European Venture: back to artisanship
We VCs like to look at the glass half-full and focus on value creation (except of course when it’s time to negotiate next year’s budget with our entrepreneurs). But it’s hard to look at the current events in VC Land without a deep sense that there is a fundamental shift at work.
Figures out in the US clearly indicate that a deep rethink is under way in the US venture market and this is echoed by market practitioners. Stewart Alsop (former NEA and occasional pundit) was quoted in the FT (20/04)as saying “for the first time in 40 or 50 years of venture capital, the people who invest are having to decide whether or not to keep doing it or not, and the general conclusion is – to a large degree – no”. Read this quote twice; I can see this happening everywhere. Europe is even worse off. The latest data from Ascendant shows dramatic trends in UK/Ireland: volumes down 68%, number of active investors down 40% (Q109 to Q108). The bile of TechCrunch is earned: we talk one game and play another.
It’s easy in times of crisis to overuse hyperbole and exaggerate eventual outcomes. Yet this may be the start of a long-term shrink of our industry, and a brutal selection process of the surviving managers.
If you look at the European landscape, you could create a taxonomy of the market around different generations of managers:
- The Brands. These firms usually have a strong track record in the early years that they can point to, followed by a more-or-less successful transition from first to second generation, which tends to define how vibrant their brand is today. Some like Quester are gone whilst others like Wellington have generated a second generation of successful managers. At Atlas Venture I think we have done a good job of staying relevant and building on the shoulders of our predecessors.
- The Euro-Bubble funds: There was a large increase in the number of funds in 1998-1999 that moved the European venture industry from a cottage occupation to being quite overcrowded. The quality of these funds was variable (anyone remember Antfactory ?) , but more often then not they got cut off at the knees just after starting their investment programs and many did not make it to a second vintage or went passive. Some, like Zouk Ventures, owe their survival and success to the gritty determination of their founders and subsequent reinvention (in the case of Zouk, as an early entrant in the cleantech space). Mangrove Capital Partners or Index Ventures are prime examples of guys who did well in not blowing through early cash but capitalising on market downturn and great exits to generate lasting franchises.
- The US Entrants: Balderton (ex Benchmark) or Accel are the best known examples of US franchises going global and establishing local presence.
- The Local Stars: each European country has a set of dominant regional funds. Some of these got bought and dutifully destroyed (mostly) by 3i, whilst others continue to operate. Let’s take Northzone in the Nordics and Sofinnova or Banexi in France as examples.
The game is not set, however. There are some great teams out there and some great individuals who will keep writing the future of our industry. Some are new entrants like my friend Sean Park at Nauoikas Park or the folks at Atomico, who clearly stated their intent with their recent investment in Imagini, whilst others have evolved their lineup and have excellent teams, like the guys at Advent Venture Partners.
What is clear in my mind is that CAPITAL SCARCITY IS BACK. Our market used to be predicated on a scarcity of technology knowledge and capital. What I believe is scarce today is (a) capital and (b) the ability to assist entrepreneurs in building real, sustainable businesses. To me, that’s a very healthy thing. As an industry, we might just start making money again !
<— Back to our artisan roots !