Saturday, June 16, 2007

Beware of VC data being reported in EU and the "little details"

In a previous post on VC funds in EU on the Up (May 2007) I looked at a blog posting from Alarm:clock regarding a Financial Times who reported on research from Paul Fisher on Web 2.0 and Internet investments in the European region in 2006.
and how the ..The growth is remarkable. 

Nic Brisbourne (Esprit VC outa London/Cambridge) has an article "Lies, damm lies and venture statistics" that looks at more recent figures from the EVCA in more depth.

The opaque world of venture capital isn’t helping itself with the way stats are being presented at the moment. The EVCA (European Venture Capital Association) released data last week which is a little confusing in the way it categorises different types of private equity and venture capital investment.

As a result the FT this morning ran an article under the heading Europe venture capital shows big rise that is misleading, at least according to my definition of venture capital. The article leads with the following paragraph:
Europe’s venture capital market recovered sharply last year as money raised by funds investing in start-ups and early stage companies rose 60%

When I read a sentence like that my immediate assumption is we are talking about technology venture capital - not so. If you look to the underlying EVCA data it shows that funds raised in “Venture high-tech” declined last year from €5.1bn to €5.0bn. There was massive growth in “Venture non high-tech which gives rise to the 60% figure above - but that is not really relevant to what we are about at Esprit and I imagine most of you are about in your day to day jobs.

The FT article also makes much of the statistic:
The average internal rate of return over the life of all venture capital funds since 1980 until the end of last year was 5.5%

I have a couple of points to make in response to that:
  • Venture capital has always been a business where the top quartile of funds make a good return and the rest don’t so quoting the average without quoting the top-quartile returns doesn’t give a true picture. According to the EVCA data the top quartile returns for all venture were 17.4% and for balanced venture funds (which is what we are) it was 23.5%. (Note that EVCA returns stats don’t break out tech and non-tech venture. These percentages are for all venture and need to be treated with care.)
  • The European venture industry is still young - there simply wasn’t much money invested prior to the dotcom bubble and unfortunately most of that was raised in 1999 - ie too late to make hay while the sun was shining. Post bubble times were hard and funds raised declined, so the “all venture funds since 1980″ stats are weighted towards the crazy period of 1999-2001 and thus a little misleading.

We are working towards trying to pull together some better data, but progress is slow as we suffer from the hours in the day problem.

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1 Comments:

At February 8, 2008 at 12:58 PM , Anonymous Anonymous said...

Hi Brendan

Barry here from IrishDev.com

I noticed your post mentioning Nic Brisbourne - just thought I'd drop you a line and let you know he is doing a demystification presentation at the Irish Web Technology Conference on Weds 27th Feb.

Excuse for a trip home?

Best regards
Barry

 

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