example,
publicly
funded
companies
face
problems
when
expanding
their
operations
in
foreign
countries
and
are
sometimes
forced
to
reimburse
the
public
portion
of
their
capital
before
expanding
to
other
countries.
These
types
of
constraints
may
also
have
a
negative
impact
on
investments
made
by
VCs
in
foreign
countries,
although
investments
made
outside
their
own
boarders
would
also
benefit
the
local
portion
of
their
portfolio.
When
a
VC
invests
abroad,
it
grows
its
network
as
well
as
its
insight
on
this
foreign
ecosystem.
In
terms
of
networks,
and
other
non-‐financial
value
added,
a
local
entrepreneur
would
benefit
from
this
type
of
investment.
Startup
companies
work
under
economies
of
scale
and
will
always
need
to
scale
internationally
at
some
point,
and
not
always
from
their
place
of
creation.
However
public
investments
in
VC
funds
tend
to
impose
a
high
degree
of
constraints
in
terms
of
investment
geography,
which
in
the
end,
do
not
help
coordination
between
ecosystems.
40

Tax
&
legal
environment
needs
to
be
improved
(adapted)
in
certain
geographies
In
some
regions,
the
tax
and
legal
environments
can
negatively
impact
the
effective
alignment
of
interest
at
all
levels.
Between
entrepreneurs
and
employees
Stock
option
plans
and
more
generally
employees’
shared-‐ownership
plans
are
an
important
part
of
industry
standards
set
in
the
startup
world.
Startup
companies
need
to
attract
the
best
talent
available
and
incentivize
them
to
deliver
the
best.
They
often
pay
a
premium,
which
takes
the
form
of
a
shared-‐interest
in
the
company.
This
practice
is
very
common
and
has
been
proven
to
have
a
positive
impact.
Employees
are
interested
in
the
potential
future
success
of
the
company.
If
the
company
succeeds,
employees
get
rewarded
for
their
work.
In
certain
parts
of
Europe
like
Spain
and
Italy,
stock
options
are
regarded
as
a
way
for
large
organizations
to
pay
high
compensation
to
their
top
managers
and
are
taxed
accordingly.
However,
this
policy
has
a
negative
impact
for
startups.
Stock
option
plans
serve
a
rather
different
and
more
labor-‐friendly
purpose
for
this
ecosystem.
Case
Study:
French
BSPCE
program
BSPCE
(Bons
de
souscription
de
parts
de
créateur
d’entpreprise)
are
subscription
warrants
usually
cost-‐free
for
employees
in
the
startup
standards.
These
warrants
give
the
possibility
to
the
employee
to
subscribe
during
a
pre-‐determined
period
to
stocks
of
which
the
price
is
set
at
the
time
of
BSPCE
attribution.
They
provide
more
favorable
tax
treatment
then
traditional
stock
options
both
for
the
company
and
the
employee.
This
tool
has
been
met
with
great
success
in
the
entrepreneurial
community
and
according
to
the
2014
France
Digitale
Barometer31,
90%
of
startups
now
use
equity
instruments
with
30%
of
employees
owning
equity
Between
GPs
and
LPs
In
some
regions,
capital
gain
taxes
are
not
favorable
for
alignment
of
interests
between
VCs
and
their
investors.
In
Spain,
the
capital
gain
tax
scheme
can
discourage
potential
future
investment
teams
to
form,
as
a
fairly
high
proportion
of
their
gains
will
be
captured
by
the
state.
When
they
invest
in
a
fund,
LPs
must
be
sure
that
venture
capitalists
will
be
rewarded
if
their
portfolio
companies
are
successful.
This
incentivizes
VCs
to
maintain
a
high
quality
level
of
advisory
to
their
companies.
If
potential
VCs
anticipate
that
a
very
large
part
of
their
value
creation
is
going
to
be
captured
by
public
agencies,
they
might
simply
choose
not
to
enter
the
market.
41
31 http://fr.slideshare.net/FranceDigitale

In
southern
and
Eastern
European
countries
where
the
investment
industry
is
still
in
early
development
and
in
need
of
momentum,
talented
investors
should
be
incentivized
to
gather
into
teams
and
invest
in
startups.
Attractiveness
of
the
asset
class
A
number
of
countries
in
Europe
have
engaged
in
creating
specific
tax
schemes
to
attract
individual
investors
to
invest
directly
or
through
funds
in
innovative
startup
companies.
Case
Study:
French
FCPI
Created
in
1997,
the
FCPI
(Fonds
Commun
de
Placement
dans
l’Innovation)
is
a
French
regulated
investment
vehicle
allowing
private
individuals
to
invest
in
venture
capital
with
a
fiscal
incentive
attached
to
it.
The
fiscal
incentives
are
designed
to
relieve
part
of
the
wealth
taxation
in
France.
In
order
to
benefit
from
this
fiscal
relief,
the
FCPI
has
to
be
invested
for
at
least
60%
of
the
portfolio
in
innovative
SMEs
which
are
defined
as
follows:
42
- either
granted
an
innovation
label
by
Bpi
France
(public
French
investment
bank)
following
a
certain
number
of
criteria
- or
spending
a
significant
amount
in
R&D
In
2012,
the
FCPIs
and
FCPI-‐like
funds
have
collected
in
excess
of
EUR
638
million,
accounting
for
approximately
half
of
the
amount
raised
by
the
venture
capital
industry
that
year32
in
France.
Traditionally,
these
funds
are
distributed
by
Individual
Financial
Advisors
(IFAs),
private
banks,
and
other
wealth
management
institutions.
Below
are
key
figures
per
vintage
from
2008
to
2012.
Vintage
2008
Vintage
2009
Vintage
2010
Vintage
2011
Vintage
2012
Number
of
VCs
33
38
38
39
34
Number
of
subscriptions
145’000
135’000
124’000
91’000
83’000
Average
subscription
7’780
6’650
6’700
8’100
7’560
Total
raised
1’129
898
835
736
628
Total
vehicules
launched
87
102
90
109
83
Source:
AFIC,
AFG,
2013
32 Source : EVCA

Even
if
they
are
beneficial
to
French
investments
in
tech
startups,
FCPI
may
present
some
weaknesses
regarding
the
structural
impact
on
the
digital
economy
in
terms
of
investment
timing
constraint
and
shorter
duration
of
FCPI
vehicles.
The
main
liability
of
an
FCPI
fund
is
materialized
by
its
constraint
to
invest
100%
of
the
capital
collected
within
two
years
after
closing,
regardless
of
the
available
deal
flow.
The
result
of
this
constraint
is
that
it
forces
VC
managers
to
invest
rapidly
even
if
there
is
not
sufficient
quality
in
the
deal
flow.
Two
years
might
be
too
short
to
manage
a
quality
deal
flow
and
to
identify
enough
high
potential
startups
for
the
portfolio.
There
is
not
enough
time
for
the
VC
manager
to
diversify
in
an
optimal
way,
therefore
leading
to
higher
risk
in
the
portfolio.
Management
fees
on
such
vehicles
are
calculated
on
assets
under
management
and
not
commitments
in
the
fund,
which
have
led
in
some
cases
to
“zombies”,
companies
that
are
kept
alive
even
if
they
should
be
liquidated.
Conversely,
industry
standards
(ex-‐FCPI)
have
set
management
fees
at
a
percentage
of
commitments
under
management
in
order
to
align
interests
between
VC
managers
and
investors.
Benoit
Grossman,
General
Partner
at
Idinvest,
one
of
the
highest
performing
and
most
acclaimed
FCPI
managers,
believes
that
the
industry
has
adapted
and
investments
are
now
run
smoothly
with
FCPIs
as
with
any
other
investment
vehicle.
Despite
its
weaknesses,
the
main
objective
behind
FCPIs
of
pouring
private
savings
to
supply
innovative
SMEs
with
capital
is
a
step
in
the
right
direction
to
improve
the
VC
landscape
in
France.
This
effort
is
well
regarded
across
Europe
according
to
our
interviews,
even
if
the
specifics
of
the
policy
can
still
be
improved.
Case
Study:
Enterprise
Investment
Scheme
in
the
United
Kingdom
The
British
Enterprise
Investment
Scheme
(EIS)
was
launched
in
1994
and
is
designed
to
help
small
high-‐risk
companies
raise
funds
by
offering
a
range
of
tax
reliefs
to
investors
who
purchase
new
shares
in
those
companies.
Certain
rules
have
to
be
followed
in
order
for
this
tax
relief
to
apply,
not
only
at
the
time
of
investment
but
also
three
years
afterwards.
When
investing
in
private
equity
companies
under
this
policy,
individuals
can
expect
the
following
benefits:
43
- Income
tax
relief
- Capital
gains
tax
exemption:
investors
who
have
received
income
tax
relief
(which
has
not
subsequently
been
withdrawn)
on
the
cost
of
the
shares,
and
the
shares
are
disposed
of
after
they
have
been
held
for
a
qualifying
period,
any
gain
is
free
from
capital
gains
tax
- Share
loss
relief:
if
the
shares
are
disposed
of
at
a
loss,
investors
can
elect
that
the
amount
of
the
loss,
less
any
income
tax
relief
given,
can
be
set
against
income
of
the
year
in
which
the
shares
were
disposed
of,
or
any
income
of
the
previous
year,
instead
of
being
set
off
against
any
capital
gains.
- Capital
gains
tax
deferral:
available
to
individuals
and
trustees
of
certain
trusts.
The
payment
of
tax
on
a
capital
gain
can
be
deferred
where
the
gain
is
invested
in
shares
of

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