Venture capital investment practices
Research into venture capital fund performance and investment practices in UK / Europe and USA Dr Keith Arundale
Key messages
1) This 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 UK and European VC fund performance has lagged behind US VC fund performance on average, although returns are now much improved. US VC funds still have larger outlier performance than those in UK and Europe. UK / European VCs could learn from US VCs’ investment practices. UK / 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 and executive trainer in private equity and venture capital. He is a Senior Visiting Fellow at the ICMA Centre, 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 was awarded an Adam Smith Business School, University of Glasgow prize for PhD excellence for this research work.
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 in 2007 and “Venture Capital Performance: A comparative study of investment practices in Europe and the USA” published by Routledge (Taylor & Francis Group) in 2020: Venture Capital Performance: A Comparative Study of Investment Practic (routledge.com). He is a member of the BVCA Research Advisory Group and a former NED of Henley Business Angels.
He can be contacted at: keith@keitharundale.com
