The notion that US venture capital firms are more likely to hold successful exits than counterparts across the Atlantic is a myth which the British Private Equity & Venture Capital Association (BVCA) believes is a common misconception.
As part of a research report conducted with Dow Jones, the industry body is attempting to expose a number of myths which it says stem from institutional investors and policy makers in Europe.
The report finds that US and European VC houses have roughly the same likelihood of an IPO exit, despite the research revealing that Europe underperforms the US in trade sales.
The BVCA says that the attitudes towards a continental bias originate in the aftermath of the dot.com bubble, but have continued to linger over the period of the next ten years despite the European venture capital market being in ‘much ruder health’.
Another myth which the report is trying to quell is that US venture capital success is attributable to ‘insurmountable’ differences between the US and Europe. The BVCA and Dow Jones say venture capital has the same determinants in both Europe and US, with experience of both venture capitalists and entrepreneurs a ‘key factor’.
It adds that the larger pool of ‘repeat’ entrepreneurs in the US explains the difference in performance between the US and Europe.
Richard Anton, partner at Amadeus Capital Partners and BVCA chairman for 2011/12, comments, ‘Attitudes have unfairly hampered European high-growth companies which in turn poses a serious threat to the future of both entrepreneurship and the economy across the continent.
‘This report explodes some of these myths and is an extremely welcome and robust contribution to the debate over the financing of European start-ups. The sooner we can dispel the myths that unnecessarily hinder venture capital, the sooner venture capital can help power the next generation of world-beating companies.’
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The third myth the report identifies is that there seems to exists a ‘stigma’ surrounding business failure in Europe, which, it says, harms entrepreneurship and the ability of start-ups to raise funding.
In reality, the study finds that there is no evidence of such a stigma. Instead, a previously unsuccessful entrepreneur has ‘at lest as high a chance’ of getting financing for a new venture in Europe as in the US.
George Whitehead, venture partner manager at Octopus Investments, says that the report demonstrates what ‘we on the ground’ have known for a number of years.
‘Where once ‘Silicon Roundabout’ was ridiculed when compared in the same breath as Silicon Valley, we are now seeing London become a real magnet for some of the most talented entrepreneurs and investors across Europe,’ he adds.
‘Anyone who has backed multiple businesses recognises that the difference between extraordinary success and complete failure can be down to a myriad of different factors: from timing, global competition, key hiring decisions or just plain luck. To discount those people who have failed at some point in their careers would be to ignore almost every successful entrepreneur in the country.’
