Key messages from my research into VC fund performance in Europe and USA
Research into venture capital fund performance and investment practices in Europe and USA
(“Exploring the difference in performance between UK/European venture capital funds and USA venture capital funds”: PhD thesis, Adam Smith Business School, University of Glasgow)
Key messages
1) The research is the most up to date, complete and extensive qualitative review of the entire venture capital (VC) investment process featuring interviews with 70 VC investment executives from 64 separate venture capital firms in Europe and USA (Note 1) supplemented by interviews with 40 other stakeholders (limited partner investors, entrepreneurs, advisors and corporate VCs). A unique dataset of the structural, operational and wider environmental factors affecting VC fund performance was compiled.
2) The research suggests best practices for setting up and running a VC firm in order to achieve optimal performance including the use of a theme approach to identifying “hot” areas for investment, engaging investment partners with operational and entrepreneurial backgrounds, partners working together on deals, avoiding a consensus approach to investment approval which can kill potential outliers, the use of “entrepreneurially friendly” terms with less focus on the downside, weeding our poorly performing investments and waiting for the best exit opportunities.
3) Historically European VC fund performance has lagged behind US VC fund performance on average, although returns are now improving. European VCs could learn from US VCs’ investment practices. European VCs tend to have fewer partners with operational and entrepreneurial backgrounds, have a lower propensity for risk, a more proprietary and less collaborative approach to sharing and executing deals and tend to exit investments too early.
(Note 1 – the sample of 64 VC firms were based in the following European countries and US states / cities: Europe: UK 24, France 3, Germany 3, Ireland 3, Scandinavia 2, Spain 1, Switzerland 2, Netherlands 1 USA: California 13, Boston 4, Pittsburgh 4, Baltimore 1, Cincinnati 1, New Jersey 1, New York 1)
About the researcher: Dr Keith Arundale is a university lecturer, author, executive trainer and consultant in private equity and venture capital. He is a Senior Visiting Fellow at Henley Business School, University of Reading and a former doctoral researcher at the Adam Smith Business School, University of Glasgow. His thesis from which the above research findings are taken can be located at:
http://theses.gla.ac.uk/view/creators/Arundale=3AKeith=3A=3A.default.html
Keith is also the author of the BVCA’s “Guide to Private Equity” and of “Raising Venture Capital Finance in Europe” published by Kogan Page.
Keith can be contacted at: keith@keitharundale.com or phone: +44 7802 925499.
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