Working Paper 2019/59

EIF VC Survey 2019
Fund managers’ market sentimentand policy recommendations

Antonia Botsari ■Andrea Crisanti ■Frank Lang ■Antonia Botsari is Research Officer in EIF’s Research & Market Analysis
division.
Contact: a.botsari@eif.org
Tel.: +352 248581 546

Andrea Crisanti is Research Officer in EIF’s Research & Market Analysis division.
Contact: andrea.crisanti@eif.org
Tel.: +352 248581 948

Frank Lang is Senior Manager in EIF’s Research & Market Analysis division.
Contact: f.lang@eif.org
Tel.: +352 248581 278

Editor:Helmut Kraemer-Eis,
Head of EIF’s Research & Market Analysis, Chief Economist
Contact:
European Investment Fund
37B, avenue J.F. Kennedy, L-2968 Luxembourg
Tel.: +352 248581 394
http://www.eif.org/news_centre/research/index.htm
Luxembourg, September 2019

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version of thisworking paperiDisclaimer:This Working Paper should not be referred to as representing the views of the European Investment Fund (EIF)
or of the European Investment Bank Group (EIB Group). Any views expressed herein, including interpretation(s)of regulations, reflect the current views of the author(s), which do not necessarily correspond to the views of EIF
or of the EIB Group. Views expressed herein may differ from views set out in other documents, including similar
research papers, published by EIF or by the EIB Group. Contents of this Working Paper, including views
expressed, are current at the date of publication set out above, and may change without notice. No
representation or warranty, express or implied, is or will be made and no liability or responsibility is or will be
accepted by EIF or by the EIB Group in respect of the accuracy or completeness of the information contained
herein and any such liability is expressly disclaimed. Nothing in this Working Paper constitutes investment, legal,
or tax advice, nor shall be relied upon as such advice. Specific professional advice should always be sought
separately before taking any action based on this Working Paper. Reproduction, publication and reprint are
subject to prior written authorisation.

ii

Executive summary 1
Following the launch of the first EIF VC Survey in 2018, 2 this study presents the results of the second
EIF VC Survey, a survey among venture capital general partner (GP)/management companies
headquartered in the EU28 and other European countries (mainly Norway, Switzerland and Turkey).
The surveyed population includes both companies in which the EIF has invested as well as companies
in which the EIF has not (or not yet) invested.
The EIF VC Survey 2019 consisted of questions covering five main topics:•

The VC market sentiment,•

Policy recommendations regarding regulatory and tax-related issues in VC business,•

The human capital in VC,•

ESG (Environmental, Social, Governance) considerations in VC investment decisions, as wellas•

EIF’s product and mandate development.

This EIF Working Paper summarises the findings of the first two parts, mentioned above. The study
provides a detailed overview of the respondents’ state of business and market activity as well as theirgeneral perception of the European VC market. In doing so, we look at the current situation,
developments in the recent past and expectations for the future.

Market sentimentState of business

The current state of business continues to be perceived positive, with the majority of thefund managers expecting a further improvement in the next 12 months. 3

Availability of funding and fundraising environmentThe majority of the fund managers perceive positively the availability of funding to financetheir own portfolio companies’ prospects.

However, only half of the fund managers consider the current fundraising environment tobe good; with one-third of the respondents expecting a deterioration in the next 12months.



The issue of available funding is more acute for VCs investing mainly in seed-stage
companies. Moreover, a relatively large share of seed-stage fund managers are likely to

We would like to thank the anonymous respondents to the survey. Without their support and valuable replies this project
would not have been possible. This paper benefited from comments and inputs by many EIF colleagues, for which we arevery grateful; we would like to express particular thanks to Oscar Farres. We would also like to thank colleagues from Invest
Europe and from the Trier University for their support. All errors are of the authors.
2
The results of this first survey wave were published in two EIF Working Papers, namely “EIF VC Survey 2018: Fundmanagers’ market sentiment and views on public intervention” and “EIF VC Survey 2018: Fund managers’ perception of
EIF’s value added”; both available at http://www.eif.org/news_centre/research/index.htm
3
For several questions, we report fund managers’ responses regarding their expectations for the next 12 months. In thiscontext, it needs to be taken into consideration that the survey was conducted between 7 February and 18 March 2019.
1iii

move away from their current stage focus over the next five years, which might further
decrease the availability of finance for seed-stage enterprises through VC funds.


Finding co-investors to syndicate is perceived easier compared to a year ago by the
majority of the respondents; with expectations remaining largely the same for the next 12months. Nonetheless, almost one-third of the fund managers did report difficulties infinding co-investors.

Investments and portfolio development
The number of qualified investment proposals received and of new investments
undertaken are both expected, on balance, to increase in the next 12 months.

Portfolio development during the last year has been at least in line with expectations; withfurther improvement expected in the next 12 months.

Trade sales dominated the exit activity in 2018, while improved exit opportunities are
expected in the next 12 months.

Important challenges in the European VC business

Exit environment, fundraising and high investee company valuations are perceived as thethree biggest challenges in the European VC business.

Recruiting high-quality professionals and securing financing continue to be perceived as
the two biggest challenges faced by investee companies.

Overall prospects of the European VC market, promising countries and industries for future VC
investments

While investment activities in the European VC market are expected, on balance, toimprove in the next 12 months, fund managers are relatively less optimistic compared toa year ago.



Fund managers are rather confident about the long-term growth prospects of the VC
industry in their market and in Europe altogether.



Germany, the UK and France continue to be perceived as the three most promisingcountries for VC investments in the next 12 months.

Alongside traditional VC target industries, the importance of relatively newer, technology
related sectors (Artificial Intelligence, Digital Health, DeepTech, Fintech, Blockchain andCybersecurity) is expected to rise in the future. Technology-related areas in the context ofLife Sciences (BioTech, MedTech, etc.) may also feature prominently.

Policy recommendations: possible tax-related and regulatory interventions in VC business
The policy recommendations presented in this report reflect the views of the surveyed fund managers
and are not necessarily endorsed by the EIF.


The findings echo the evidence first documented in the previous survey wave that tax andregulatory incentives should be given to make VC a more attractive asset class andencourage other private LPs to invest.

iv



Fund managers provide concrete recommendations regarding the type of such incentives
and offer suggestions regarding how tax systems and legal frameworks could be further
simplified and harmonised across Europe.



These suggestions relate to investors, GPs and portfolio companies alike. Perhaps not
surprisingly, a common theme across all three categories is a call to reduce taxation.

When it comes to other regulations, it seems that simplification is relatively more important
than harmonisation. At the same time, fund managers call for measures to overcome thecross-border market fragmentation of the European VC market.



GPs who undertake cross-border investments are more in favour of harmonisation andsimplification in taxation and other regulations, compared to GPs who only invest
domestically.

While there is general consensus across regions that regulations should be simplified,there is greater variation in the responses concerning the element of harmonisation. In
particular, GPs in France are most in favour of harmonisation (in both tax and otherregulations) contrary to GPs in the UK & Ireland.

The insights from the EIF VC Survey will help to further improve EIF’s product offer and the European
VC ecosystem in line with markets’ needs. Moreover, the project forms part of EIF’s work to assess theimpact of its activities and complements the recent and ongoing quantitative analyses of the economic
effects of EIF’s VC operations. It is envisaged to repeat this study on (at least) an annual basis.
Moreover, based on this survey, a venture capital market sentiment index (barometer) is indevelopment and will provide the possibility to track the VC market sentiment over time. By improving
the availability of information about this important market segment, this project contributes toestablishing a sustainable venture capital ecosystem in Europe – a key objective of the EIF.

v

Table of contents

Executive summary ...................................................................................................... iii
Table of contents ........................................................................................................ vi
1

Introduction.......................................................................................................... 1

2

Overview of the sample......................................................................................... 3

3

Market sentiment .................................................................................................. 9
3.1

State of business ..................................................................................................9

3.2

Availability of funding and fundraising environment.................................................. 12

3.3

Investments and portfolio development .................................................................. 21

3.4

Important challenges in the European VC business .................................................. 28

3.5

Overall prospects of the European VC market, promising countries and industries ........ 32

4

Role of the public sector: Tax and regulatory interventions in European VC ............... 44

5Concluding remarks ............................................................................................ 49

ANNEX .................................................................................................................... 51
List of acronyms ........................................................................................................... 51

About … .................................................................................................................. 52… the European Investment Fund ............................................................................... 52… EIF’s Research & Market Analysis............................................................................ 52… this Working Paper series ...................................................................................... 52
EIF Working Papers ................................................................................................... 53vi

1 Introduction
Venture capital is an essential source for start-up and young companies to achieve growth and create
value through innovation. The relevance of venture capital financing, not only for young andinnovative companies but also for the economy as a whole, is very high.
The European Investment Fund (EIF) is a specialist provider of risk finance to benefit small andmedium-sized enterprises (SMEs) across Europe. By developing and offering targeted financial
products to its intermediaries (such as banks, guarantee and leasing companies, micro-credit
providers and private equity funds), the EIF enhances SMEs’ access to finance.
The EIF is a leading institution in the European venture capital (VC) market, focusing on theestablishment of a sustainable VC ecosystem in Europe in order to support innovation andentrepreneurship. The EIF concentrates on building the necessary private sector VC infrastructure toaddress market gaps and opportunities with the aim to further enhance the attractiveness of European
venture capital as an alternative asset class.
The EIF works with VC funds, which act as intermediaries and invest into innovative high-tech SMEs
in their early and growth phases. The particular focus is on disruptive early-stage technology
enterprises that typically face financing challenges but also provide outstanding investment
opportunities. The EIF has built a strong expertise in setting-up, managing or advising tailored fundof-funds, mostly with resources entrusted to the EIF by third parties such as the European Investment
Bank (EIB), the European Commission, national and regional authorities as well as institutional
investors.
EIF’s Research & Market Analysis (RMA) supports EIF’s strategic decision-making, productdevelopment and mandate management processes through applied research, market analyses andimpact assessments. In order to facilitate EIF’s activities in European VC and to provide additional
benefit for market participants, RMA aims at gathering and providing relevant information that canshed more light on this important but still relatively opaque part of the SME financing market. This
EIF Working Paper forms part of that exercise.
Following the launch of the first EIF VC Survey in 2018, in this study we present the results of thesecond EIF VC Survey, a survey among venture capital general partner (GP)/managementcompanies headquartered in the EU28 and other European countries (mainly Norway, Switzerland
and Turkey). The surveyed population includes both companies in which the EIF has invested as wellas companies in which the EIF has not (or not yet) invested. See Chapter 2 for a more detailed
overview of the population and the respondents.
The EIF VC Survey 2019 consisted of questions covering five main topics:•

The VC market sentiment,•

Policy recommendations regarding regulatory and tax-related issues in VC business,•

The human capital in VC,•

ESG (Environmental, Social, Governance) considerations in VC investment decisions, as wellas•

EIF’s product and mandate development.
1This EIF Working Paper summarises the findings of the first two parts, mentioned above.
The study provides a detailed overview of the respondents’ state of business and market activity as
well as their general perception of the European VC market. In doing so, we look at the current
situation, developments in the recent past and expectations for the future.
More generally, the insights from the EIF VC Survey will help to further improve EIF’s product offer inline with markets’ needs. Moreover, the project forms part of EIF’s work to assess the impact of its
activities and complements the recent and ongoing quantitative analyses of the economic effects ofEIF’s VC operations. 4
It is envisaged to repeat this study (at least) on an annual basis in order to improve the availabilityof information about this important market segment. As such, this project contributes to establishinga sustainable venture capital ecosystem in Europe – a key objective of the EIF.

In this context, five studies have been presented so far. See for details Vol I to V of the series “The European venture
capital landscape: an EIF perspective”; available at http://www.eif.org/news_centre/research/index.htm
42

2 Overview of the sample
The second wave of the EIF VC Survey was conducted between 7 February and 18 March 2019. We
used EIF internal data and PitchBook to derive the contact details of the GPs 5 who are active in theEuropean VC market – our target population. The survey questionnaire was eventually received via
e-mail by 4,367 (2018: 2,032) individuals, representing 2,095 (2018: 1,453) distinct VC firms
headquartered in the EU28 and other European countries (mainly Norway, Switzerland and Turkey).
We received, on an anonymous basis, 774 (2018: 379) completed responses from 538 (2018:316) VC firms in Europe, making this, to the best of our knowledge, the largest survey on venture
capital to date 6. This also translated into high response rates, 17.7% at individual revel (2018:
18.7%) and 25.7% at firm level (2018: 21.7%). We targeted and we indeed received responses
mainly from senior people within the VC firms (CEOs, CFOs, COOs, managing/investment
directors, (managing/general) partners, etc.), meaning that these responses reflect the views of thedecision-makers within the respective VC firms.
Not surprisingly, more than half of the responses come from GPs in the UK (N=117), Germany(N=100), the Netherlands (N=90), France (N=63) and Spain (N=51). The response rates range
from 10% in the UK to as high as 32% in the Netherlands (see Figure 1).
As most of the respondents in the survey state the UK, Germany, the Netherlands and France as theheadquarter location of their VC firm, these four countries also constitute the most frequently
mentioned target countries for VC investments (see Figure 2). Moreover, 21% of the respondents
indicate that they invest only domestically (i.e. only in the country of their VC firm’s headquarter
location), see Figure 3. The vast majority (60%) invest both domestically and abroad, with theheadquarter country also being the most important target country for VC investments. Only 10% of
the GPs report that they undertake cross-border investments only and do not invest domestically.
There seems to be a strong “home bias” when it comes to choosing the country of the VC firms’
headquarter location, since the fact that a large part of the management team has lived in thatcountry is by far the most frequently stated reason (see Figure 4).

The terms “GPs”, “VC managers”, “fund managers”, “VCs” and “respondents” are used interchangeably throughout
the report.
6
In the initial sample construction process, we also included GPs from VC firms headquartered in the US, Asia or otherworld region that are nonetheless active in the European VC market. Hence, all in all, the online survey questionnaire wasreceived by 7,121 individuals, representing 4,384 distinct VC firms globally. However, due to the low number of responses
received from GPs outside Europe (63) and to concerns regarding the representative nature of these responses, we decided
not to include them in our analysis and to only present the results for the 774 completed responses received from European
GPs.
5

3

Austria
Belgium
Bulgaria
Croatia
CyprusCzech Republic
Denmark
Estonia
FinlandFranceGermany
GreeceHungary
IrelandItaly
LatviaLithuania
Luxembourg
Malta
Netherlands
NorwayPolandPortugal
Romania
Slovakia
Slovenia
Spain
SwedenSwitzerland
TurkeyUnited Kingdom
Other

No of respondents

United Kingdom
Germany
FranceNetherlands
SwedenSpain
Switzerland
Finland
Other
Belgium
Italy
Denmark
PolandNorwayAustria
Ireland
Portugal
Luxembourg
Czech Republic
Estonia
Bulgaria
Hungary
GreeceTurkeyLithuania
Romania
LatviaCyprusMalta
Slovakia
Slovenia
Croatia17%

Most important target country

2nd most important

4

6%

3rd most important

25%

20%

58%

800

32%

45%

41%

1000
67%
100%

Response rate

70%

60%

50%

40%

30%

20%

0
10%

0%

Q. In which country is your firm headquartered?

Figure 2: GPs’ most important target countries for VC investments

350

300

250

200

150

100

50

0

Headquarter of GPs' VC firm

Q. Select up to three of the most important countries in which your firm invests in venture, in order ofimportance.
Percentage of respondents

Responses

32%

32%

33%

32%

27%
22%

600

13%

28%

32%

26%

21%

14%

14%

18%

19%

18%

400

10%

11%

16%

1200
Initial population

0%

0%

200
10%

No of respondents

Figure 1: Distribution of respondents by VC firm headquarter country
100%

90%

80%

Figure 3: GPs’ investment activity relative to their VC firm’s headquarter location 7

9%
21%

10%

Investing only domestically
Investing mainly domestically
Investing only cross-border
Investing mainly cross-border60%

Note: “Investing only domestically” refers to GPs that only invest in the country of their VC firm’s headquarter location;“Investing mainly domestically” refers to GPs that invest both in the country of their VC firm’s headquarter location andabroad, but for which the country of the headquarter location constitutes the No1 most important target country for VC
investments; “Investing only cross-border” refers to GPs that only invest outside the country of their VC firm’s headquarter
location; “Investing mainly cross-border” refers to GPs that invest both in the country of their VC firm’s headquarter location
and abroad, but for which the country of the headquarter location does NOT constitute the No1 most important target
country for VC investments .

Figure 4: Reasons for choosing the country of the VC firms’ headquarter location
No of respondents
0

100

200

300

A large part of the management team has lived in thiscountry

500

600
600

Proximity of possible investee companies

282

Favourable VC ecosystem

209

Availability of staff with relevant knowledge and skills

140

Presence of universities

107

Regulatory requirements

92

Tax reasons46

Location of (former) parent organisation

27

LPs' country of residence/focus

21

Other / I don't know

19

Note: Multiple selection possible.

Q. Why was this country chosen as firm headquarter?

7400

Due to rounding, percentages may not always add up to 100%.

5700

The majority of the VC firms that participated in the survey (approximately 60%) have been foundedover the last decade (see Figure 5). Indeed, the average (median) firm age in the sample is 11 (8)years.

50
45
40
35
30
25
20
15
10
5
0

46
41
36 36

10
4

16

14

11

8
1

12

16

12

20

18

14 14
9

34

38

22

22 22 22

13

12

9
3

3

Before 1980
1980-1984
1985-1989
1990-1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Not indicated

No of firms

Figure 5: Year of establishment of VC firms in the sample

Year of establishment

Q. In what year was your firm established?

The average (median) assets under management of the 538 VC firms represented in the survey is
EUR 204m (EUR 70m), with the total value of AUM for all firms exceeding EUR 100bn. At least halfof the VC firms that took part in the survey are managing assets under EUR 100m, while for quite afew, AUM are in excess of EUR 1bn (see Figure 6).
Figure 6: Assets under management (AUM) of VC firms in the sample
100

89

No of firms

90
80

87

84

88

69

70
60
50

45

40
30

27

30

≥1000

Not
indicated

19

20
10
0
<10

10-29

30-49

50-99

100-199

200-499500-999

AUM in mEUR

Q. What are your firm's total approximate assets under management (in million EUR)?

6

Results not presented here for the sake of brevity show that the surveyed GPs have raised, on average,
4 funds in total, while 60% of the respondents have raised up to 2 funds. For two-thirds of thesurveyed GPs, the vintage year of their firm’s most recent VC fund lies in the last three years.
The vast majority of the respondents are early-stage investors (see Figure 7), while ICT is clearly thedominant sector in the sample (see Figure 8), followed by Life Sciences and Services.
Figure 7: GPs’ investment stage focus
800

7

No of respondents

700
137

600

384

500
219

400

278

300
200
100

130

368

325

144

0
Seed

Early

Most important

2nd most important

Later/growth stage
3rd most important

Q. What is (are) the most important stage(s) in which your firm invests?

Figure 8: GPs’ most important target industries for VC investments
700

No of respondents

600

33
94

500
400
300

513

200

64

85

109

100

78
86

143

62
26

38

CleanTech

Manufacturing

Services

2nd most important

3rd most importantLife Sciences
Most important

160

54

0
ICT

107

Q. Select up to three of the most important industries in which your firm invests in venture capital.

Apart from the already established technology industries, VC managers were asked about
investments in relatively newer sectors that are currently in the public discussion and whose
importance is on the rise. Compared to the EIF VC Survey 2018, this list of sectors has been7

significantly enriched to include new topics in the public debate but also to incorporate the feedback
received from GPs who participated in the previous survey wave. As shown in Figure 9, Artificial
Intelligence (AI), Digital Health, DeepTech, Fintech and E-commerce take leading positions.
Figure 9: Likelihood of current portfolio including an investee in specific industries
Percentage of respondents
20%
40%
60%
80%

0%
Agriculture / bio-economy

31%

69%

Artificial intelligence / machine learning

76%

Blockchain technology
Blue economy / sustainable use of maritime resources

23%

23%

76%

9%

90%

Cybersecurity

35%

64%

Deep technology

56%

41%

Digital health

58%

42%

Dual use (civil / defence) technologies

14%

83%

E-commerce

55%

Energy efficiency / renewable energy

36%

Fintech

Yes

64%
56%

Social economy
Space

44%
43%

23%
10%
No

74%
89%

I don't know

Q. Does your current investment portfolio include an investee in the area of …

8

100%

3 Market sentiment
As discussed in the Introduction of this report, one part of the survey focused on market sentimentand aimed at identifying participating VC managers’ perception of the current market situation as
well as of future outlook. Therefore, a significant number of questions covered a range of topics
relating to the state of business, the availability of funding and the fundraising environment, portfolio
development, the challenges in the European VC business, the overall prospects of the VC market
in Europe as well as countries and industries considered promising for future VC investments.

3.1 State of business
As in the EIF VC Survey 2018, in 2019 VC managers continue to appear very positive regarding
both the current and the future state of their business. An overwhelming majority of 86% (2018: also86%) consider their current state of business to be “good” or “very good” (see Figure 10). The
outlook for the next 12 months 8 continues to be optimistic, given that almost two thirds (63%; 2018:69%) of VC managers expect a further improvement in their state of business.
Figure 10: Current and future state of businessCurrent state of business continues to be perceived positive;
further improvement is expected in the next 12 months
Current state of business

Future state of business

100%

100%

90%

90%
80%
Good/very good

70%
60%

Percentage of respondents

Percentage of respondents

80%

Undecided

86%

86%

50%

Bad/very bad

40%
30%

12%

0%
2018

1%

14%

69%

60%

30%

0%

27%
25%
5%
2018

2019

Stay the same
Slightly/Strongly
deteriorate

40%

10%

1%

63%

50%

20%

20%
10%

70%

Slightly/Strongly
improve

10%
2019

Q. How would you assess the current state of your business?
Q. How do you expect the state of your business to change over the next 12 months?

For several questions, we report fund managers’ responses regarding their expectations for the next 12 months. In thiscontext, it needs to be taken into consideration that the survey was conducted between 7 February and 18 March 2019.
89

It needs to be noted, however, that a significant degree of heterogeneity does exist across countries,
industries and investment stage focus. For example, based on the headquarter location of the VC
firm 9 (see Figure 11), we observe that while, on balance, 7 in 10 VC managers in CESEE and theSouth expect an improvement in their state of business over the next 12 months, the same is true for
only 1 in 10 VC managers in France.

83%

11%

35%

49%

72%

64%

83%

87%

83%

87%
71%

56%

82%

88%

Net percentage of respondents

Figure 11: Current and future state of business (net balance) – by VC firm headquarter

Benelux

CESEE

DACH

Net positive current state of businessFranceNordicsSouth

UK & Ireland

Net improvement in state of business, next 12 months

Note: “Net positive current state of business” reflects the percentage of respondents rating their current state of business as“good” or “very good” minus the percentage of respondents rating their current state of business as “bad” or “very bad”.
“Net improvement in state of business, next 12 months” reflects the percentage of respondents expecting their state ofbusiness to “slightly” or “strongly improve” over the next 12 months minus the percentage of respondents expecting theirstate of business to “slightly” or “strongly deteriorate” over the next 12 months.

ICTLife Sciences

Net positive current state of business

CleanTech

Manufacturing

66%

87%
62%

73%
54%

41%

54%

63%

81%

89%

Net percentage of respondents

Figure 12: Current and future state of business (net balance) – by VC main target industry

Services

Net improvement in state of business, next 12 months

Note: “Net positive current state of business” reflects the percentage of respondents rating their current state of business as“good” or “very good” minus the percentage of respondents rating their current state of business as “bad” or “very bad”.
“Net improvement in state of business, next 12 months” reflects the percentage of respondents expecting their state ofbusiness to “slightly” or “strongly improve” over the next 12 months minus the percentage of respondents expecting theirstate of business to “slightly” or “strongly deteriorate” over the next 12 months.

Based on the respondents’ distribution by headquarter country, country groupings are as follows: 135 respondents from
Benelux (Belgium, Netherlands, Luxembourg); 107 respondents from CESEE (here: Bulgaria, Croatia, Cyprus, Czech
Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Turkey, Other); 141 respondents from
DACH (Germany, Austria, Switzerland); 63 respondents from France; 90 respondents from the Nordics (Denmark, Finland,
Norway, Sweden); 102 respondents from the South (here: Italy, Portugal, Spain); 136 respondents from the UK & Ireland.
910

When the industry focus is taken into consideration (see Figure 12), GPs investing mainly in
CleanTech appear relatively less positive regarding their current state of business, while GPs investing
mainly in Life Sciences exhibit the least optimistic outlook for the year ahead. Finally, VC fundmanagers investing mainly in later/growth-stage companies are relatively less positive regarding boththeir current state of business as well as future prospects (see Figure 13).

Seed

Net positive current state of business

50%
Early

47%

82%

87%
58%

84%

Net percentage of respondents

Figure 13: Current and future state of business (net balance) – by VC investment stage focus

Later/growth stage

Net improvement in state of business, next 12 months

Note: “Net positive current state of business” reflects the percentage of respondents rating their current state of business as“good” or “very good” minus the percentage of respondents rating their current state of business as “bad” or “very bad”.
“Net improvement in state of business, next 12 months” reflects the percentage of respondents expecting their state ofbusiness to “slightly” or “strongly improve” over the next 12 months minus the percentage of respondents expecting theirstate of business to “slightly” or “strongly deteriorate” over the next 12 months.

11

3.2 Availability of funding and fundraising environment
Consistent with the results of the EIF VC Survey 2018, this year’s findings also suggest that fundraisingcontinues to be perceived as an important issue in the VC business. As seen in Figure 14, 1 in 2 VC
fund managers consider the current fundraising environment to be “good” or “very good”, but only
1 in 5 anticipate a further improvement in the near future. In fact, 35% of the GPs expect thefundraising environment for VC funds in Europe to deteriorate in the course of the next 12 months(up from 17% the year before).
VC managers in DACH, France and Benelux (see Figure 15) evaluate relatively more positively thecurrent fundraising environment, as opposed to VC managers in CESEE and the South where only 1
in 10, on balance, exhibit a positive perception. Interestingly however, when it comes to future
prospects, it is fund managers from the same two regions who demonstrate the most optimistic
outlook (VC managers in the South, on balance, even expect an improvement in the fundraising
environment over the next 12 months).
The same holds true for VCs investing mainly in Services (see Figure 16), while for VCs investing
mainly in Manufacturing and in ICT, a relatively more negative outlook is documented.
Figure 14: Current and future fundraising environment
1 in 2 GPs evaluate positively the current fundraising environment;
but 1 in 3 expect a deterioration in the next 12 months
Future fundraising environment

100%

100%

90%

90%

80%

80%

70%

49%

51%

Good/very good60%

Undecided50%

Bad/very bad

Percentage of respondents

Percentage of respondents

Current fundraising environment

40%
30%

38%

34%

20%
10%

35%

70%

Slightly/strongly
improve

60%

Stay the same

50%

48%

15%

30%

2018

2019

10%

0%

44%

40%

20%
13%

20%

35%
17%

0%
2018

2019

Q. How would you rate the current fundraising environment for VC funds?
Q. Over the next 12 months, how do you expect the fundraising environment to develop?

12Slightly/strongly
deteriorate

52%
France13%
NordicsSouth

UK & Ireland

Net positive current fundraising environment

-20%

-21%

-27%

-20%

-7%

CESEE

13%

25%

39%

54%
DACH

14%
Benelux-23%

Net percentage of respondents

51%

Figure 15: Current and future fundraising environment (net balance) – by VC firm headquarter

Net improvement in fundraising environment, next 12 months

Note: “Net positive current fundraising environment” reflects the percentage of respondents rating the current fundraising
environment as “good” or “very good” minus the percentage of respondents rating the current fundraising environment as“bad” or “very bad”. “Net improvement in fundraising environment, next 12 months” reflects the percentage of respondents
expecting the fundraising environment to “slightly” or “strongly improve” over the next 12 months minus the percentage of
respondents expecting the fundraising environment to “slightly” or “strongly deteriorate” over the next 12 months (a negative
net value suggests a deterioration).

53%
3%

22%

31%

44%

34%

CleanTech-6%

Life Sciences

-3%

ICT

Net positive current fundraising environment

Manufacturing

Services

-27%

-20%

Net percentage of respondents

Figure 16: Current and future fundraising environment (net balance) – by VC main target industry

Net improvement in fundraising environment, next 12 months

Note: “Net positive current fundraising environment” reflects the percentage of respondents rating the current fundraising
environment as “good” or “very good” minus the percentage of respondents rating the current fundraising environment as“bad” or “very bad”. “Net improvement in fundraising environment, next 12 months” reflects the percentage of respondents
expecting the fundraising environment to “slightly” or “strongly improve” over the next 12 months minus the percentage of
respondents expecting the fundraising environment to “slightly” or “strongly deteriorate” over the next 12 months (a negative
net value suggests a deterioration).

13

Later/growth-stage VCs (see Figure 17) exhibit the greatest degree of deviation between their current
and future perception of the fundraising environment, being the ones who rate relatively morepositively the current fundraising environment, but at the same time the ones who expect to a greater
extent a deterioration of the fundraising environment in the future.

Early

Later/growth stage

-15%

-13%

Seed

Net positive current fundraising environment-21%

Net percentage of respondents

31%

35%

46%

Figure 17: Current and future fundraising environment (net balance) – by VC investment stage focus

Net improvement in fundraising environment, next 12 months

Note: “Net positive current fundraising environment” reflects the percentage of respondents rating the current fundraising
environment as “good” or “very good” minus the percentage of respondents rating the current fundraising environment as“bad” or “very bad”. “Net improvement in fundraising environment, next 12 months” reflects the percentage of respondents
expecting the fundraising environment to “slightly” or “strongly improve” over the next 12 months minus the percentage of
respondents expecting the fundraising environment to “slightly” or “strongly deteriorate” over the next 12 months (a negative
net value suggests a deterioration).

Leaving aside the general market conditions with regard to fundraising, when VC fund managers are
asked to evaluate the availability of funding to finance their own portfolio companies’ prospects, amore favourable picture is portrayed (see Figure 18). In particular, almost two thirds of the
respondents rate the availability of funding as “good” or “very good”.
Figure 18: Availability of funding to finance own portfolio companies’ prospects

9%
Bad/very bad
Average
Good/very good

28%

64%

Availability of funding tofinance own portfolio
companies’ prospects
is perceived good

Q. How would you rate the availability of funding to finance your portfolio companies’ prospects?

14However, this finding is not homogeneous across regions, sectors and investment stages.

75%

54%

54%
36%

47%

62%

61%

Net percentage of respondents

Figure 19: Availability of funding (net balance) – by VC firm headquarter

Benelux

CESEE

DACH

FranceNordics

South

UK &
Ireland

Net availability of funding
Note: “Net availability of funding” reflects the percentage of respondents rating the availability of funding as “good” or“very good” minus the percentage of respondents rating the availability of funding as “bad” or “very bad”.

Similarly to the pattern documented earlier for the current fundraising environment, the availabilityof funding appears to be better in France, DACH and Benelux (in France, 3 in 4 GPs, on balance,
rate positively the availability of funding to finance their portfolio companies’ prospects) and worsein CESEE and the South (in CESEE, the availability of funding is perceived positively by only 1 in 3
GPs, on balance), see Figure 19.
Furthermore, the issue of available funding is more acute for VCs investing mainly in CleanTech andin Manufacturing (see Figure 20) as well as for VCs investing mainly in seed-stage companies (seeFigure 21).

15

58%
22%

38%

53%

60%

Net percentage of respondents

Figure 20: Availability of funding (net balance) – by VC main target industry

ICT

Life Sciences

CleanTech

Manufacturing

Services

Net availability of funding
Note: “Net availability of funding” reflects the percentage of respondents rating the availability of funding as “good” or“very good” minus the percentage of respondents rating the availability of funding as “bad” or “very bad”.

56%
52%

Net percentage of respondents

59%

Figure 21: Availability of funding (net balance) – by VC investment stage focus

Seed

Early

Later/growth stage

Net availability of funding
Note: “Net availability of funding” reflects the percentage of respondents rating the availability of funding as “good” or“very good” minus the percentage of respondents rating the availability of funding as “bad” or “very bad”.

Compared to 2018, this year’s survey findings show an improvement in the easiness in finding coinvestors (see Figure 22): a significant majority of VC managers (65%; up from 56% in 2018) foundrelatively easily co-investors to syndicate, while no significant changes are expected in the coming
12 months. At the same time though, the responses suggest that almost one third of the GPs didreport difficulties in finding co-investors.

16

Figure 22: Finding co-investors to syndicate, currently and over the next 12 months
Finding co-investors to syndicate is perceived easier; stable outlook for the next 12 months
Finding co-investors, next 12 months

100%

100%

90%

90%

80%
70%
60%

65%
56%

I did not searchfor co-investors

50%
40%

Difficult/very
difficult

4%
7%

30%
20%

Easy/very easy

39%

10%

17%

20%
Slightly/mucheasier80%
70%

Stay the same

60%
50%

73%

70%

40%

Slightly/much
more difficult

30%
20%

29%

10%

0%
2018

Percentage of respondents

Percentage of respondents

Finding co-investors, currently

0%

2019

10%

11%

2018

2019

Q. How easy/difficult is it currently to find co-investors to syndicate?
Q. Over the next 12 months, how do you expect finding co-investors to syndicate to become?

A more detailed analysis of the responses reveals however significant variations across regions andindustries. As seen in Figure 23, VC managers in France (59%, on balance) and DACH (52%, onbalance) currently report greater easiness in finding co-investors to syndicate, as opposed to VCs in
the UK & Ireland (29%, on balance) and the South (16%, on balance). At the same time though,GPs in France are the only ones who expect, on balance, finding co-investors to become moredifficult in the future; while the easiness in finding co-investors is expected to improve the most in
CESEE.
Furthermore, for VC managers investing mainly in Manufacturing and in CleanTech (see Figure 24),finding co-investors to syndicate is currently rather difficult, as opposed to VCs investing mainly in
ICT and in Life Sciences. Nonetheless, CleanTech investors exhibit the most optimistic outlook.
As regards the investment stage focus (see Figure 25), GPs investing mainly in later/growth-stage
companies report a relatively lower easiness in finding co-investors, with no change expected in thisrespect for the 12 months ahead.

17

59%

16%
DACH

FranceNordicsSouth

UK & Ireland

-2%

CESEE

0%

4%

4%
Benelux

19%

29%

38%

52%
24%

32%

34%
10%

Net percentage of respondents

Figure 23: Easiness in finding co-investors (net balance) – by VC firm headquarter

Net easiness in finding co-investors, currently

Net easiness in finding co-investors, next 12 months

Note: “Net easiness in finding co-investors, currently” reflects the percentage of respondents who perceive finding coinvestors as “easy” or “very easy” minus the percentage of respondents who perceive finding co-investors as “difficult” or“very difficult”. “Net easiness in finding co-investors, next 12 months” reflects the percentage of respondents who expect
finding co-investors to become “slightly” or “much easier” minus the percentage of respondents who expect finding coinvestors to become “slightly” or “much more difficult” (a negative net value suggests an increase in difficulty).

8%

6%

Net easiness in finding co-investors, currently

Manufacturing

Services-4%

CleanTech-8%

Life Sciences

-2%

ICT

13%

21%

34%
10%

Net percentage of respondents

44%

Figure 24: Easiness in finding co-investors (net balance) – by VC main target industry

Net easiness in finding co-investors, next 12 months

Note: “Net easiness in finding co-investors, currently” reflects the percentage of respondents who perceive finding coinvestors as “easy” or “very easy” minus the percentage of respondents who perceive finding co-investors as “difficult” or“very difficult”. “Net easiness in finding co-investors, next 12 months” reflects the percentage of respondents who expect
finding co-investors to become “slightly” or “much easier” minus the percentage of respondents who expect finding coinvestors to become “slightly” or “much more difficult” (a negative net value suggests an increase in difficulty).

18

0%

9%

11%

29%

Net percentage of respondents

36%

39%

Figure 25: Easiness in finding co-investors (net balance) – by VC investment stage focus

Seed

Early

Net easiness in finding co-investors, currently

Later/growth stage

Net easiness in finding co-investors, next 12 months

Note: “Net easiness in finding co-investors, currently” reflects the percentage of respondents who perceive finding coinvestors as “easy” or “very easy” minus the percentage of respondents who perceive finding co-investors as “difficult” or“very difficult”. “Net easiness in finding co-investors, next 12 months” reflects the percentage of respondents who expect
finding co-investors to become “slightly” or “much easier” minus the percentage of respondents who expect finding coinvestors to become “slightly” or “much more difficult” (a negative net value suggests an increase in difficulty).

Finally, the overwhelming majority of VC managers (84%; slightly below the 89% reported in 2018)state that they intend to raise another fund to make VC investments within the next five years – see
Figure 26 (with broadly similar percentages noted across regions, industries and investment stages).
Figure 26: Intention to raise another fund within the next 5 years
100%
90%

Most VCs intend to raise
another fund within thenext 5 years

Percentage of respondents

80%
70%
60%

Yes

89%
84%

Maybe

50%

No

40%
30%
20%
10%

8%

0%
2018

11%
3%

5%

2019

Q. Do you intend to raise another fund to make venture capital investments within the next five years?

19

Among those who stated that they would indeed raise or at least consider raising another fund within
the next five years, 53% of the respondents indicated that early stage would be the most likely stage
focus of such a fund (see Figure 27).
Figure 27: Most likely stage focus of next fund within 5 years
3%
Seed

Raising an early-stage fund ismost likely in the next 5 years

20%
24%

Early
Later/growthstage
I don't know

53%

Q. What will be the most likely stage focus of your next fund?

However, the likely stage focus of the next fund is largely influenced by the current investment
stage focus of the GPs (see Figure 28). It is only in the case of current seed-stage investors
that a more balanced prospect with respect to future funds is documented.

Seed

Seed

Early

Later/growth stage

5%

11%

Early

0%

3%

3%

1%

5%

17%

44%

49%

Percentage of respondents

77%

84%

Figure 28: Most likely stage focus of next fund within 5 years – by current VC investment stage focus

Later/growth stage

I don't knowWith the availability of funding to finance portfolio companies’ prospects being comparatively lower
at the seed stage than at other investment stages, the relatively large share of seed-stage fundmanagers that are likely to move away from their current stage focus might further decrease theavailability of finance for seed-stage enterprises through VC funds. Therefore, other ways of seedstage financing (e.g., in the form of BA financing or accelerators) might become more important,and policymakers should consider broadening public support measures accordingly.
20

3.3 Investments and portfolio development
Based on the responses of the VC managers that participated in the survey, the average (median)number of qualified venture investment proposals received over the last 12 months is 628 (300),with almost one third of the GPs however (222 out of total 774) receiving not more than 100
proposals (see Figure 29).
Almost two thirds of the surveyed VC managers do not invest in more than 5 of these investment
proposals (see Figure 30). The implied average investment rate (Number of proposals invested
in/Number of qualified venture investment proposals received) for the entire sample is 4%; it does
vary, however, across firms. For example, for VC firms not receiving more than 10 qualified venture
investment proposals, the implied average investment rate reaches almost 30%, significantly
decreasing thereafter the more proposals a firm receives.

35%

No of respondents

140
120

28.9%

100

120
96

89

25%

93

40

37

75

72

10.0%

0

3.3%

2.6%

20%
15%

38
5.4%

20

79

75

80
60

30%

10%
5%

1.2%

0.9%

0.9%

0.6%

0.5%

0%

Average implied investment rate

Figure 29: Number of investment proposals received and implied investment rate

No of investment proposals received
No of respondents in each cluster

Average implied investment rate per cluster

Q. Approximately, how many qualified venture investment proposals did your firm receive over thelast 12 months?
Q. In how many ventures did your firm invest over the last 12 months?

Figure 30: Number of proposals invested in
No of respondents

200
160

164

175

140

117

120

88

70

80

20

40
0
≤1

2-3

4-5

6-7

8-10

No of proposals invested in

Q. In how many ventures did your firm invest over the last 12 months?

21

11-20

>20

Over the next 12 months, VC managers expect, on average, an increase both in the investment
proposals they will receive as well as in the number of new venture investments they will undertake(see Figure 31).
Figure 31: Investment proposals and new venture investments, next 12 months
Investment proposals and new venture investments
expected to increase in the next 12 months
New investments, next 12 months

Investment proposals, next 12 months
100%

100%
Slightly/strongly
increase

80%
54%

70%

Percentage of respondents

Percentage of respondents

90%
55%

Stay the same

60%
50%

Slightly/strongly
decrease

40%
30%

42%

20%

40%

90%
80%
70%

50%

50%

0%

3%

6%

2018

2019

Slightly/strongly
decrease

40%
30%

10%
0%

Slightly/strongly
increase
Stay the same

60%

42%
39%

20%

10%

52%

8%

9%

2018

2019

Q. How do you expect the number of qualified venture investment proposals to your firm to develop overthe next 12 months?
Q. How do you expect the number of your new venture investments to develop over the next 12 months?

49%

48%

Benelux

Nordics

South

CESEE

DACH

34%

35%

42%

46%

50%

Net percentage of respondents

Figure 32: New venture investments (net balance), next 12 months – by VC firm headquarter

FranceUK &Ireland

Net increase in new venture investments, next 12 months
Note: “Net increase in new venture investments, next 12 months” reflects the percentage of respondents expecting their
new venture investments to “slightly” or “strongly increase” over the next 12 months minus the percentage of respondents
expecting their new venture investments to “slightly” or “strongly decrease” over the next 12 months.

22

Having said this, it is worth mentioning some interesting variations based on the regional (see Figure32) and sectoral (see Figure 33) distribution of respondents. In particular, new venture investments
are expected to increase the most in Benelux, Nordics and the South, while GPs in the UK & Ireland
appear more reserved regarding their future investments. Similarly, new venture investments are
expected to increase the most in the Services and CleanTech sectors, and the least in the
Manufacturing sector.

66%
23%

39%

47%

59%

Net percentage of respondents

Figure 33: New venture investments (net balance), next 12 months – by VC main target industry

ICT

Life Sciences

CleanTech

Manufacturing

Services

Net increase in new venture investments, next 12 months
Note: “Net increase in new venture investments, next 12 months” reflects the percentage of respondents expecting their
new venture investments to “slightly” or “strongly increase” over the next 12 months minus the percentage of respondents
expecting their new venture investments to “slightly” or “strongly decrease” over the next 12 months.

Figure 34: Portfolio development, past and next 12 months
Portfolio development during 2018 was (at least) in line with expectations;further improvement is expected in the next 12 months
Portfolio development, last 12 months

Portfolio development, next 12 months
100%

90%
80%

44%

44%

70%

Slightly/significantly
above expectations
As expected

60%
50%
40%

46%

30%

43%

Slightly/significantly
below expectations

20%
10%
0%

9%

13%

2018

2019

Percentage of respondents

Percentage of respondents

100%

90%
Slightly/significantly
improve

80%
70%
60%

85%
Stay the same

80%

50%
40%

Slightly/significantly
deteriorate

30%
20%
10%

14%

0%
2018

1%

18%

2%

2019

Q. How did your venture portfolio companies develop over the last 12 months?
Q. Over the next 12 months, how do you expect your overall venture portfolio to develop?

23

When asked about the actual development of their portfolio over the last year (see Figure 34), almost
9 in 10 VC managers (same as in 2018) state that investee company performance was in line withexpectations (43%) or that it even exceeded expectations (44%). VC managers are even more
optimistic when it comes to future portfolio development, as 8 in 10 expect further improvement in
the year ahead.
However, 26% of the GPs investing mainly in CleanTech (see Figure 35) as well as 21% of the GPs
investing mainly in later/growth-stage companies (see Figure 36) did report that the development of
their portfolio companies in the course of 2018 was below expectations. Both groups are nonethelessmuch more optimistic regarding their portfolio development in the next 12 months (results notpresented here for the sake of brevity).

Slightly/Significantly below expectations

CleanTech

As expected

37%

38%

47%

42%

16%

Life Sciences

19%

10%

ICT

26%

52%

48%

26%

38%

49%
40%
12%

Percentage of respondents

Figure 35: Portfolio development, last 12 months – by VC main target industry

Manufacturing

Services

Slightly/Significantly above expectations

Early

As expected

24

21%

Seed

Slightly/Significantly below expectations

35%
44%

49%
9%

43%

43%
43%
14%

Percentage of respondents

Figure 36: Portfolio development, last 12 months – by VC investment stage focus

Later/Growth

Slightly/Significantly above expectations

As will be seen in subsequent questions too, the exit environment continues to be a major
consideration. VC managers reported no exit activities (see Figure 37) over the last 12 months forthe vast majority (71%, on average; 2018: 78%) of their portfolio companies.
Figure 37: Exit activities of portfolio companies over the past 12 months
Average % of portfolio exit via each activity
0%

20%

40%

60%

80%

100%

71%

No exit78%

Trade sales
continue to dominate
the exit activity

16%

Trade sale

11%

5%

Insolvency liquidation

4%

IPO

3%

Secondary sale2%

Other exits

1%

2019
2018

3%

3%

2%

Q. Assess the exit activities in your overall venture portfolio over the last 12 months.

As far as the specific types of exit are concerned, the pattern documented for the overall sample isgenerally consistent across regions, industries and investment stages. The only significant
differentiation comes about in the case of France (see Figure 38) which documented the highest
percentage of exits via IPO (8%; almost three times the sample average) and in the Life Sciences
sector (see Figure 39) for the exact same reason.
Figure 38: Exit activities of portfolio companies over the past 12 months – by VC firm headquarter
0%

10%

Average % of portfolio exit via each activity
20%
30%
40%
50%
60%

70%

80%

90%

Other exits

No exit

Benelux
CESEE
DACHFranceNordicsSouth
UK & Ireland
Trade sale

IPO

Insolvency / liquidation

25

Secondary sale100%Figure 39: Exit activities of portfolio companies over the past 12 months – by VC main target industry
Average % of portfolio exit via each activity
0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

ICT
Life Sciences
CleanTech
Manufacturing
Services
Trade sale

IPO

Insolvency / liquidation

Secondary sale

Other exits

No exit

The exit prospects for the next 12 months continue to be perceived positive (see Figure 40), even if
to a lesser extent with regard to a year ago: 52% of the VC managers expect an improvement in theexit opportunity of their investee companies in the year ahead, compared to 64% who shared thisoptimism in 2018.
Figure 40: Exit opportunities for portfolio companies over the next 12 months
Exit opportunities, next 12 months
100%
Percentage of respondents

90%
80%

Slightly/strongly improve

64%

70%

52%

60%
50%

Slightly/strongly
deteriorate

40%
30%
20%

Improved
exit opportunities expected
for the next 12 months

38%
32%

10%
0%

Stay the same

4%

2018

10%
2019

Q. Over the next 12 months, how do you expect the exit opportunities of your venture portfolio companies
to develop?

26

It is important to note that almost 1 in 5 VC managers in the UK & Ireland (see Figure 41) and 1 in
3 VC mangers investing mainly in Manufacturing (see Figure 42) expect in fact a deterioration in theexit potential of their portfolio companies.

4%

CESEE

DACH

FranceNordics

South

As expected

18%

9%

37%

11%

Benelux

Slightly/strongly deteriorate

46%
37%

59%

57%
34%

49%

12%

40%

48%

7%

36%

40%

58%

52%
39%
9%

Percentage of respondents

Figure 41: Exit opportunities for portfolio companies over the next 12 months – by VC firm
headquarter

UK & Ireland

Slightly/strongly improve

Life Sciences

CleanTech

Slightly/strongly deteriorate

As expected

27

58%

50%

34%

23%

8%

ICT

27%

48%
9%

43%

58%
10%

32%

50%
40%
10%

Percentage of respondents

Figure 42: Exit opportunities for portfolio companies over the next 12 months – by VC main target
industry

Manufacturing

Services

Slightly/strongly improve3.4 Important challenges in the European VC business
The exit environment and fundraising continue to be perceived as the biggest challenges in VC
business (see Figure 43), with approximately 40% of European GPs ranking them as such. Highinvestee company valuations (ranked 6th in 2018) completes the list of the top three challenges in
2019. This latter finding together with the fact that competition from other investors also gained
significantly in importance (currently ranked 6th, up five places compared to 2018) point to anincreasingly competitive environment in the European VC market. This is particularly the case for
GPs mainly investing in ICT, CleanTech and Services (see Figure 44) as well as for later/growthstage investors (see Figure 45). It will therefore be very interesting to monitor the evolution of thistrend in subsequent survey waves.
Figure 43: Biggest challenges in VC business
Exit environment and fundraisingcontinue to be perceived as the biggest challenges in VC business
Percentage of respondents
0%

10%

20%

30%

40%

Exit environment [1]40.2%

Fundraising [2]39.9%High investee company valuations [6]39.5%

Number of high quality entrepreneurs [4]

38.6%
25%

Investee company performance [7]Competition from other investors [11]19%Regulation [8]

18%
15%

Small fund sizes [5]14%Market volatility [10]11%

IPO market [3]10%Brexit [13]9%Other political uncertainty [9]Cross-border market fragmentation [12]Fee pressure [14]Most important

50%

6%
4%
2nd most important

3rd most important

Note: The number in brackets [ ] corresponds to the ranking of the respective challenge in the EIF VC Survey 2018.

Q. Select up to three of the biggest challenges you currently see in venture capital business.

28

Figure 44: Most important challenge in VC business – by VC main target industry
ICT

Life Sciences

CleanTech

Manufacturing

Services

High investee
company
valuations

Number ofhigh quality
entrepreneurs

High investee
company
valuations

Exit
environment

High investee
company
valuations

Figure 45: Most important challenge in VC business – by VC investment stage focus
Seed stage

Early stage

Later/growth stage

Fundraising

Exit
environment

High investee
company
valuations

A certain degree of variation regarding the relative ranking of the challenges also exists acrossregions (see Figure 46). Compared to 2018, the top three challenges have largely remained thesame in each region. 10 Same as last year, while Brexit is ranked very low in the list of challenges forthe overall sample of surveyed GPs, it is still perceived as an important challenge for VC firms
headquartered in the UK & Ireland (but no longer the most significant challenge as was the case ayear ago).

The most significant changes are documented in DACH (where “high investee company valuations” and “fundraising”
have replaced the “IPO market” and “regulation” in the list of the top three challenges) and in the South (where “small
fund sizes” no longer appears in the top three challenges and has instead been replaced by “high investee company
valuations”).
1029

Figure 46: Top 3 challenges in VC business – by VC firm headquarter

Number of high-quality entrepreneurs
High investee company valuations
Exit environment
High investee company valuations
Fundraising
Number of high-quality entrepreneurs

FundraisingHigh investee
company valuations
BrexitExit environment
High investee company valuations
Fundraising

Number of high-quality entrepreneurs
Exit environment
FundraisingHigh investee company valuations
Exit environment
Fundraising
Exit environment
FundraisingHigh investee company valuations

30

At the individual portfolio level, for the second year in a row, recruiting high-quality professionals is
perceived as the number one challenge faced by investee companies (see Figure 47). The same
holds true for all regions, industries and investment stages (results not presented here for the sake ofbrevity). Securing financing is the second most important challenge for investee companies.
Figure 47: Biggest challenges faced by portfolio companies
Percentage of respondents
0%

20%

40%

60%

80%

Recruiting high-quality professionals [1]81%

Securing financing [2]60%

Customer acquisition and retention [3]58%Internationalisation [4]37%Strong competition [6]18%Regulation [5]16%Costs of production and labour [new]14%

Most important100%

2nd most important

Recruiting
high-quality
professionals andsecuring financing
continue to beperceived as thebiggest challenges
for investee
companies

3rd most important

Note: The number in brackets [ ] corresponds to the ranking of the respective challenge in the EIF VC Survey 2018.

Q. What are the largest current challenges faced by your portfolio companies?

31

3.5 Overall prospects of the European VC market, promising countries and industries
Compared to a year ago, VC managers are relatively less optimistic regarding the prospects of the
VC market in Europe. In 2019, 38% of the GPs expect that investment activities in the European VC
market will improve over the next 12 months, compared to 57% in 2018 (see Figure 48).
Furthermore, the percentage of GPs who expect investment activities to deteriorate has doubled (1in 5 GPs in 2019, compared to 1 in 10 in 2018).
Figure 48: Investment activities in the European VC market over the next 12 months
100%

Percentage of respondents

90%
80%

57%
38%

70%
60%
50%

42%

40%
30%

Investment activities
expected, on balance,
to improvein the next 12 months,
but the share ofpessimistic VCs has
increased since 2018

33%

20%
10%
0%

20%

11%
2018

Slightly/strongly deteriorate

2019
Stay the same

Slightly/strongly improve

Q. Over the next 12 months, what do you expect to happen to investment activities in the European venture
capital market?

In this respect, the regional, sectoral and investment-stage variations are noteworthy and they echo
to a significant extent the results reported earlier regarding the GPs’ future state of business (seeFigure 11 to Figure 13).
Indeed, according to Figure 49, VC managers in the South (39%, on balance) and CESEE (31%, onbalance) appear to be the most optimistic regarding future investment prospects, as opposed to VCs
in France (only 5%, on balance) and in the UK & Ireland (who actually expect a deterioration of
investment activities in the European VC market).
When industry focus is taken into consideration (see Figure 50), VC managers investing mainly inLife Sciences (22%, on balance) and ICT (20%, on balance) expect an improvement of the VC
investment activities in Europe, while, at the other end of the spectrum, VCs investing mainly in
Manufacturing expect, on balance, a deterioration.
Finally, later/growth-stage GPs (see Figure 51) also appear more conservative in their expectations,as opposed to GPs focusing on other investment stages.

32

39%
22%

25%

31%

5%

10%
Benelux

CESEE

DACH

FranceNordicsSouth

UK & Ireland-2%

Net percentage of respondents

Figure 49: Investment activities in the European VC market (net balance), next 12 months – by VC
firm headquarter

Net improvement in investment activities, next 12 months
Note: “Net improvement in investment activities, next 12 months” reflects the percentage of respondents expecting
investment activities in the European VC market to “slightly” or “strongly improve” over the next 12 months minus thepercentage of respondents expecting investment activities in the European VC market to “slightly” or “strongly deteriorate”
over the next 12 months (a negative net value suggests a deterioration).

6%

18%

22%

20%
ICT

Life Sciences

CleanTech

Manufacturing

Services-8%

Net percentage of respondents

Figure 50: Investment activities in the European VC market (net balance), next 12 months – by VC
main target industry

Net improvement in investment activities, next 12 months
Note: “Net improvement in investment activities, next 12 months” reflects the percentage of respondents expecting
investment activities in the European VC market to “slightly” or “strongly improve” over the next 12 months minus thepercentage of respondents expecting investment activities in the European VC market to “slightly” or “strongly deteriorate”
over the next 12 months (a negative net value suggests a deterioration).

33

21%

Seed

Early

7%

21%

Net percentage of respondents

Figure 51: Investment activities in the European VC market (net balance), next 12 months – by VC
investment stage focus

Later/growth stage

Net improvement in investment activities, next 12 months
Note: “Net improvement in investment activities, next 12 months” reflects the percentage of respondents expecting
investment activities in the European VC market to “slightly” or “strongly improve” over the next 12 months minus thepercentage of respondents expecting investment activities in the European VC market to “slightly” or “strongly deteriorate”
over the next 12 months (a negative net value suggests a deterioration).

GPs who participated in the survey were further asked to indicate on a scale of 1 to 10 their level ofconfidence in the long-term growth prospects of the VC industry in their market and in Europe
altogether (see Figure 52). As far as confidence in the long-term growth prospects of the European
VC industry is concerned, VC managers continue to be relatively optimistic – mean value of 7.47
out of 10 (2018: 7.53/10); and even more so about the long-term growth prospects of the VC
industry in their own market – mean value of 7.71 out of 10 (2018: 7.82/10).
This pattern (i.e. GPs being more confident about the long-term growth prospects of their own market
rather than about Europe altogether) generally holds true across regions, sectors and investment
stages, with the exception of GPs in the South (see Figure 53) and those mainly investing in
Manufacturing (see Figure 54).
When we analyse the GPs’ own market in terms of the headquarter location of their VC firm (seeFigure 53), we note that it is GPs in the DACH (8.0/10), Benelux and the Nordics (both at 7.9/10)
who exhibit, on average, the highest levels of confidence in the long-term growth prospects of theirmarket, as opposed to GPs in the UK & Ireland (7.3/10) and France (7.2/10).
When the sectoral focus is taken into account (see Figure 54), VCs investing mainly in ICT(CleanTech) are the most (least) confident about future prospects in their respective markets.
Finally, later/growth-stage fund managers (see Figure 55) are once again relatively moreconservative (7.3/10) in their perceptions.

34

Figure 52: Confidence in the long-term growth prospects of the VC industry in your market and in
the European VC industry
GPs more confident about the long-term growth prospectsof the VC industry in their own market rather than Europe altogether
mean value on a 1-10 scale

7.71

Confidence in the long-term growth prospects of
the VC industry in your market

7.82

2019

7.47

Confidence in the long-term growth prospects ofthe European VC industry

2018

7.53

Q. On a scale of 1 to 10, how confident are you in the long-term growth prospects of the venture capitalindustry in your market? (1 = Not confident at all; 10 = Very confident)
Q. On a scale of 1 to 10, how confident are you in the long-term growth prospects of the European
venture capital industry? (1 = Not confident at all; 10 = Very confident)

7.9

7.5

7.2

7.3

7.5

7.5

7.6

7.6
7.4

7.5

7.5

7.7

7.9

Mean value on a 1-10 scale

8.0

Figure 53: Confidence in the long-term growth prospects – by VC firm headquarter

Benelux

CESEE

DACH

FranceNordicsSouth

UK & Ireland

Confidence in the long-term growth prospects of the VC industry in your market
Confidence in the long-term growth prospects of the European VC industry

35

7.5

7.5

7.3
6.7

7.2

7.1

7.5

7.7

Mean value on a 1-10 scale

7.8

7.9

Figure 54: Confidence in the long-term growth prospects – by VC main target industry

ICT

Life Sciences

CleanTech

Manufacturing

Services

Confidence in the long-term growth prospects of the VC industry in your market
Confidence in the long-term growth prospects of the European VC industry

7.7

7.3

7.4

7.5

7.6

Mean value on a 1-10 scale

7.8

Figure 55: Confidence in the long-term growth prospects – by VC investment stage focus

Seed

Early

Later/growth stage

Confidence in the long-term growth prospects of the VC industry in your market
Confidence in the long-term growth prospects of the European VC industry

36

In the context of the overall prospects, VC managers were also asked to indicate the countries thatthey would consider most promising for future VC investments. For the second year in a row,
Germany topped the list of most promising countries (see Figure 56). Indeed, Germany was flagged
as a promising country for VC investments over the next 12 months by 1 in 2 surveyed VC managers(with 1 in 4 indicating Germany as the number one most promising country), followed by the UK
and France.
Figure 56: Most promising countries for VC investments over the next 12 months

Germany, UK, France: the 3 most promising countries
for VC investments in the next 12 months

No of respondents

420
360
300
240
180
120
60
Austria
Belgium
Bulgaria
Croatia
CyprusCzech Republic
Denmark
Estonia
FinlandFranceGermany
GreeceHungary
IrelandItaly
LatviaLithuania
Luxembourg
Malta
Netherlands
NorwayPolandPortugal
Romania
Slovakia
Slovenia
Spain
SwedenSwitzerland
TurkeyUnited Kingdom
Other

0

Most promising

2nd most promising

3rd most promising

Q. According to your expectation, select up to three European countries that will be the most promisingfor venture capital investments over the next 12 months.

Comparing the most important countries in which VC managers currently invest with those expected
to be most promising for future VC investments enables us to reflect on the extent to which a change
in country focus might take place (see Figure 57). Indeed, while the UK, Germany and France are
currently the most important countries for VC investments in Europe and are still expected to be themost promising countries for future VC investments, their relative importance might change. The
relative significance of Germany, in particular, in the European VC ecosystem is expected to risestrongly, and so is that of France.
In a follow-up, free-text question, VCs were asked to specify their rationale for choosing the mostpromising country for future VC investments. In the case of Germany, in particular, GPs commented
upon its large and mature VC market as well as upon its quality start-up ecosystem, with a goodnumber of experienced entrepreneurs and potential investee companies available. GPs also referredto the possibility of increased opportunities as a result of the Brexit uncertainty. These reasons help
explain why Germany’s leading position as a promising country for future VC investments goes wellbeyond a so-called “home bias”, meaning that many more GPs consider Germany as a promisingcountry compared to those who already target Germany for their current VC investments.

37

Figure 57: Most important countries for VC investments – current vs. future portfolio
The relative importance of Germany and France
in the European VC ecosystem is expected to rise significantly
420
No of respondents

360
300
240
180
120
60
Austria
Belgium
Bulgaria
Croatia
CyprusCzech Republic
Denmark
Estonia
FinlandFranceGermany
GreeceHungary
IrelandItaly
LatviaLithuania
Luxembourg
Malta
Netherlands
NorwayPolandPortugal
Romania
Slovakia
Slovenia
Spain
SwedenSwitzerland
TurkeyUnited Kingdom
Other

0

Most important country for current VC investments
Most promising country for VC investments over the next 12 months

Q. Select up to three of the most important countries in which your firm invests in venture, in order ofimportance.
Q. According to your expectation, select up to three European countries that will be the most promisingfor venture capital investments over the next 12 months.

Taking into consideration the headquarter location of the respondents’ VC firm, we can also identify
more regional VC hubs such as the Netherlands for GPs in Benelux (see Figure 58), Sweden for GPs
in the Nordics (see Figure 59), Poland and Estonia for GPs in CESEE (see Figure 60) and Spain for
GPs in the South (see Figure 61).
We finally take into account the industry focus of the VC managers and present accordingly thecountries perceived most promising for future VC investments by VCs investing mainly in ICT and inLife Sciences (the two sectors that together make up 85% of the sample). The pattern observed forthe entire sample (where Germany, the UK and France are identified as the three most promisingcountries) holds for the ICT sector too (see Figure 62). For Life Sciences, alongside these lattermarkets, two more countries also emerge as important and promising, namely the Netherlands andSwitzerland (see Figure 63).

38

Austria
Belgium
Bulgaria
Croatia
CyprusCzech Republic
Denmark
Estonia
FinlandFranceGermany
GreeceHungary
IrelandItaly
LatviaLithuania
Luxembourg
Malta
Netherlands
NorwayPolandPortugal
Romania
Slovakia
Slovenia
Spain
SwedenSwitzerland
TurkeyUnited Kingdom
Other

No of respondents

Austria
Belgium
Bulgaria
Croatia
CyprusCzech Republic
Denmark
Estonia
FinlandFranceGermany
GreeceHungary
IrelandItaly
LatviaLithuania
Luxembourg
Malta
Netherlands
NorwayPolandPortugal
Romania
Slovakia
Slovenia
Spain
SwedenSwitzerland
TurkeyUnited Kingdom
Other

No of respondents

Figure 58: Most promising countries for VC investments over the next 12 months – responses fromGPs in Benelux
100

80

60

40

20

0

Most promising

Most promising
2nd most promising

2nd most promising39
3rd most promising

Figure 59: Most promising countries for VC investments over the next 12 months – responses fromGPs in the Nordics
80

60

40

20

0

3rd most promisingAustria
Belgium
Bulgaria
Croatia
CyprusCzech Republic
Denmark
Estonia
FinlandFranceGermany
GreeceHungary
IrelandItaly
LatviaLithuania
Luxembourg
Malta
Netherlands
NorwayPolandPortugal
Romania
Slovakia
Slovenia
Spain
SwedenSwitzerland
TurkeyUnited Kingdom
Other

No of respondents

Austria
Belgium
Bulgaria
Croatia
CyprusCzech Republic
Denmark
Estonia
FinlandFranceGermany
GreeceHungary
IrelandItaly
LatviaLithuania
Luxembourg
Malta
Netherlands
NorwayPolandPortugal
Romania
Slovakia
Slovenia
Spain
SwedenSwitzerland
TurkeyUnited Kingdom
Other

No of respondents

Figure 60: Most promising countries for VC investments over the next 12 months – responses fromGPs in CESEE
40

30

20

10

0

Most promising

Most promising
2nd most promising

2nd most promising40
3rd most promising

Figure 61: Most promising countries for VC investments over the next 12 months – responses fromGPs in the South
70

60

50

40

30

20

10

0

3rd most promising

300
270
240
210
180
150
120
90
60
30
0
Austria
Belgium
Bulgaria
Croatia
CyprusCzech Republic
Denmark
Estonia
FinlandFranceGermany
GreeceHungary
IrelandItaly
LatviaLithuania
Luxembourg
Malta
Netherlands
NorwayPolandPortugal
Romania
Slovakia
Slovenia
Spain
SwedenSwitzerland
TurkeyUnited Kingdom
Other

No of respondents

Figure 62: Most promising countries for VC investments in ICT, next 12 months

Most promising

2nd most promising

3rd most promising

Figure 63: Most promising countries for VC investments in Life Sciences, next 12 months

No of respondents

80
70
60
50
40
30
20
10
Austria
Belgium
Bulgaria
Croatia
CyprusCzech Republic
Denmark
Estonia
FinlandFranceGermany
GreeceHungary
IrelandItaly
LatviaLithuania
Luxembourg
Malta
Netherlands
NorwayPolandPortugal
Romania
Slovakia
Slovenia
Spain
SwedenSwitzerland
TurkeyUnited Kingdom
Other

0

Most promising

2nd most promising

3rd most promising

Apart from the already established VC target industries, VC managers were asked to comment on aseries of some more specific areas of investment. More specifically, fund managers indicated how
likely they consider it that their final portfolio will include an investee in these areas (see Figure 64).
Based on the responses, it is more likely that future VC investments will involve portfolio companies
in the areas of Artificial Intelligence, Digital Health, Deep Technology and Fintech.

41

Figure 64: Likelihood for future portfolio to include an investee in specific industries
No of respondents
Agriculture / bio-economy

294

447

Artificial intelligence / machine learning

670

Blockchain technology

92

392

Blue economy / sustainable use of maritime resources

351

148

585

Cybersecurity

483

Deep technology

271

527

Digital health

209

587

Dual use (civil / defence) technologies

141

166
583

E-commerce

387

366

Energy efficiency / renewable energy

360

388

Fintech514

Social economy

252

Space

155

Likely/Highly likely

236
475
580

Unlikely/Very unlikely

Q. How likely do you consider it that your final portfolio will include an investee in the area of …

Not surprisingly, the aforementioned trend is influenced by the GPs’ current industry focus – with ICT
being the dominant sector in the sample. Results not presented here for the sake of brevity show thatthe final portfolio of VC managers investing mainly in Life Sciences is more likely to include investee
companies in Digital Health, while VCs currently focusing on Clean Technologies are more likely toinclude investee companies in the areas of Energy Efficiency and Renewable Energy in their future
portfolios.
Taking everything into consideration, by comparing the number of respondents who state that theircurrent portfolio includes an investee in a particular area to the number of those who consider it(highly) likely that their future portfolio will include an investee in that same area, we note that while
a significant number of investees already are and will continue to be in Artificial Intelligence, Digital
Health, Deep Technology and Fintech, in the future an increasing number of investees (comparedto the current situation) in Blockchain and Cybersecurity can be expected (see Figure 65).
VC managers were finally given the opportunity to provide their free-text response regarding otherareas that they would consider promising for VC investments in the near future. In this case too,
technology-related areas, in particular in the context of Life Sciences (BioTech, MedTech, etc.) featureprominently (see Figure 66).

42

Figure 65: Likelihood for portfolio to include an investee in specific industries – current vs. final
portfolio
No of respondents
0

50

100

150

200

250

300

350

Agriculture / bio-economy
Artificial intelligence / machine learning
Blockchain technology
Blue economy / sustainable use of maritime resources
Cybersecurity
Deep technology
Digital health
Dual use (civil / defence) technologies
E-commerce
Energy efficiency / renewable energy
FintechSocial economy
Space
Current portfolio includes an investee in …

Future portfolio (highly) likely to include an investee in …

Q. Does your current investment portfolio include an investee in the area of …
Q. How likely do you consider it that your final portfolio will include an investee in the area of …

Figure 66: Other promising areas for future VC investments 11

More technologyrelated areas in thecontext ofLife Sciences
also promisingin the near future

Note:
AI: Artificial Intelligence; AR: Augmented Reality; B2B: Business-to-Business; IoT: Internet of Things; SaaS: Software as aService; VR: Virtual Reality.

Q. What other area do you consider promising in the near future?

The Figure was generated using Wordcloud whereby the bigger the font size the more frequently the respective answer
was mentioned in the free-text field.
1143

4 Role of the public sector: Tax and regulatory interventions in European VC
The EIF VC Survey 2018 covered extensively the topic of the role of the public sector in the European
VC market and provided fund managers with the opportunity to express their views on the existing
public interventions. A key message that emerged from this analysis is that while VC managers doshare general optimism about the European VC market, they still perceive it as underdeveloped andnot dynamic enough. They therefore argued that public support could play a role in stimulating theVC ecosystem in Europe by providing more public resources and by offering tax incentives andensuring simplified and harmonised regulatory systems. For example, in the context of last year’s
survey wave, when fund managers were asked to indicate which elements of the ecosystems helpful
for venture capital are particularly underdeveloped in Europe, “supporting tax systems” featured in
the top two. A similar pattern, i.e. a call for increased harmonisation across the EU28 countries withrespect to legal frameworks and tax systems, was also documented when fund managers were asked
to comment about which governmental support activities are missing in the European market.
Taking into consideration the aforementioned feedback from fund managers, the EIF VC Survey
2019 aimed at deriving concrete policy recommendations as to how this harmonisation could beachieved. In the following, we present the results of the related EIF VC Survey questions. These reflect
the responses of the surveyed fund managers and are not necessarily endorsed by the EIF. To begin
with, this year’s findings confirm the earlier evidence that in the field of tax regulation, harmonisationis very important, given that 70% of the respondents are indeed in favour of more tax harmonisation
across the EU (see Figure 67).
Figure 67: More tax harmonisation across the EU

18%

13%

Yes

More tax harmonisationis needed
70%No

I don't know

Q. Do you think that tax regulation should be more harmonised throughout the EU?

In follow-up open-ended questions, fund managers were given the opportunity to provide their freetext responses about which parts of tax regulation are in need of more EU-wide harmonisation andabout the kind of tax incentives that are necessary to make VC a more attractive asset class. The
fund managers’ responses can be classified into three categories, namely suggestions at the investor
level, at the GP level and finally at the portfolio company level (see Box 1).

44

Box 1: Tax-related interventions and tax incentives that are needed to make VC a more attractive
asset class. Free-text responses: main patterns 12
Investor level:Tax harmonisation for capital gainsTax reliefs for seed/early-stage investmentsPossibility to offset losses against income tax on other sources (or to be carried over)GP level:

Taxation of carried interest as a capital gainRemoval of VAT on management fees

Portfolio company level:
Reduce/harmonise corporate income taxation

Employee stock option plans

Q. For which part of tax regulation would you consider more EU-wide harmonisation most important? Pleaseprovide concrete examples or recommendations.
Q. What kind of tax incentives would be needed to make VC a more attractive asset class? Please provide
concrete examples or recommendations.

Perhaps not surprisingly, a common theme across all three categories is a call to reduce taxation. At
the investor level, for example, fund managers suggest that the provision of tax reliefs, particularly inthe case of seed and early-stage investments, could help attract more LPs. In this respect, many fundmanagers refer to the UK’s EIS (Enterprise Investment Scheme) or SEIS (Seed Enterprise Investment
Scheme) as good practice examples.
At the GP level, taxation of carried interest as a capital gain (and not as a salary/bonus component)
is also in the direction of tax reduction – and has indeed been recently implemented in certain regionsof the EU. 13
Finally, at the portfolio company level, many fund managers highlighted the discrepancy in the tax
treatment of Employee Stock Option Plans (ESOPs) between Europe (where stock options are taxed
at the award date) and the US (where this is done at the exercise of the option, when the money isactually received – usually when the portfolio company goes public or gets acquired). The main
benefit of changing the tax treatment of ESOPs in Europe would be an increase in the capacity to
attract and retain best talents in start-ups. A change in the time at which ESOPs are taxed would also

12
The reported suggestions reflect the views of the surveyed fund managers and are not necessarily endorsed by the EIF.
See European Commission (2017), Effectiveness of tax incentives for venture capital and business angels to foster theinvestment of SMEs and start-ups, doi: 10.2778/51300, for a general overview of best practices in specific VC-related tax
policies. AFME (2017), The Shortage of Risk Capital for Europe’s High Growth Businesses, summarises existing tax incentive
systems for VC in Europe and provides policy recommendations to facilitate investments in European VC.
13
The carried interest, which is a share of a fund’s profits at the time of sale that is kept by the GP, helps align GPs’ andLPs’ incentive structures (Gabison, G.A., Venture Capital Principles in the European ICT Ecosystem, JRC Science for Policy
Report, 2015). High carried interest taxation can distort such incentive structures and induce the creation of complex
investment structures. Moreover, high taxation reduces a GP’s income available for start-up investments. In the US, carriedinterest is generally taxed at reduced long-term capital gains rates (as opposed to ordinary income rates) if certain
requirements are met (Invest Europe, Tax Benchmark Study 2018, Edition June 2018).

45

increase the funds that start-ups have available for investing. 14 Moreover, it could lead to lessconcentrated wealth distribution among a company’s employees in the event of an exit.
When it comes to other regulations, GPs are also in favour both of more harmonisation as well asof greater simplification across the EU (see Figure 68). In the case of regulation, however, it seems
that simplification is relatively more important than harmonisation, given that a greater percentageof respondents agree that regulatory simplification is indeed needed (71%) compared to thepercentage of respondents who support regulatory harmonisation (54%).
Among the key areas identified by the respondents (see Box 2) are easing the requirements toestablish new VC firms and reducing the regulatory burden associated with reporting to theauthorities (particularly for smaller VC firms). Stringent regulations regarding fundraising andmarketing of the fund are also frequently mentioned. For example, some fund managers state that
AIFMD (Alternative Investment Fund Managers Directive) rules are often interpreted differently in
different jurisdictions. Finally, fund managers call for measures to overcome the cross-border market
fragmentation of the European VC market, such as facilitating cross-border investments and ensuring
greater flexibility in the labour law when it comes to hiring and firing.
Figure 68: More regulatory harmonisation and simplification across the EU
100%

Percentage of respondents

90%
80%

24%

35%

5%

70%
60%

10%

50%
40%
30%

More harmonisation andgreater simplificationof regulations is needed

71%
54%

20%
10%
0%
Regulatory harmonisation
across the EU
YesNo

Regulatory simplification
across the EU
I don't know

Q. Do you think that other regulations should be more harmonised throughout the EU?
Q. Do you think that other regulations should be simplified?

Taxation of ESOPs at the award date can imply liquidity problems and even enforce the taxpayer to take up a loan inorder to be able to pay the taxes on theoretical income that might actually never be realised in reality. See European
Commission, Employee Stock Options: The legal and administrative environment for Employee Stock Options in the EU,
Final Report of the Expert Group, June 2003, for an elaborated discussion.

14

46

Box 2: Key areas for regulatory harmonisation and simplification. Free-text responses: main patters
Less strict requirements to establish new VC firms



Fundraising and marketing of the fundReporting to authorities – particularly for small VC firms



Investing across countries

Labour law (applied to start-ups)

Q. Please provide concrete examples or recommendations regarding which regulations could be more
harmonised throughout the EU and in what way.
Q. Please provide concrete examples or recommendations regarding which regulations could be simplified
and in what way.

It is worth mentioning that GPs who undertake cross-border investments are more in favour of
harmonisation and simplification in taxation and other regulations (see Figure 69) compared to GPs
who only invest domestically. Furthermore, when the headquarter location of the VC firm is taken
into account (see Figure 70), while there is general consensus across regions that regulations should
be simplified, there is greater variation in the responses concerning the element of harmonisation.
In particular, GPs in France are most in favour of harmonisation (in both tax and other regulations)contrary to GPs in the UK & Ireland.
Figure 69: Policy recommendations – Impact of the nature of the GPs’ investment activity

Net percentage of respondents

80%

70%

70%
60%

58%
52%

46%

50%
40%

50%

35%

30%
20%
10%
0%
Tax harmonisation

Regulatory harmonisation

GPs investing only domestically

Regulatory simplification

GPs with cross-border activity

Note: The reported percentages reflect the net percentage of respondents in each category, i.e. the percentage of
respondents who agree that more tax harmonisation/regulatory harmonisation/regulatory simplification is needed minus
the percentage of respondents who disagree. “GPs investing only domestically” refers to GPs that only invest in the countryof their VC firm’s headquarter location; “GPs with cross-border activity” refers to GPs that also invest in countries outside
the country of their VC firm’s headquarter location.

47

Figure 70: Policy recommendations – Impact of the GPs’ VC firm headquarter location

30%

52%
57%
53%
52%
41%
41%

40%

66%

50%

59%

60%

62%

70%

60%

81%

80%

71%
68%
65%
68%
71%
61%

94%

90%

43%

24%

20%
19%

Net percentage of respondents

100%

10%
0%
Tax harmonisation
Benelux

CESEE

DACH

Regulatory harmonisation

Regulatory simplification

FranceUK & Ireland

Nordics

South

Note: The reported percentages reflect the net percentage of respondents in each category, i.e. the percentage of
respondents who agree that more tax harmonisation/regulatory harmonisation/regulatory simplification is needed minus
the percentage of respondents who disagree.

48

5 Concluding remarks
Following the launch of the first EIF VC Survey in 2018, the EIF VC Survey 2019 was designed toprovide further insights into the European VC market, its state of business and market activity. The
survey’s aim was to identify the current challenges faced by fund managers and VC-supported
companies, including their barriers to access finance. Moreover, the project intended tocommunicate concrete policy recommendations regarding regulatory and tax-related issues in the
VC business.
Despite the different sample size and underlying population of the respondents between the current
and the previous survey wave, this year’s results are generally in line (both qualitatively andquantitatively) with last year’s findings and confirm that, on average, VC managers are rather
optimistic in their perception of the current market situation as well as of future outlook. The current
and future state of business are evaluated positively, portfolio companies have been developing inline with expectations, most VCs intend to raise another fund in the near future and new investments
are expected to increase in the next 12 months. Moreover, fund managers are rather confident about
the long-term growth prospects of the VC industry in their market and in Europe altogether. However,it should be noted that there are sometimes substantial differences in the responses by country, sector
and investment stage focus.
At the same time though, challenges persist, in particular relating to fundraising and exit
opportunities. Indeed, only half of the fund managers evaluate positively the current fundraising
environment, while the expectations for improvement in the next 12 months appear relatively limited.
Even at the portfolio level, securing financing remains the second most important challenge faced
by investee companies (after recruiting high-quality professionals). The issue of available funding ismore acute for VCs investing mainly in seed-stage companies. Moreover, a relatively large share ofseed-stage fund managers are likely to move away from their current stage focus over the next five
years, which might further decrease the availability of finance for seed-stage enterprises through VC
funds. Therefore, other ways of seed-stage financing (e.g., in the form of BA financing or
accelerators) might become more important, and policymakers should consider broadening public
support measures accordingly. A third very important challenge that emerged from this year’s survey
is the high investee company valuations. This issue coupled with the fact that competition from otherinvestors also gained significantly in importance potentially points to an increasingly competitiveenvironment in the European VC market – a trend which remains to be confirmed by future survey
waves.
The findings echo the evidence first documented in the previous survey wave that tax and regulatory
incentives should be given to crowd-in LPs. Fund managers provide concrete recommendations
regarding the type of such incentives and offer suggestions regarding how tax systems and legal
frameworks could be further simplified and harmonised across Europe. These suggestions relate toinvestors, GPs and portfolio companies alike. Perhaps not surprisingly, a common theme across all
three categories is a call to reduce taxation. When it comes to other regulations, it seems that
simplification is relatively more important than harmonisation. At the same time, fund managers callfor measures to overcome the cross-border market fragmentation of the European VC market.

49Venture capital is an essential source for start-up and young companies to achieve growth and create
value through innovation. The relevance of venture capital financing, not only for young andinnovative companies but also for the economy as a whole, is very high. In order to improve theavailability of information about this important market segment in Europe, it is envisaged to repeat
this survey (at least) on an annual basis. Moreover, based on this survey, a venture capital market
sentiment index (barometer) is in development and will provide the possibility to track the VC market
sentiment over time. As such, this project contributes to establishing a sustainable venture capital
ecosystem in Europe – a key objective of the EIF.

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ANNEX
List of acronyms
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AIFMD: Alternative Investment Fund Managers Directive
AUM : Assets Under Management
bn: billion
Benelux (countries): (countries of) Belgium, Netherlands and Luxembourg
CFO: Chief Financial Officer
CEO: Chief Executive Officer
CESEE (countries): (countries in) Central, Eastern and South-Eastern Europe
COO: Chief Operations Officer
DACH (countries): (countries of) Germany, Austria and Switzerland
EIB: European Investment Bank
EIF: European Investment Fund
ESG: Environmental, Social, Governance
ESOP: Employee Stock Option Plan
EU28: the 28 EU Member States
EUR: Euro
GP: General Partner
ICT: Information and Communications Technologies
IPO: Initial Public Offering
LP: Limited Partner
m: million
Nordics: Denmark, Finland, Norway, Sweden
PE: Private Equity
RMA: Research & Market Analysis
SME: Small and Medium-sized EnterpriseSouth: (here) Italy, Portugal, Spain
UK: United Kingdom
VAT: Value Added Tax
VC: Venture Capital51

About …
… the European Investment Fund
The European Investment Fund (EIF) is Europe’s leading risk finance provider for small and mediumsized enterprises (SMEs) and mid-caps, with a central mission to facilitate their access to finance. Aspart of the European Investment Bank (EIB) Group, EIF designs, promotes and implements equity
and debt financial instruments which specifically target the needs of these market segments.
In this role, the EIF fosters EU objectives in support of innovation, research and development,
entrepreneurship, growth, and employment. The EIF manages resources on behalf of the EIB, theEuropean Commission, national and regional authorities and other third parties. EIF support toenterprises is provided through a wide range of selected financial intermediaries across Europe. The
EIF is a public-private partnership whose tripartite shareholding structure includes the EIB, theEuropean Union represented by the European Commission and various public and private financial
institutions from European Union Member States and Turkey. For further information, please visit
www.eif.org.

… EIF’s Research & Market Analysis
Research & Market Analysis (RMA) supports EIF’s strategic decision-making, product development
and mandate management processes through applied research and market analyses. RMA works asinternal advisor, participates in international fora and maintains liaison with many organisations andinstitutions.

… this Working Paper series
The EIF Working Papers are designed to make available to a wider readership selected topics andstudies in relation to EIF´s business. The Working Papers are edited by EIF´s Research & Market
Analysis and are typically authored or co-authored by EIF staff, or written in cooperation with the EIF.
The Working Papers are usually available only in English and distributed in electronic form (pdf).

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EIF Working Papers
2009/001 Microfinance in Europe – A market overview.
November 2009.
2009/002 Financing Technology Transfer.
December 2009.
2010/003 Private Equity Market in Europe – Rise of a new cycle or tail of the recession?
February 2010.
2010/004 Private Equity and Venture Capital Indicators – A research of EU27 Private Equity and
Venture Capital Markets. April 2010.
2010/005 Private Equity Market Outlook.
May 2010.
2010/006 Drivers of Private Equity Investment activity. Are Buyout and Venture investors really sodifferent? August 20102010/007 SME Loan Securitisation – an important tool to support European SME lending.
October 2010.
2010/008 Impact of Legislation on Credit Risk – How different are the U.K. and Germany?
November 2010.
2011/009 The performance and prospects of European Venture Capital.
May 2011.
2011/010 European Small Business Finance Outlook.
June 2011.
2011/011 Business Angels in Germany. EIF’s initiative to support the non-institutional
financing market. November 2011.
2011/012 European Small Business Finance Outlook 2/2011.
December 2011.
2012/013 Progress for microfinance in Europe.
January 2012.
2012/014 European Small Business Finance Outlook.
May 2012.
2012/015 The importance of leasing for SME finance.
August 2012.
2012/016 European Small Business Finance Outlook.
December 2012.
2013/017 Forecasting distress in European SME portfolios.
May 2013.
2013/018 European Small Business Finance Outlook.
June 2013.

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2013/019 SME loan securitisation 2.0 – Market assessment and policy options.
October 2013.
2013/020 European Small Business Finance Outlook.
December 2013.
2014/021 Financing the mobility of students in European higher education.
January 2014.
2014/022 Guidelines for SME Access to Finance Market Assessments.
April 2014.
2014/023 Pricing Default Risk: the Good, the Bad, and the Anomaly.
June 2014.
2014/024 European Small Business Finance Outlook.
June 2014.
2014/025 Institutional non-bank lending and the role of debt funds.
October 2014.
2014/026 European Small Business Finance Outlook.
December 2014.
2015/027 Bridging the university funding gap: determinants andconsequences of university seed funds and proof-of-concept Programs in Europe.
May 2015.
2015/028 European Small Business Finance Outlook.
June 2015.
2015/029 The Economic Impact of EU Guarantees on Credit to SMEs - Evidence from CESEECountries. July 2015.
2015/030 Financing patterns of European SMEs: An Empirical Taxonomy
November 2015
2015/031 SME Securitisation – at a crossroads?
December 2015.
2015/032 European Small Business Finance Outlook.
December 2015.
2016/033 Evaluating the impact of European microfinance. The foundations.
January 20162016/034 The European Venture Capital Landscape: an EIF perspective.
Volume I: the impact of EIF on the VC ecosystem. June 2016.
2016/035 European Small Business Finance Outlook.
June 2016.
2016/036 The role of cooperative banks and smaller institutions for the financing of SMEs andsmall midcaps in Europe. July 2016.
2016/037 European Small Business Finance Outlook.
December 2016.
2016/038 The European Venture Capital Landscape: an EIF perspective. Volume II: Growth
patterns of EIF-backed startups. December 2016.

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2017/039 Guaranteeing Social Enterprises – The EaSI way.
February 2017.
2017/040 Financing Patterns of European SMEs Revisited: An Updated Empirical Taxonomy andDeterminants of SME Financing Clusters. March 2017.
2017/041 The European Venture Capital landscape: an EIF perspective. Volume III: Liquidity
events and returns of EIF-backed VC investments. April 2017.
2017/042 Credit Guarantee Schemes for SME lending in Western Europe.
June 2017.
2017/043 European Small Business Finance Outlook.
June 2017.
2017/044 Financing Micro Firms in Europe: An Empirical Analysis
September 20172017/045 The European venture capital landscape: an EIF perspective.
Volume IV: The value of innovation for EIF-backed startups. December 2017.
2017/046 European Small Business Finance Outlook.
December 2017.
2018/047 EIF SME Access to Finance Index
January 2018.
2018/048 EIF VC Survey 2018
Fund managers’ market sentiment and views on public intervention.
April 2018.
2018/049 EIF SME Access to Finance Index – June 2018 update.
June 2018.
2018/050 European Small Business Finance Outlook.
June 2018.
2018/051 EIF VC Survey 2018 - Fund managers’ perception of EIF’s Value Added.
September 2018.
2018/052 The effects of EU-funded guarantee instruments of the performance of Small and Medium
Enterprises - Evidence from France. December 2018.
2018/053 European Small Business Finance Outlook.
December 2018.
2019/054 Econometric study on the impact of EU loan guarantee financial instruments
on growth and jobs of SMEs. January 2019.
2019/055 The European Venture Capital Landscape: an EIF perspective.
Volume V: The economic impact of VC investments supported by the EIF. April 2019.
2019/056 The real effects of EU loan guarantee schemes for SMEs: A pan-European assessment.
June 2019.
2019/057 European Small Business Finance Outlook.
June 2019.
2019/058 EIF SME Access to Finance Index – June 2019 update.
July 2019.

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2019/059 EIF VC Survey 2019
Fund managers’ market sentiment and policy recommendations.
September 2019.

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