What do venture capital funds really think about EIF support?
Europe’s venture capital landscape is booming. This is, in part, due to venture capital support from the EU. The European Investment Fund (EIF) takes cornerstone investments in venture capital funds, attracting private investors into the space.
Grown from a handful of funds twenty years ago, venture capital funds in Europe invested more than EUR 6bn in small companies in 2017 alone. But what’s in it for the fund managers?
According to a recent survey, 91% of venture capital fund managers would want to use us again. After all, a cornerstone investment from the EIF is very helpful for reaching fundraising targets.
In fact, two thirds (67%) of European venture capital managers say that they would welcome EIF’s participation in their fund even if they had enough capital for fundraising.
What is this special ingredient that the EIF brings to the fundraising process? The new EIF Working Paper “EIF VC Survey 2018: Fund managers’ perception of EIF’s value added”, written by EIF’s Research & Market Analysis team, can give us some idea:
A long-term, reliable investor
Money aside, market participants find that the EIF is a reliable investor to have on board. Once invested in one fund, the EIF’s commitment often allows venture capital funds to raise several fund generations. In 60% of cases, the EIF is involved in a successor fund.
Quality stamp
The EIF’s due diligence processes and subsequent investment is viewed as a quality benchmark, according to fund managers surveyed by the EIF…
Positive signaling effect
…which in turn exerts a positive signaling effect to private investors, who will take the EIF’s presence in a fund as evidence that the fund’s processes are robust and its investment approach rigorous.
Fund structure
On average, the EIF has a positive impact on the fund’s structure, especially on improving governance, implementing best-market-practice terms and conditions, and improving investor protection clauses.
First-time team support
In general, the EIF stays out of the funds’ investment team composition and quality. However, for a first-time team or fund, the EIF may suggest improvements, which can help the fund develop.
So the EIF offers a great deal of added value for two thirds of fund managers. But what can we do better?
Lengthy processes
Applying for EIF investment appears to take a relatively long time for such a dynamic and continuously changing market. This feedback is something that the EIF takes this seriously. Working with EU-mandated resources will always mean that the EIF has to apply extra scrutiny to its investments. However, requirements can also appear inflexible and can result in conflicts of interest between general partners and limited partners (investors) — something we wish to avoid.
Networking opportunities and market intelligence
Fund managers call for greater networking opportunities through conferences, workshops and training events. They also find the EIF’s research helpful and suggest that the EIF should continue sharing its venture capital market intelligence in order to raise awareness and help attract more investors into the asset class.
Not so vital for new investor categories
Respondents found that the EIF was less useful for connecting to a broader range of investors like insurance companies or family offices — but recent initiatives to attract private investors into the EIF’s own portfolio, such as the Asset Manager Umbrella Fund, could change this.
Let’s look at the financial perspective now. Fundraising is still one of the biggest challenges facing the European venture capital business. What do fund managers think about the EIF’s overall impact?
Catalytic effect
Fund managers are adamant that the EIF reduces the financing gap in the market by encouraging LPs to invest in VC funds — and has a strong catalytic effect.
Where it’s needed the most
The less developed the ecosystem, the stronger the EIF’s support and the more powerful the impact. The South and CESEE regions as well as underserved industry segments report the most perceived impact.
No crowding out effect
Fund managers do not believe that the EIF crowds out the market. In practice, the EIF often reduces its commitments to funds when there is sufficient interest from private investors.
More SMEs
Ultimately, fund managers surveyed by the EIF find that they were able to increase the number of European SMEs in which they invested, and the amount per SME.
However, don’t just take our word for it. “The EIF VC Survey 2018: Fund Managers’ perception of EIF’s value added” is available here, together with a breakdown of responses and the EIF’s methodology. Enjoy!
