Accel Europe defies tightest of funding markets

Make no mistake: the funding market right now is as bad for VC’s as it is for anyone else.  This makes the achievement by the European team at Accel Partners all the more remarkable.  Raising a cool EUR 400M in the worst financial meltdown any of us has been involved in is no mean feat.

For those who have not been exposed to how venture firms work, a venture fund is usually a partnership that is managed by an entity called a General Partner, whilst investors in the venture fund are known as Limited Partners.  These are typically pension funds, endowments, foundations, insurance companies or various funds.

There are a multiple reasons why it’s tough for venture capitalists to raise funds right now.  Some fund investors are hurt by basic liquidity issues, some have statutes that forbid them to hold alternative assets above a certain percentage of mark-to-market portfolio value (which means that mechanically they hit their investment limits when the markets come down), others are tempted by too-good-to-pass distressed asset opportunities, where even quality assets get sold at 30 or 40 cents on the dollar.  Others yet are simply not making decisions right now, for fear of catching the proverbial falling knife.

If you think through the fundamentals of investing in venture, this should be in a great time to get into the market.  After all, the valuations are going to be constrained, the level of competition will be lower and the dominant, well-funded brands will consolidate leadership.  You just have to look at the returns of most funds vintaged 2002-2003 to see this effect.  But two core factors conspire against this:

  • the sheer depth of the crises stops many investors from investing altogether, as noted above
  • more ominously, the European venture industry has not proven, as an asset class, that it is worth investing in

Even if you discount the fact that the numbers published by the EVCA are irrelevant (did you know that none of the leading venture firms are included in the performance data released by EVCA ?!?!?), it is very clear that European venture, as a group, has not demonstrated that it deserves to live.  So Limited Partners have to think about venture investing not in terms of asset class but in terms of focusing solely on those players that defy the natural characteristics of the asset class.  Those players that have some unfair competitive advantages and the right DNA to access the best companies, should provide fantastic returns.

<—- Kevin Comolly, besides being the best dressed VC in London, clearly knows a thing or two about fundraising

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