Web investors forum : boosting digital startup financing in Europe.
Date: 2015-05-28
Institutions: Directorate-General for the Information Society and Media
Subjects: EU Member State, Internet, aid to undertakings, digital technology, financing, information technology, investment, start-up

Web Investors Forum 

Boosting digital startup financing in Europe  

FINAL REPORT 

A study prepared for the European Commission 
DG Communications Networks, Content & Technology by: 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
This study was carried out for the European Commission by 

France Digitale 
12 rue Vivienne 
75002 Paris – France 
www.francedigitale.org 

Authors: 

Emanuele Levi 
Member of the Board of Directors at France Digitale 
General Partner at 360 Capital Partners 

Delphine Villuendas 
General Counsel at France Digitale 
General Counsel at Partech Ventures 

Taro UGEN 
VP Venture Capital at France Digitale 
taro@francedigitale.org 

Internal identification 

Contract number: 30-CE-0557783/00-36      
No SMART number 

DISCLAIMER 

By the European Commission, Directorate-General of Communications Networks, Content & Technology.  

The information and views set out in this publication are those of the author(s) and do not necessarily reflect the official opinion of 
the Commission. The Commission does not guarantee the accuracy of the data included in this study. Neither the Commission nor 
any person acting on the Commission’s behalf may be held responsible for the use which may be made of the information contained 
therein. 

ISBN 978-92-79-39285-6 

Doi: 10.2759/64203 

©  European  Union,  2014.  All 

rights 

reserved.  Certain  parts  are 

licensed  under 

conditions 

to 

the  EU.  

 
 
 
 
 
 
 
 
 
 
 
Abstract 

France  Digitale  was contracted  by  the European Commission  to  run  the Web  Investors  Forum 
(WIF),  one  of  the  pillars  of  the  Startup  Europe  initiative.  Since  May  of  2013,  we  have  been 
engaging  and  connecting  with  the  European  venture  capital  community  to  draw  a  panoramic 
view  of  current  activities  and  challenges  observed  in  the  European  professional  investment 
arena.  Our  research  has  been  focused  on  internet-driven  companies.  We  conducted  44 
interviews in the seven countries of focus for this study (France, The United Kingdom, Germany, 
Sweden, Portugal, Spain and Italy) and discussed our findings during a high-level workshop in 
Paris on June 11th, 2014.  

The  first  priority  in  Europe  is  to  support  the  feeding  of  a  positive  feedback  loop  through  the 
unlocking  of  the  exit  environment.  Europe’s  first  priority  is  to  create  a  support  structure  that 
will improve the exit environment. Successful exits allow investors and entrepreneurs to achieve 
their goals and start new businesses with new money inflow. 

Our  second  recommendation  aims  at  providing  balance  to  the  European  finance  value  chain, 
which  is  currently  suffering  from  shortages  on  some  or  all  levels  depending  on  countries,  and 
especially for those companies willing to become Global leaders.  

As  a  third  recommendation,  cross-fertilization  between  hubs  would  also  need  considerable 
improvement through facilitated interactions between ecosystems. 

Finally,  European  corporations  should  be  incentivized  to  play  a  larger  role  in  the  ecosystem’s 
evolution for knowledge acquisition and innovation purposes. 

 
Executive Summary 

Startup Europe is a Digital Agenda initiative championed by Commission Vice President Neelie 
Kroes to promote web entrepreneurship in Europe.  

France  Digitale  was  contracted  in  2013  to  lead  the  investors’  pillar  of  the  Startup  Europe 
initiative called the Web Investors Forum. The work of the Web Investor’s Forum is focused on 7 
EU countries: Germany, the United Kingdom, Spain, Italy, Portugal, Sweden, and France, with the 
following objectives: 

  Draw  an  overview  of  the  activity  of  the  professional  investment  industry  on  a  pan-

European and local level; 

  Pinpoint  challenges  faced  by  the  industry  that  slow  down  the  evolution  of  European 

funding landscape for funding and entrepreneurial growth;  

  Showcase European best practices in the field of public policy and industry support;  
  Propose an action plan to increase investment in the European Internet and mobile tech 

startups and grow that investment throughout Europe.  

For  the  purpose  of  this  mission,  we  travelled  across  Europe  and  interviewed  over  40  General 
Partners and business angels in seven countries, and drew the following conclusions. 

1. THE EUROPEAN EXIT MARKET IS THE MOST CRITICAL ISSUE. 

Main conclusions 

The exit environment in Europe is regarded by interviewed venture capitalists (9.5 out of 10) as 
Europe’s most critical challenge.   

Exits represent a liquidity event for investors or entrepreneurs that allows them to gain full or 
partial return for their initial investment. There are three different types of exits in the VC world: 
Initial  Public  Offerings  (IPOs)  (listing  the company  on  public markets),  trade  sales  (selling  the 
company to an acquirer), and private equity buyouts or growth capital (selling the company fully 
or partially to a specialist private equity fund). 

A favorable exit market creates a positive feedback loop that supports a virtuous cycle:  

  Exits  allow  entrepreneurs  to  find  liquidity  and  create  new  companies  and/or  invest as 

business angels in new entrepreneur.  

  They generate performance for the venture capital industry and foster attractiveness of 

the asset class for private institutional investors.  

  This leads to a smoother path of capital inflow into VC funds and further investment in 

startups in the long run.  

  They create success stories and role models for future entrepreneurs. 

 
 
 
 
 
 
However, in Europe, there is a scarcity of exit opportunities for two main reasons: First, trade 
sales  almost  always  occur  to  the  benefit  of  a  US  player  as  there  are  almost  no  European 
corporate buyers and  few appetites for purchases in Europe. The second is that  conditions for 
tech IPOs (liquidity, limited presence of peers, demand, pricing) are not favorable.  

Specific focus on trade sales 

As our ecosystem is still young, there is a lack of key players in the European acquisition market 
b. For example, as of April 2013, the total market value of the 7 largest US technology companies 
(Apple,  Microsoft,  IBM,  Google,  Facebook,  Amazon,  and  Yahoo)1  was  close  to  USD  1.7  trillion. 
Whereas in Europe, the only company competing in terms of size is SAP with a  EUR 63 billion 
valuation (as of Q2 2014)2.  

Moreover, corporations from traditional industries struggle to innovate outside the boundaries 
of  their  own  organization.  Corporate  buyers  are  often  buying  market  shares  instead  of 
integrating companies for their technology or talents when they do make an acquisition.  

The result of these unfavorable conditions leads us to an overwhelming statistic: large American 
buyers acquire 9 out of 10 European startup companies.  

The industry needs large European tech companies that can compete with US players. 

2.  THE  FINANCING  VALUE  CHAIN  IS  UNBALANCED  FROM  A  LOCAL  AND  PAN-EUROPEAN 
PERSPECTIVE 

Southern  Europe  suffers  from  a  lack  of  early  stage  capital  at  the  seed  and  pre-seed  level. 
Portugal and Italy are countries where entrepreneurs have a hard time finding enough capital to 
start developing their product. 

For other countries, equity shortage is most troublesome at the later stages of investment, even 
if there is still further room for early stage capital. 

Later  stage  funding  demonstrates  a  true equity shortage in  Europe as only  four  to  six  venture 
capital firms are able to fund these types of deals. Later stage investments are essential when the 
ambition of an entrepreneur is to become a global leader in his or her field. 

There  is  a  significant  number  of  premature  sell  offs  of  companies  that  are  not  able  to  find 
enough  capital  to  finance  their  aggressive  growth.  In  2013  in  Europe,  deals  over  the  USD  10 
million  mark  only  accounted  for  9%3  of  overall  deals  with  70  deals  out  of  772  (across  all 

1 http://www.statista.com/statistics/216657/market-capitalization-of-us-tech-and-internet-companies/ 
2 SAP half-year report 2014 
3 Clipperton/Digimind data 

 
 
 
 
 
                                                           
sectors). For the same year in the US, later-stage and expansion deals accounted for 44%4 of the 
total number deals, corresponding to 1,795 out of 4,077 (all sectors included). 

The consequence of this lack of capital supply for later stage companies is the formation of an 
unbreakable  barrier  for European  startup  companies. This  barrier  prevents  a  large  number  of 
startups  from  maintaining  operations in  Europe  while attracting  capital  for  their  international 
growth or pre-exit financing.  Plainly stated, in Europe companies face difficulties raising funds 
passed a certain maturity, and a large number of them either move operations to the US to seek 
late stage capital where it is, or sell prematurely.  

3. THERE IS NOT SUFFICIENT INTERACTION BETWEEN TOP EUROPEAN TECH HUBS 

The  development  of  a  certain  number  of  tech  hubs  in  Paris,  Berlin,  London,  Stockholm  and 
Helsinki  is  improving  the  overall  quality  of  the  deal  flow  for  investors  and  is  contributing  to 
develop the entrepreneurial/startup culture. 

But  the  competition  between  nations  for  entrepreneurial  supremacy  creates  a  lack  of 
cooperation between hubs that harm companies in expanding easily across different markets. 

As key players in the ecosystem, venture capitalists could play the role of communicator across 
these  hubs if  they invested  more  freely  outside of  their  local  markets.  However,  we  witnessed 
few players that are truly able to achieve a pan-European investment activity. This lack of pan-
European players results from the misalignment between the complexity and cost that investing 
in a multitude of countries would imply.  The average size of European funds does not generate 
enough management fees to serve those costs.   

4.  TAX  &  LEGAL  ENVIRONMENT  NEEDS  TO  BE  IMPROVED  (ADAPTED)  IN  CERTAIN 
GEOGRAPHIES 

In  certain  parts  of  Europe  like  Spain  and  Italy,  stock  options  and  similar  instruments  are 
regarded as a means for large organizations to pay high compensation to their top managers and 
are taxed accordingly. However, this view impacts startups negatively. Although as mentioned, 
stock option plans serve a rather different and more labor-friendly purpose for this ecosystem. 

Throughout Europe, some member states have proven their ability to tackle stock options with a 
positive thinking and favorable tax treatment such as in France (with the Bons de Souscription 
de Part de Créateur d’Entreprise5) or in the United Kingdom (through the Share Incentive Plans 
or Company Share Option Plan6) 

4 NVCA 2014 yearbook: 
http://www.nvca.org/index.php?option=com_content&view=article&id=257&Itemid=103 
5 http://www.apce.com/cid5724/bons-de-souscription-de-parts-de-createur-d-
entreprise.html&pid=10324 
6 https://www.gov.uk/tax-employee-share-schemes/company-share-option-plan 

 
 
 
 
 
 
                                                           
Unlike  American  venture  capital  funds,  European  VCs  do  not  rely  on  a  solid  base  of  European 
private  investors.  Indeed,  for  many  reasons,  venture  capital,  as  an  asset  class,  has  a  poor 
reputation  within  the  European  money  management  community.  This  creates  an  ever-higher 
degree of public funding in the overall capital available for European startup companies. 

Moreover,  in  some  regions  like  Spain,  capital  gain  taxes  are  not  favorable  to  the  alignment  of 
interests  between  entrepreneurs,  General  Partners  (GPs)  and  Limited  Partners  (LPs),  which 
negatively impacts the reputation of the venture capital profession.  

5.  EUROPEAN  CORPORATIONS  ARE  STILL  FACING  THE  “NOT  INVENTED  HERE”  (NIH)7 
SYNDROME 

European  corporations  often  struggle  to  understand  the  rationale  behind  acquiring  external 
innovation  through  procurement  or  M&A,  and  are  therefore  unable  to  efficiently  integrate 
innovative companies. In fact, European corporations from traditional industries do not rely on a 
solid  experience  of  integrating  innovative  startup  companies  for  their  technology,  talents  or 
market at all. 

Even though corporate co-working, or acceleration structures are booming in Europe, they are 
often brought about as part of a public relations strategy to improve the company’s image rather 
than incorporated into a long-term strategic vision. In the beginning of the 2000s, corporations 
started a large number of internal VC arms that did not survive top management turnover and 
the dot com bubble burst8.  

Thus,  European  Corporations  should  think  twice  before  engaging  in  an  effort  to  build  an  in-
house venture structure, which requires true engagement and expertise.  

Another  option  that  is  often  underexplored  by  European  corporations  is  the  “platform” 
approach.  The  platform  approach  means  investing  through  an  external  VC  or  acceleration 
program.  Currently,  their  involvement  is  marginal,  as  demonstrated  by  the  European  Venture 
Capital Association (EVCA), in 2013. Corporations accounted for around 5% of total funds raised 
by VCs. 

The “platform” approach should be defended in Europe, with external VC funds and accelerators 
acting as a platform for corporations to gain knowledge on their disrupted industries and scout 
potential targets.  

7  The  Not  Invented  Here  syndrome  was  first  introduced  by  Katz  and  Allen  in  1982  in  economics  of 
innovation and refer to the tendency of organizations to reject externally-developed solutions in favor 
of internally-developed ones. The concept has been validated and refered by many economists later 
on. 
8 
venture.html 

http://www.lesechos-etudes.fr/fr/catalogue/etudes/sectorielles/banque-assurance/corporate-

 
 
 
 
 
 
 
 
                                                           
Recommendations 

With  regards  to  the  stated  conclusions  of  the  report,  the  Web  Investors  Forum  has  set  the 
following recommendations in a four-step action plan to further develop the European venture 
capital landscape and allow for better financing of European entrepreneurs. 

Policy 1: Boost the European exit market 

Purpose 

The  European  exit  market  is  the  most  challenging  obstacle  faced  by  venture 
capitalists in Europe. European corporations should be incentivized to make more 
acquisitions and increase their willingness to innovate through external means. 

This is a  crucial  point  because  exits  generate  a  huge  amount  of  positive  feedback 
within  the  European  startup  ecosystem.  They  allow  entrepreneurs  to cash-in  and 
either become angels or repeat the entrepreneurial process and build new startups. 
Moreover,  they  allow VCs  to  gain  substantial  success  and  keep  raising  new  funds 
towards private institutions and individuals. 

9 out of 10 European startups are acquired by non-European buyers, among 
which a large proportion comes from the United States. 

Examples 
(how?) 

The exit environment is a crucial part of the startup ecosystem and must be 
supported.  

 

Incentivize  European  corporations  to  directly  or  indirectly  invest  in 
startups  and  acquire  knowledge  through  external  VCs  or  accelerators  by 
replicating and tweaking initiatives such as the French “Corporate Venture 
Plan9”. 

  More  favorable  conditions  for  tech  IPOs  could  be  developed  throughout 
Europe as a secondary target.  The best means would be to create demand 
incentives  (i.e.  tax  efficient  investment  vehicles  dedicated  to  listed  tech 
companies). The objective of improving the conditions for IPOs would be to 
increase  the  number  of  financing  options  for  later  stage  companies,  and 
facilitate alternative exit options for VCs and entrepreneurs. 

to 

Time 
impact 

Without action, we estimate the time for a virtuous acquisition ecosystem to build 
itself from 10 years to 15 years in absence of major crisis. 

With  high  impact  incentives  programs,  we  estimate  this  period  to  be  radically 
shorter, showing improvements within the next 5 years to 8 years. 

This could be implemented through dedicated policy programs with the initiative 
of the European Commission under directives to unlock the European exit market 
with huge positive impact potential. 

Comments 
and  how 
to 
implement 

Policy 2: Reduce equity shortage 

9 http://www.economie.gouv.fr/corporate-venture-financer-innovation 

 
 
 
 
 
                                                           
Purpose 

Everywhere  in  Europe,  equity  shortages  appear  at  various  stages  of  a  company’s 
lifecycle.  

The  pan-European  ecosystem  and  more  specifically  developed  industries  from 
North and Central Europe are witnessing a shortage of capital for companies that 
have  the  potential  of  becoming  large-scale  global  leaders.  Very  few  companies 
make it to the EUR 10-50 million funding landmark as only a handful of European 
funds  are  able  to  provide  this  level  of  capital.  The  consequence  of  this  lack  of 
capital for more mature startups is an important number of premature sell offs for 
companies that could have had the potential to grow further before an acquisition. 
In Southern and Eastern Europe, equity shortages appears at an earlier stage, with 
a low number of funding rounds in the EUR 1-10 million range.  

The following recommendations aim at reducing this equity shortage. 

Examples 
(how?) 

  Redirect  a  small  proportion  of  European  savings  towards  innovative 
companies  financing  through  adjustments  in  Basel  III  and  Solvency  II 
regulations and tax efficient investment vehicles. 

  Support  the  creation  or  expansion  of  public  driven  fund  or  funds  in 
Southern  and  Eastern  Europe.  Public  funds  are  not  a  tool  traditionally 
employed  by  local  governments.  However,  it  has  been  proven  to  be  an 
efficient  means  of  creating  momentum 
industries  or 
reestablishing  balance  in  local  financing  chains,  as  was  the  case  in 
Barcelona.  

for  young 

  Support the creation of pan-European later-stage capital funds dedicated to 
internet-driven  and  software  companies  which  are  crucial  for  creating 
global leaders.  

  Empower  smart  business  angels  through  further  support  of  the  European 
Investment  Fund  (EIF),  angel  co-investment  program  in  terms  of  capital 
and  closing  of  agreements  with  local  counterparts.  Smart  business  angels 
who  are  capable  of  adding  a  significant  amount  of  non-financial  value  to 
their portfolio companies should also be empowered. 

  Support  the  creation  of  a  small  number  of  later stage  capital  funds  with a 

pan-European focus. 

  Support  the  organization  of  a  large-scale  pan-European  event  with  strong 
involvement of top-tier public representatives such as Vice President Neelie 
Kroes,  aiming  at  promoting  the  potential  of  internet  and  mobile  tech 
companies  to  potential  limited  partners  (pension  funds,  large  corporates, 
insurance companies, banks, family offices, etc.) and connecting them with 
general partners. 

to 

Gradual raise in investments from year 1, up to 5 years. 

Time 
impact 

 
 
 
 
Comments 
and  how 
to 
implement 

For each countries, the Web Investors Forum could engage local VC communities in 
order to measure the local equity shortage and drive the creation of either public 
fund of funds, and/or later stage direct investment funds. 

Smart  business  angels  should  be  empowered  everywhere.  The  European 
Commission could grant a mandate to the EIF to invest with smart angels according 
to the existing guidelines of their program under trial. This mandate should come 
along with support to find local counterparts to the EIF. The Web Investors Forum 
is ready to help in the primary identification of potential local smart angels. 

Later stage capital funds creation could be supported by the European Commission 
through dedicated envelopes in addition of private and other public capital inflow 
in new funds. 

Policy  3:  Strengthen  the  integration  and  coordination  of  European  tech  hubs  through  a 
pan-European investment vehicle 

Purpose 

Currently in Europe, tax treatment and the marketability of investment vehicles are 
very heterogeneous across countries. 

A  pan-European  tax  transparent  investment  vehicle,  marketable  internationally, 
would be considered by the Venture Capital community as a major achievement. If 
an  effort  were  put  in  to  place  to  create  such  vehicle,  the  Web  Investors  Forum 
would be ready to engage with the entire community in consultations and support 
of the European Commission with expertise in the field. 

A  VC  that  invests  internationally  is  always  of  good  value  to  an  entrepreneur. 
However,  only  a  very  limited  number  of  investors  work  outside  their  local 
environment. In order to support coordination between ecosystems, the European 
Commission should support the creation of pan-European GPs with enough critical 
mass to be able to invest globally. 

Examples 
(how?) 

Create simpler, uniform tax10 and legal environments between hubs through 
the  European  Commission’s  dedicated  startup  directives  by  leveling  up  the 
frameworks according to European best practices in terms of: 

  Attractiveness  of  the  VC  profession:  In  southern  and  eastern  countries 
where  the  investment  industry  is  still  in  development  and  in  need  of 
momentum, talented investors should be incentivized to gather into teams 
and invest in startup companies. 

  Alignment  of  interest  between  VCs,  founders,  and  employees  (dedicated 
startup  stock  option  plans  and  more  generally  employee-ownership 

10 http://startupmanifesto.eu/files/manifesto.pdf 

 
 
 
 
 
                                                           
taxation) 

  Attractiveness  of  the  asset  class  for  institutional  and  individual  investors 
(tax  incentives  on  investments  in  VC  by  individuals,  corporates,  banks, 
insurance companies, pension funds, etc.)  

  Attractiveness  to  invest  in  startups  as  seed  investors:  EIS/SEIS-like 

programs 

to 

Gradual raise in investments from year 1 up to 5 years. 

Time 
impact 

Comments 
and  how 
to 
implement 

If these issues were addressed (and above all for the pan-European tax transparent 
investment vehicle), the venture capital community in Europe would consider it a 
huge achievement. 

The  Web  Investors  Forum  is  ready  to  gather  the  VC  community  to  work  on 
consultations with the European Commission to work on these specific issues and 
deliver top-tier solutions. 

Policy 4: Grow public and private involvement in the industry 

Purpose 

The interviews and workshop have demonstrated a lack of dialogue between large 
corporations  and  the  startup  world.  A  pathway  to  further  involvement  of 
corporations and the public sector in digital startups across Europe.   

Corporations could be the engine to power a faster evolution of the European 
ecosystem. 

Examples 
(how?) 

 

Incentivize European Corporates to invest in external accelerators, venture 
funds,  or  co-working  spaces  in  order  to  foster  platforms  pooling  several 
Corporates  rather  than  internal  structures  that  usually  do  not  result  from 
long-term  Corporate  strategy.  For  example,  this  could  be  done  through 
Private Public Partnership such as the High Tech Gründerfonds in Germany 
that could be generalized to every country and supported by the European 
Commission or dedicated tax relief schemes. 

  Push  the  “Small  business  act  for  Europe11”  further  by  integrating 

procurement measures 

  Work  towards  a  Small  Business  Act-like agreement  between  Corporations 

and startup representatives 

to 

5 years 

Time 
impact 

Comments 
and  how 

Local  replicates  of  the  High  Tech  Gründerfonds  would  also  bring  high  value:  this 
could  be  implemented  through  envelopes  of  capital  unlocked  by  the  Commission 

11 http://ec.europa.eu/enterprise/policies/sme/small-business-act/index_en.htm 

 
 
 
 
 
                                                           
to 
implement 

for  this  purpose  with  selection  of  local  public  counterparts  to  manage  these 
envelopes and engage with local Corporates community. 

The  Web  Investors  Forum  is  a  strong  supporter  of  the  European  Commission  DG  CNECT’s 
attempt to implicate professionals and ecosystem-stakeholders in its effort to create a smoother 
environment  for  digital  entrepreneurship  on  our  continent.  The  community  is  ready  to  work 
closely  with  the  Commission  with  regards  to  above  stated  action  plan  recommendations, 
especially on matters requiring particular expertise. 

 
 
 
 
 
 
 
Table of content 

Introduction ................................................................................................................. 15 

Mapping the European funding landscape ................................................................ 17 
Methodology ..................................................................................................................................................................... 17 
2013 Analysis ................................................................................................................................................................... 18 
Venture capital funding per industry .......................................................................................................................... 18 
Investments distribution in European ICT ................................................................................................................ 19 
Focus: Software, internet-driven and mobile tech companies......................................................................... 21 
Outlook for 2014 ............................................................................................................................................................. 24 

Current status of the European VC industry .............................................................. 26 

Post-interviews and workshop conclusions .............................................................. 27 
The European Exit market is the most critical issue ........................................................................................ 27 
Trade Sales............................................................................................................................................................................... 27 
The IPO market ...................................................................................................................................................................... 29 
Private equity ......................................................................................................................................................................... 30 
An unbalanced European financing value chain ................................................................................................ 31 
Promoting Internet and mobile tech venture capital to LPs ............................................................................ 31 
Explanatory elements ......................................................................................................................................................... 33 
Present challenges ................................................................................................................................................................ 36 
Difference between regions .............................................................................................................................................. 37 
Insufficient coordination between European Tech Hubs ............................................................................... 40 
Tax & legal environment needs to be improved (adapted) in certain geographies ............................ 41 
Between entrepreneurs and employees ..................................................................................................................... 41 
Between GPs and LPs .......................................................................................................................................................... 41 
Attractiveness of the asset class ..................................................................................................................................... 42 

Action plan recommendation ..................................................................................... 45 

Conclusion .................................................................................................................... 50 

Activities ............................................................................... Error! Bookmark not defined. 
Roadmap (Deliverable 1) ................................................................................ Error! Bookmark not defined. 
Brand ....................................................................................................................... Error! Bookmark not defined. 
Modern VC info Kit (Deliverable 2) ............................................................ Error! Bookmark not defined. 
Building knowledge on the European VC activity: the report (deliverable 3) ..... Error! Bookmark 
not defined. 

Dataset selection: mapping the activity ....................................................... Error! Bookmark not defined. 
Engaging with the European VC community............................................. Error! Bookmark not defined. 
The workshop: Web Investors Forum in Paris (Deliverable 3) ...... Error! Bookmark not defined. 
The final report (deliverable 4) ................................................................... Error! Bookmark not defined. 
Reporting activities ........................................................................................... Error! Bookmark not defined. 

Appendix .............................................................................. Error! Bookmark not defined. 
Workshop attendees ......................................................................................... Error! Bookmark not defined. 

 
 
 
 
 
 
 
 
Aknowledgement 

We would like to express our deepest gratitude to the following friends for their involvement in 
our report: 

David Dana (European Investment Fund), Isidro Laso Ballesteros and Bogdan Ceobanu (European 
Commission), Stephane Gantchev (LAUNCHub), Jan Borgstadt (BDMI), Jan Gisbert Schultze (Acton 
Capital  Partners),  Nicolas  Wittenborn  (Point  Nine  Capital),  Claudio  Giuliano  (Innogest),  Fausto 
Boni and Cesare Maifredi (360 Capital), Gianluca Dettori (dPixel), Paolo Gesess (United Ventures), 
Andrea Di Camillo (P101), Alberto Onetti (Mind the Bridge), José Da Franca (Portugal Ventures), 
Tatjana  Zabasu  (RSG  Capital),  Carles  Ferrer  and  Jordi  Vinas  (Nauta  Capital),  Luis  Cabiedes 
(Cabiedes  Partners),  Ricard  Soderberg  (Active  Venture  Partners),  Roque  Velasco  (Inspirit),  Klaus 
Hommels (Lakestar), Dominique Vidal and Martin Mignot (Index), Haakon Overli (Dawn Capital), 
Nenad  Marovac  (DN  Capital),  Sitar  Teli  (Connect  Ventures),  Carlos  Espinal  (Seedcamp),  Nico 
Goulet (Adara), Martin Mccourt (Gemalto), Simon Devonshire (Wyra/Telefonica), Nicolas Dufourq 
and Paul-François Fournier (BPI France), Guy Levin (Coadec), Pedro Rocha (Beta-i), Marie Ekeland 
(Elaia Partners), Philippe Collombel (Partech Ventures), Guillaume Dupont (Cap’Horn Invest), Jean-
David  Chamboredon  (ISAI),  Nicolas  Celier  (Alven  Capital),  Benoist  Grossman  (Idinvest  Partners), 
Melissa  Blaustein  (Allied  for  Startups),  Mathieu  Daix  (France  Digitale),  Willy  Braun  (France 
Digitale). 

 
 
 
 
 
 
 
 
Introduction 
Startup Europe is a Digital Agenda initiative championed by Commission Vice President Neelie 
Kroes  to  promote  web  entrepreneurship  in  Europe.  The  initiative’s  goal  is  to  strengthen  the 
startup ecosystem landscape in Europe to provide an environment that fosters the emergence of 
future global leaders. 

Startup Europe hopes to grow the business environment for web and ICT entrepreneurs so that 
their ideas and business can be established, grow, and flourish in the EU. 

Startup  Europe  serves  various  objectives.  The  first  objective  is  to  reinforce  the  links  between 
people,  business  and  associations  who  build  and scale  up  the startup  ecosystem  (e.g.  the  Web 
Investors Forum, the Accelerator Assembly, the Crowdfunding Network). Its second objective is 
to  inspire  entrepreneurs  and  provide  role  models  (e.g.  the  Leaders  Club  and  their  Startup 
Manifesto,  the  Startup  Europe  Roadshow.)  Finally,  it  aims  at  celebrating  new  and  innovative 
startups (with Tech All Stars and Europioneers), to help them to expand their business (Startup 
Europe  Partnership,  ACE  Acceleration  Programme),  and  give  them  access  to  funding  under 
Horizon 2020. 

France  Digitale  was  contracted  in  2013  to  lead  the  investors’  pillar  of  the  Startup  Europe 
initiative (Web Investors Forum) focusing on 7 countries: Germany, the United Kingdom, Spain, 
Italy, Portugal, Sweden, and France, with the following objectives: 

-  Drawing  an  overview  of  the  activity  of  the  professional  investment  industry  on  a  pan-

European and local level 

-  Pinpointing challenges faced by the industry that slow down the evolution of European 

- 

funding and the creation of champions 
Showcasing  European  best  practices  in  the  field  of  public  policy  and  support  to  the 
industry 

-  Gathering the European VC community around a network 

France Digitale is a unique alliance of startups, professional investors and business angels  who 
aim to promote the potential of the French and European digital startup landscape and develop 
the ecosystem to foster the creation of future global leaders on our continent. As of June 2014, 
the association consists of 400 members including successful French startups like Criteo, Blabla 
Car, Dailymotion, Leetchi and many more.  

For  the  purpose  of  the  present  report,  we  were  able  to  connect  with  the  European  venture 
capital (VC) community thanks to the networks of France Digitale and the European Investment 
Fund. 44 interviews were conducted with with VC partners in the seven countries of focus pre-
determined  by  the  European  Commission:  France,  the  United  Kingdom,  Germany,  Sweden, 
Spain, Italy, and Portugal. 

The  entire  European  VC  community  was  invited  to  discuss  our  findings  during  an  exclusive 
workshop  organized  on  June  11th  in  Paris  at  the  France  Digitale  Day,  which  met  the  highest 
quality  standards  in  the  industry.  Nine  countries  were  represented  with  52  investors  and 
Corporations involved in the discussions and additional startup ecosystem stakeholders. 

 
 
 
 
 
 
The following report aims at presenting an overview of the venture capital activity throughout 
Europe, and present the conclusions drawn based upon interviews and lessons learned from the 
June 11th workshop in Paris.  Additionally, we have prepared a set of recommendations for the 
Commission to bring the European investment industry to the next level of maturity and boost 
investments  in  internet-driven  startup  companies.  In  a  final  section  of  the  document,  we  will 
give a sound description of the tasks that we have been performing within our contract. 

 
 
 
 
 
 
Mapping the European funding landscape 

Methodology 

The  following  analysis  of  the  European  venture  landscape  was  created  with  data  obtained 
through Whogotfunded.com and reprocessed by Clipperton Finance.  

The  analysis  follows  the  guideline  set  by  the  European  Commission  with  a  focus  on  seven 
countries: France, United Kingdom, Germany, Sweden, Italy, Spain, and Portugal. 

Leveraging data provided by WhoGotFunded.com, the Digimind text-mining engine monitoring 
worldwide  funding  activity,  Clipperton  Finance,  analyzes  financing  trends  amongst  European 
innovative companies on a quarterly basis. 

Digimind  is  a  SaaS  intelligence  software  company  based  in  Paris,  Boston  and  Singapore, 
providing advanced information management platforms and technologies that perform massive 
data collection, automatic intelligence extraction and visualization. Using its unique web mining 
expertise,  Digimind  developed  WhoGotFunded.com,  the  world’s  most  comprehensive  funding 
database, discovering over 100 fresh funding deals every day in real time all across the world. 

Clipperton  is a  leading  European  corporate  finance  boutique  exclusively  dedicated  to  the  High 
Tech and Media industries. Clipperton advises high growth companies on financial transactions, 
fundraisings, capital increases or Mergers and Acquisitions. With teams based in London, Berlin 
and  Paris  and  with  an  extensive  international  reach,  Clipperton  is  a  recognized  leader  in  the 
sector. 

 
 
 
 
 
2013 Analysis 

In  2013,  the  European  technology  landscape  showed  some  signs  of  recovery  after  several 
stagnant  years  following  the  financial  turmoil.  European  tech  companies  attracted  USD  5.3 
billion in capital and completed a total of 1302 deals.  

Venture capital funding per industry 

Venture Capital funding in Europe (2013) 

Number of deals

Amount (in USD)

IT

583 

3651 

Life Sciences

136 

1203 

Cleantech

583 

396 

Source: whogotfunded.com, Clipperton Finance, France Digitale 

Tech  financing  in  Europe  was  driven  by  ICT  companies  (hardware,  software  and  internet-
driven) with 583 rounds raised for USD 3.7 billion.  

Number of deals in Europe (2013) 

Amount invested in Europe (2013) 

Cleantech

Life Sciences

IT

Cleantech

Life Sciences

IT

7% 

23% 

45% 

45% 

10% 

70% 

Source: whogotfunded.com, Clipperton Finance, France Digitale 

 
 
 
 
 
 
 
 
 
 
In 2013, Cleantech and IT both accounted for 45% of the deals completed in Europe. Life science 
companies represented 10% of the total number of funding rounds that same year. 

On  the  other  hand,  IT  was  the  big  winner,  with  70%  of  the  total  funds  invested  in  startup 
companies in 2013. 

Investments distribution in European ICT 

Number of venture backed ICT deals per funding range in 
Europe (2013) 

262 

208 

63 

10 

500K - 2m (USD)

2m - 10m (USD)

10m - 50m (USD)

>50m (USD)

Source: whogotfunded.com, Clipperton Finance, France Digitale 

Most  deals in  Europe  occur  at  the  seed  and  early  stages  with  262  deals  completed  in  the USD 
500K to 2 million range. Deals over USD 50 million were rare in Europe in 2013 with only 10 
deals reported. 

Investment range distribution per country in Europe (2013) 

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Other

Nordics

Portugal

Spain

Italy

Germany

UK

France

500K - 2m

2m-10m

10m - 50m

>50m

Source: whogotfunded.com, Clipperton Finance, France Digitale 

The United Kingdom represents a fair balance at all stages and accounts for around 30% of the 
total deals at all stages and 40% for all deals over USD 50 million. 

 
 
 
 
 
 
France on the other hand is the top European market for early stage investments, with 35% of 
all  European  deals  ranging  from  500K  to  USD  2  million  taking  place  in  the  country,  but  it  is 
surpassed by other countries immediately after the USD 2 million mark. 

The  German  industry  is  driven  by  large  rounds,  demonstrating  a  favorable  later  stage 
environment  with  27%  of  European  deals  ranging  from  USD  10  to  50  million  taking  place  in 
Germany. However, these results should be taken with caution as German early stage deals are 
more rarely made public as confirmed by Digimind’s CEO Paul Vivant. 

The  Nordic  region  demonstrates  a  well-balanced  availability  of  capital  for  internet-driven 
startup  companies,  with  around  10%  of  global  European  funding  at  every  stages  and  capital 
available for large rounds (> USD 50 million). 

100

93 

Number of deals per country 

90

80

70

60

50

40

30

20

10

0

70 

58 

52 

19 

24 

22 

17 

21 

19 

9 

0 

3 

7 

3 

1 

0 

0 

11 

7 

5 

2 

1 

1 

0 

0 

6 

2 

France

UK

Germany

Italy

Spain

Portugal

Nordics

Number of deals (500K - 2m)

Number of deals (2m-10m)

Number of deals (10-50m)

Number of deals (>50m)

Source: whogotfunded.com, Clipperton Finance, France Digitale 

In terms of number of single deals, Europe is dominated by France (154 deals) and the United 
Kingdom (148 deals). However, both countries present different capital distribution profiles. 

In 2013, France was a market of choice for early stage deals ranging from USD 500K to USD 2m 
rounds. Passed the 2 million round size, the United Kingdom demonstrated more intensity with 
80 deals against 61.  

In terms of amounts, capital deployed to startup companies was almost two times higher in the 
United Kingdom with USD 715 million in 2013, compared to USD 415 million in France or USD 
403 million in the Nordic regions.  

 
 
 
 
Focus: Software, internet-driven and mobile tech companies 

The following section of our analysis focuses on deal activity for software, mobile tech and more 
generally, internet-driven companies. 

Country comparison for 2013 (software, internet and mobile tech companies) 

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Nordics

UK

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Nordics

UK

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Italy

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Country ranking per stage (number of deals in 2013) 

Rank 

Early Stage (up USD 10m) 

Later Stage (over USD 10 m) 

1 

2 

3 

4 

5 

6 

7 

France 

United Kingdom 

United Kingdom 

Germany 

Nordics 

Spain 

Italy 

Portugal 

Germany 

Nordics 

France 

Spain 

Italy (ex-aequo) 

Portugal (ex-aequo) 

With  respect  to  results shown  above, our selection  of countries could  be  divided  in  two  parts: 
southern  countries  (Italy,  Portugal,  Spain)  and  central  and  northern  countries  (France,  the 
United  Kingdom,  Germany,  Nordics).  The  north  and  center  demonstrate  a  higher  degree  of 
maturity  of  their  ecosystems,  and  the  south  is  still  under  construction  and  building  a 
momentum. 

The  United  Kingdom  is  the  number  one  market  for  startup  funding,  with  a  well-balanced 
financing value chain at all stages and a high number of both professional and angel investors. 
France,  Germany  and  the  Nordics  (considering  the  size  of  their  captive  market)  come  next. 
France is a very good market for early stage startup financing but is rather unbalanced and has 
not been able in 2013 to attract as much later stage capital as its peers. Germany on the other 
hand  is  a  smaller  market  for  startup  funding  but  enjoys  a  greater  supply  of  later  stage  capital 
with 17 deals over USD 10 million and 1 deal over USD 50 million. Finally Nordic countries are 
acclaimed by the European investor community for the quality of their ecosystem. They are able 
to  attract  large  investments  as  demonstrated  by  the  top-10  deal  ranking  below  where  they 
maintain the first and second position with the Spotify and Supercell deals. 

In the group of southern countries, Spain presents the highest degree of maturity. With Softonic 
in  2013,  the  country  has  managed  to  attract  international  money  from  Switzerland  through  a 
USD 100+ million growth round. Conversely, Italy and Portugal do not enjoy a large investment 
industry  like  Spain’s.  This  spread  is  mirrored  in  the  number  of  deals  that  both  countries 
showcased in 2013 that may be explained by a large number of factors of which the maturity of 
their home-ecosystem is an important element. 

The  following  table  shows  the  Top  10  European  deals  in  2013  in  software,  mobile  tech  and 
internet-driven companies. 

 
 
 
 
 
 
 
 
Company 

Sector 

Country 

Capital raised (in 
USD million) 

Main investors 

EUROPEAN TOP 10 DEALS (2013) 

Spotify Ltd 

Supercell 

Softonic 

Media and 
entertainment 

Media and 
entertainment 

Systems, 
Software, 
curated web 

Sweden 

Finland 

250 

130 

Technology Crossover Venture 

Institutional Venture Partners, 
Index Ventures, Atomico 

Spain 

109 

Partners Group 

Skyscanner 

Software 

Powa Technologies 

Shazam 

Onlineprinters GmbH 

Retail and 
distribution 

Media and 
entertainment 

Business 
products and 
software 

UK 

UK 

UK 

Germany 

Numberfour Ag 

Software 

Germany 

Talend 

Analytics 

France 

Funding Circle 

Financial 
services 

UK 

100 

Sequoia Capital 

76 

53 

50 

38 

38 

37 

Wellington Management 

America Movil 

Ta Associates 

Allen&Company, Index Ventures, 
T-Venture 

Bpi France, Iris Capital, Silver Lake 
Sumeru 

Accel Partners, Ribbit Capital 

Source: whogotfunded.com, Clipperton Finance, France Digitale 

As  demonstrated  above,  large  deals  in  Europe  are  funded  by  non-European  venture  capital 
institutions: Technology Crossover Ventures (US), Institutional Venture Partners (US), Partners 
Group (CH), Sequoia Capital (US), America Movil (Latam), Ta Associates (US), Allen & Company 
(US), Silver Lake Sumeru (US), and Ribbit Capital (US). 

European  venture  capital  funds  investing  in  top-10  deals  in  2013  were:  Index  Ventures 
(Europe),  Atomico  (United  Kingdom),  Wellington  (Global),  T-Venture  (Germany),  BPI  France 
(France), Iris Capital (France) and Accel Partners (Global). 

Outlook for 2014 

According  to  Clipperton  Finance’s  latest  half-year  report  for  2014,  Europe  shows  a  strong 
momentum for Innovation Financing, with a record Q2 at $2 billion (+29% vs. Q2 2013), driven 
by increased investment levels both in later stage and early stage deals. Europe seems to have 
finally recovered from difficult years post 2007. Activity was strongest in the  United Kingdom, 
where companies raised 28% of the total amount in the second quarter, followed by France with 
19% and Germany with 15%12. As of June 201413:  

12 http://blogs.wsj.com/digits/2014/07/28/european-startups-raise-highest-quarterly-vc-financing-since-2001/ 

 
 
 
 
                                                           
- 

Internet and New Media accounted for a record 46% of innovation financing in H1 2014, 
up by 51% vs. last year 

-  The United Kingdom keeps leading the race: about 30% of invested capital in innovation 

goes to UK-based companies. 

-  Confirmed  trend:  US  growth  investors  are  back  in  Europe:  nearly  half  of  deals  >$15m 

(47%) were led by US investors 

Thus, current conditions for entrepreneurs are at a peak. A growing number of entrepreneurs in 
the  more  mature  hubs  (London,  Paris,  Berlin,  Stockholm,  Helsinki)  manage  to  find  capital  to 
finance the development of their product or their growth. 

But, some countries are still developing their ecosystem to a more advanced level, in Spain, Italy 
and Portugal but also eastern parts of Europe. 

Nevertheless,  seven  software  and  internet-driven  companies  have  made  it  to  the  USD  50+ 
million funding round in 2013, a figure that should be higher in 2014 according to Clipperton’s 
forecasts. 

13 http://www.clipperton.net/clipperton-finance-releases-new-h1-2014-european-innovation-financing-newsletter/ 

 
 
 
 
 
 
                                                                                                                                                                                     
Current status of the European VC industry 
The venture capital profession is often misunderstood. Venture capitalists, or General Partners 
(GPs) work on a pool of money brought by investors (LPs) that might be public (EIF, local funds 
of  funds,  sovereign  funds,  etc.)  and/or  private  institutions  (individuals,  pension  funds,  banks, 
insurers, corporates, endowments, etc.). This pool allows them to invest in a portfolio of startup 
companies on the local market or internationally according to their strategy.  

Venture capitalists not only bring capital to finance the growth of startup companies but above 
all  high-end  expertise  and  network  that  allow  them  to  really  add  value  to  their  investments. 
There  is  no  typical  background  for  a  VC  team,  but  a  reasonable  number  of  them  are  former 
entrepreneurs, strategy consultants or investment bankers. 

The European VC industry compared to the US is still young and consists in its core of venture 
capitalists that survived the bubble burst of the early 2000s and kept on raising new funds. The 
EVCA  estimates  that  63%14  of  VC  managers  disappeared  between  1999  and  2011  due  to  a 
challenging fundraising environment. New venture capital teams are now emerging to form the 
next generation of European VCs and are currently managing their first generation of funds.  

We witnessed a very different situation between the northern and central parts of Europe and 
the south. Ecosystems like Sweden, France, the United Kingdom, and Germany are able to rely on 
a fairly mature VC industry whereas Spain, Italy and Portugal are still in a process of building an 
ecosystem of their own (although Spain has proven to be slightly more advanced).  

The  following  conclusions  support  the  above  analysis  with  key  insights  obtained  through 
interviews  performed  with  44  partners  of  venture  capital  firms  among  the  most  active  in  the 
digital space in Europe. These interviews were conducted and validated by the lessons learned 
during the workshop organized by the Web Investors Forum and France Digitale on June 11th in 
Paris during the France Digitale Day. The workshop has gathered the very best of the European 
investment  industry  (VCs  and  business  angels)  for  high-end  panel  discussions  (appendix  I)  on 
the future of funding in Europe. 

We  will  present  each conclusions supported  by facts and conclude  the  document  with  a set of 
recommendations that have been validated during the workshop. 

14 Source: EVCA, Earlybird, Turning venture capital data into wisdom, p.16, 
http://fr.slideshare.net/earlybirdjason/earlybird-europe-venture-capital-report 

 
 
 
 
 
 
                                                           
Post-interviews and workshop conclusions 

The European Exit market is the most critical issue 

The exit environment in Europe is regarded by interviewed venture capitalists (9.5 out of 10) as 
the most critical challenge in Europe.  

Exits represent a liquidity event for investors or entrepreneurs that allow them to obtain full or 
partial  returns  for  their  initial  investment.  There  are  three  different  types  of  exits  in  the  VC 
world: IPOs (listing the company), trade sales (selling the company to an acquirer), and private 
equity  buyouts  or  growth  capital  (selling  the  company  fully  or  partially  to  a  specialist  private 
equity fund). 

A favorable exit market creates a positive feedback loop that supports a virtuous cycle: 

-  They allow entrepreneurs  to find  liquidity  and  create  new companies and/or  invest  as 
business  angels  in  new  entrepreneurs.  Successful  entrepreneurs  usually  tend  to  give 
back to the ecosystem through personal investments in new startup companies. There is 
a multiplier effect to success in the digital world. 

-  Exits generate performance for the venture capital industry and foster attractiveness of 

the asset class for private institutional investors.  

-  Exits create success stories and role models for future generations of entrepreneurs.  

Trade Sales 

The European ecosystem is still young and lacks sizeable tech companies that generate enough 
margins to acquire startups at decent multiples and valuations, even if some examples exist such 
as Axel Springer, Schibsted, Telefonica, or Dassault Systems. As a result, it is difficult to compare 
the US and European ecosystems as they operate with very different degrees of maturity.  

The  US  has  an  ecosystem  of  entrepreneurs,  funders,  and  buyers  that  is  mature  and  well 
balanced. Large tech companies like Google, Facebook and others acquire startup companies and 
allow  entrepreneurs  to  become  angels  and  invest  in  new  companies  and/or  build  a  new 
company.  For  example,  as  of  April  2013,  the  total  market  value  of  the  7  largest  US 
technology  companies  (Apple,  Microsoft,  IBM,  Google,  Facebook,  Amazon,  and  Yahoo)15 
was close to USD 1.7 trillion. Whereas in Europe, the only company competing in terms of 
size is SAP with a EUR 63 billion valuation (as of Q2 2014)16, still very far from the huge 
acquisitive potential of American companies. 

Europe  is  still  a  young  ecosystem  and  does  not  yet  benefit  from  large-scale  listed  digital  born 
acquirers.  Some  smaller  corporations  have  begun to  spring  up,  such  as Criteo  or  King,  but  the 
landscape  still  has  to  blossom.  Very  few  media  companies  in  Europe  have  proven  capable  of 
buying and successfully integrating startup companies such as Schibsted, Axel Springer, Hubert 
Burda,  and  others.  However,  as  stated  by  the  entire  community  of  European  VCs,  at  present, 

15 http://www.statista.com/statistics/216657/market-capitalization-of-us-tech-and-internet-companies/ 
16 SAP half-year report 2014 

 
 
 
 
                                                           
potential  acquirers  are  almost  always  in  the  US,  and  most  of  them  turn  directly  to  the  US  for 
their acquisition searches.  

Traditional industry  players in  Europe,  but also  in  the US  face more  difficulties  in successfully 
integrating  startup  companies,  as  they  were  not  born  digital.  According  to  Schbisted  Growth’s 
Managing Director Marc Brandsma “60% of post-merger integrations are going to be failures”. It 
is thus challenging for traditional players to efficiently acquire startup companies.  

However, 90% of interviewed VCs believe that European corporations could do better. Even if 
post-merger  integration  can  be  challenging,  European  corporations,  with  the  exception  of  a 
handful  of  companies,  are  subject  to  the  “Not  Invented  Here”  syndrome,  and  might  see  their 
industry disrupted by newcomers if they do not begin an effort to integrate external innovation. 

As  a  result  of  this  situation,  9  out  of  10  startup  companies  financed  by  VCs  are  sold  to 
foreign acquirers (US and Asia) according to interviews. 

Corporate Venturing 
A  smart  approach  to  allow  corporations  to  operate  more  efficiently  in  the  realm  of  venture 
capital can be led by either dedicated in-house teams of investment professionals or corporate 
investments  in  external  venture  capital  funds.  Corporations  that  currently  account  for  only 
6.5%17  of  investment  into  the  digital  startup  industry  could  take  further  interest  for  multiple 
reasons:  early  targeting  of  potential  acquisition,  knowledge  acquisition  on  new  digital  trends 
and technologies, and pure financial objectives. 

As  mentioned  by  interviewed  Corporate  Venture  funds,  there  are  huge  opportunities  for 
Corporates  to  invest in  a pure  financial  and  knowledge  transfer  purpose.  However, if  done  for 
strategic  purpose,  in-house  strategic  corporate  venturing  initiatives  are  more  challenging  to 
operate as they run under conflicting interest between Corporates and entrepreneurs. Through 
strategic corporate venture, Corporates are looking to find interesting technologies and services 
to buy at the lowest possible price. On the other hand, an entrepreneur is looking for a partner 
for growth and to sell to the highest bidder. Even if there are some successes in the Corporate 
Venture space, it is still too early to be able to determine whether the model is adapted. 

Therefore,  our  interviews  have  shown  that  it  is  preferable  for  the  industry  that 
Corporates  invest  in  external  venture  capital  funds  and/or  acceleration  programs  that 
would act as “platforms” for knowledge acquisition and early partnerships/m&a scouting 
to a multitude of Corporates, thus minimizing the above mentioned potential conflict18. It 
would  be  beneficial  for  Corporates,  as  they  would  be  able  to  get  their  eyes  on  cutting-edge 
disruptive technologies, as well as for the whole startup industry, which would beneficiate from 
increased amounts of capital inflows from a segment (Corporates) that has been shy for the last 
couple of years. 

17 EVCA Yearbook 2013 
18 As an illustration, French Groups Orange and Publicis have pooled their resources to invest in a 
fund managed by Iris Capital : http://www.iriscapital.com/fr/content/france-telecom-orange-and-
publicis-group-partner-iris-capital-management-create-leadind 

 
 
 
 
                                                           
Even  if corporate  venture,  co-working,  or  acceleration structures  are  booming  in  Europe,  they 
often come as a result of a communications strategies and not from a long-term strategic vision 
as  mentioned  by  one  of  the  Corporate  VCs  interviewed  during  the  workshop  panels.  In  the 
beginning of the 2000s Corporates have started a large number of internal VC arms that did not 
survived top management turnover and the bubble burst19. 

European  Corporates  should  think  twice  before  engaging  in  an  effort  to  build  an  in-house 
venture  structure.  However,  corporations’  involvement  in  external  accelerators  and  venture 
funds is marginal.   

Therefore, the “platform” approach should be defended in Europe, with external VC funds 
and accelerators acting as platforms to Corporates that are willing to acquire knowledge 
and scout potential targets or partner.  

The case of the German High-Tech Gründerfonds 

The High-Tech Gründerfonds (HTGF)20 is a venture capital firm focusing on early stage and seed 
investments established in 2005 to finance young technology companies. The Gründerfonds is a 
public-private  partnership  between  the  German  Federation  and  corporations  with  investors 
such  as  the  Federal  Ministry  of  Economics  or  Bosch,  Bayer,  KFW  banking  group,  RWE,  SAP, 
BASF, DAIMLER, or Metro Group (and more). 

This  public  initiative  has  allowed  corporations  to  take  part  in  financing  innovation  and  gain 
knowledge  out  of  their  investments.  The  second  generation  of  fund  was  closed  at  a  EUR  304 
million. HTG is not only innovative in its structure but also invests at the seed level according to 
interesting terms. 

The firm “provides up to EUR 500 K in the form of a subordinated convertible loan and acquires 
a 15% nominal share”. Additionally, “interests on the loan are deferred for 4 years to preserve 
the company’s liquidity”21.  

In their first 5 years of existence, HTGF invested in 250 companies. As a professional investor, 
HTGF not only provides capital, but also strategic expertise and networks to their companies. 

This initiative has been instrumental in building up a momentum for the German ecosystem in 
2005  and  further  on,  and  growing  awareness  of  German  industrial  investors  of  the  coming 
digital revolution.  

The IPO market 

With regards to interviews and the discussions at the Paris workshop, listing a company remains 
a very rare option. Moreover, the venture capital community is quite divided on the subject, and 

19 http://www.lesechos-etudes.fr/fr/catalogue/etudes/sectorielles/banque-assurance/corporate-
venture.html 
20 http://www.en.high-tech-gruenderfonds.de/ 
21 http://www.en.high-tech-gruenderfonds.de/financing/financingterms/ 

 
 
 
 
                                                           
a  large  majority  would  recommend  boosting  the  trade  sales  before  creating  a  good  IPO 
environment in Europe. 

80%  of  interviewees  consider  the  European  IPO  market  as  currently  not  favorable  for 
technology companies as there is no liquidity provided by demand, and very few peers listed on 
European markets (especially for those companies relying on deep technology). The first market 
of choice for an IPO is usually the US as demand is higher and peers more numerous. However, 
IPOs  in  the  US  are  suited  for  a  very  limited  number  of  companies,  as  they  have  to  be  able  to 
showcase certain minimum value criteria (large companies) as well as a strong operation in the 
US. 

Eric Forest, CEO of Enternext, one of the premier European listing market for SMEs emphasizes 
the fact that the European demand side is currently thirsty for new equity stories. Even if for the 
moment, they do not always understand digital and deep technology business model, investors 
are  looking  for  new  kind  of  companies  to  invest  in.  Forest  mentions  that  as  at  June  2014,  10 
companies had listed themselves since the beginning of the year with a total of EUR 1.7 billion 
raised: eDreams Odigeo, Just Eat, Bravofly Rumbo Group, Awox, Visiativ, Anevia, ao.com, Expert 
System, Triboo, and Rosslyn Analytics.  

It should also be noted that over the last 10 years, only 7 European tech companies went public 
in the US, showing signs of high barriers to entry in this market in terms of valuation and other 
criteria. 

Nonetheless, the public market is an important part in the evolution of an ecosystem in terms of 
later stage financing or exit options. It also provides the opportunity for future global leaders to 
be able to remain independent and one day become the large tech acquirers that Europe lacks 
today. 

Private equity 

The European private equity landscape is currently picking up, with a large number of US based 
funds now targeting European companies, and offering liquidity options for founders and VCs. 
There are however very few European-native private equity funds regarding tech as a potential 
sector. 

 
 
 
 
 
 
An unbalanced European financing value chain 

According  to  the  EVCA22,  the  number  of  active  European  venture  capital  managers  between 
1999  and  2011  has  decreased  by  63%.  This  diminution  in  number  was  accompanied  by 
diminution in capital inflow leading to the current situation in Europe. According to Earlybird’s 
estimates23, Europe has today the highest unbalance in venture capital availability on the planet. 

VCs do not only invest their personal wealth, but largely depend on capital inflows from third-
party institutions commonly named Limited Partners (LPs) in the industry. LPs usually consist 
of  public  funds,  insurance  companies,  endowments,  banks,  high  net  worth  individuals,  and 
pension funds. Without LPs, there are no VCs. And without VCs, startup companies would have 
difficulty finding the right resources for their growth. 

Startups  are  high-growth  companies  with  long-term  needs  for  financing.  Most  of  these 
companies’  cycle  prevent  them  from  having  access  to  debt  funding  through  banks  or  even 
venture debt funds, which finance very specific types of companies. Capital is the only source of 
financing that is patient enough and that comes with non-financial expertise and network that 
allows the handling of hyper-growth companies. 

Promoting Internet and mobile tech venture capital to LPs 

Capital invested by VCs is dependent upon the ability of VC managers to collect funds from their 
underlying  investors:  Limited  Partners  (LPs).  A  very  challenging  LP  environment  has  been 
outlined by 90% of interviewed VCs. This is one of the main challenges faced by most venture 
capitalists nowadays, and venture capital as an asset class needs to be promoted towards money 
managers in terms of performance, future potential and positive social welfare creation. 

LPs  are  large  money  managers  such  as  banks,  pension  funds,  insurance  companies  and 
corporations, which allocate a small part of their assets to specialist ICT venture capitalists. An 
additional  layer  of  LPs  consists  of  publics  or  semi-public  institutions  such  as  the  European 
Investment Fund or local sovereign funds. 

In  the  last  years,  the  financial  turmoil,  as  well  as  strong  prudential  regulation  on  banks  and 
insurers (namely Basel III and Solvency II) have led to a melting in private LPs’ appetite for the 
VC asset class, collateral to a decrease in capital invested in the internet and mobile tech space. 

22 http://fr.slideshare.net/earlybirdjason/earlybird-europe-venture-capital-report 
23 http://fr.slideshare.net/earlybirdjason/earlybird-europe-venture-capital-report 

 
 
 
 
                                                           
 9,0
 8,0
 7,0
 6,0
 5,0
 4,0
 3,0
 2,0
 1,0
 0,0

The weight of public funding in European Venture Capital 

40%

35%

30%

25%

20%

15%

10%

5%

0%

Public (in EUR billion)

Private (in EUR billion)

Public funding/Total fundraising

2007

2008

2009

2010

2011

2012

2013

Source: EVCA yearbook 2013 

Today, public capital accounts for over 35% of global fund closings in Europe, almost 3.5 
times the same weight in 2007, a figure that according to our interviews around Europe is 
more likely to be around 40%.  

European LP structure 

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Sovereign wealth funds

Private individuals

Pension funds

Other asset managers (including PE
houses other than fund of funds)

Insurance companies

Government agencies

Fund of funds

Family offices

Endowments and foundations

Corporate investors

Capital markets

Banks

Academic institutions

2007

2008

2009

2010

2011

2012

2013

Source: EVCA Yearbook 2013 (unclassified excluded) 

100%  of  interviewed  VCs  consider  that  the  quality  of  their  local  or  pan-European  deal  flow  is 
sufficient  to  manage  more  capital  following  their  strategy,  but  there  is  a  strong  reluctance  of 
large-scale European money managers to allocate to this asset class. 

 
 
 
 
 
 
 
Explanatory elements 

Although  public  funding  has  increased  over  the  years,  the  boom  in  the  public  restraint  of 
industry capital is likely due to an important decrease in private money inflow since 2007 and 
before.  

Basel III and Solvency II 
The Basel III regulation is a series of initiatives taken to reinforce the financial system following 
the  turmoil  of  2007,  agreed  by  the  Financial  Stability  Board  and  the  G20.  The  objective  is  to 
guarantee a minimum level of equity in order to ensure the financial solidity of banks. Among 
other things, this regulation has led to a number of prudential ratios in relation to the liquidity 
risk of investments made by banks. As non-liquid asset, private equity was strongly impacted by 
this regulation, as it consumes a strong amount of the liquidity risk ratio envelope of banks. 

This directly impacts the economy and financing capacity of European SMEs, as capital starts to 
become  more  scarce  due  to  the  current  decrease  of  debt  financing  capacity.  According  to  the 
International  Institute  of  Finance,  the  Basel  III  requirements  will  generate  an  overall  negative 
impact on the Eurozone’s GDP of 0.5% per annum between 2011 and 2015, a cumulated 4.5% 
according to their predictions24. 

As  a  result  of  Basel  III,  a  number  of  banks  disengaged  from  private  equity  holdings  such  as 
Barclays and Crédit Agricole. 

This  observation  is  identical  for  European  insurers  under  the  Solvency  II  regulation  who  are 
constrained to disengage from private equity such as Axa, the  top insurer in Europe as well as 
the largest private equity investor prior to the spin-off of its branch. 

As a result, according to the EVCA in 2013, Private individuals and family offices amounted for 
20%  of  total  new  money  inflow  whereas  banks  and  insurance  companies  cumulatively 
accounted for only 5.4%. 

Although these regulations are considered by 40% of interviewees to be one of the reasons for 
an  increasingly  challenging  fundraising  situation  in  Europe,  the  entire  European  community 
seems to think that the problem lies elsewhere. Potential explanations may be the asset class’s 
size, reputation and global awareness of Internet and mobile tech startup companies’ growth or 
welfare potential. 

Performance of European VCs 
Even if constraints are high for the entire private equity industry, the risk/return profile of the 
VC asset class is reputed as not worthy by European institutional investors. Indeed, returns of 
ICT VC funds in Europe are highly unequal, according to country, and even on local markets. As 
venture capital funds’ performance are poorly disclosed, we witness a very low visibility of high 
performing  venture  capital  institutions.  These  institutions’  high  quality  startup  selection  and 
support, should be better promoted. 

24 http://www.iisd.org/sites/default/files/pdf/2012/basell3.pdf 

 
 
 
 
                                                           
The  US  industry  seems  to  suffer  less  from  such  bad  reputation.  However,  key  facts  and 
information  should  to  be  highlighted  in  order  to  demonstrate  the  difference  between  the 
investment landscape in Europe and the US. 

The  bad  reputation  of  European  VCs  within  the  LP  community  is  partly  linked  to  lack  of 
awareness  and  the  scarcity  of  available  data  on  the  industry’s  performance.  On  average,  the 
performance of Europe-based funds are equivalent to that of the US. A small percentage of US 
investors (actually drives up the statistics to the benefit of the whole American industry. 
In Europe, statistics also include VC managers who were not able to raise new funds following 
the  bubble  burst  from  (2003-2006)  and  went  out  of  the  market  (probably  30%  to  40% 
according  to  the  EVCA),  with  a  highly  negative  impact  on  the  performance  of  their  portfolio 
constructed  between  1999  and  2003.  This  phenomenon  has  had  less  of  an  impact  on  North 
American statistics and so the comparison between the US and Europe should be regarded with 
much  care.  The  European  VC  performance  indicators  should  include  VCs  that  managed  to 
continuously raise new funds over the years. 

The  European  market  would  benefit  from  a  reliable  benchmark  with  carefully  selected  VC 
managers. One of the few European institutions to concentrate a sufficient amount of top-quality 
data would be the European Investment Fund (EIF). As the largest European LP, and the most 
supportive pan-European institution, the EIF has been investing in venture capital long enough 
to  build  efficient  consolidated  performance  statistics  for  the  European  industry.  The  EIF  has 
recently  engaged  in  an  effort  to  build  an  index  that  should  be  supported  by  the  European 
Commission. 

Awareness of LPs 
Money managers (LPs) tend to invest in what they understand. Today, Internet and mobile tech 
business models seem to be very blurry for institutional investors in comparison to their high 
quality  understanding  of  traditional  markets.  Institutional  investors  delegate  most  of  the 
management  of  their  assets  to  third  party  asset  management  institutions,  but  usually  define  a 
top-down strategic allocation by asset class. Considering Europe’s ambition for our future digital 
competitiveness, capital has to reconcile with the internet-driven avant-garde. 

 
 
 
 
 
 
 
The case of US pension funds 

CalPERS is an American pension fund managing a USD 260 billion budget for public employees’ 
retirement in California. Listed below is CalPERS’ current asset allocation mix by market value 
and policy target percentages as of May 29, 201425. 

Source: CalPERS 2014 

As stated by CalPERS its target allocation to private equity now amounts to 12%. Previously in 
2012, CalPERS allocation was 7% of its allocation to private equity. With a budget of USD 290 
billion  under  management,  CalPERS’  sole  commitments  to  venture  capital  was  equivalent  to 
67% of the capital deployed on European startups in 2013. 

CalPERS  recently  stated  that  they  plan  to  shrink  that  allocation  to  1%  of  the  private  equity 
assets26, still at a high level of USD 390 million that finds no equivalent in Europe, except from 
public institutions. According to the US pension fund’s statement the venture capital industry is 
“too  small  to  absorb  a  larger  percentage  of  money  from  an  investor  the  size  of  CalPERS”.  A 
statement that finds an echo in Europe. 

Critical mass and the size of European funds 
Institutional investors invest according to hard guidelines in terms of minimal investment size in 
a  fund  and maximum  control  ratio27  over  a  fund.  The  level of  these metrics may  vary  from  an 

25 http://www.calpers.ca.gov/eip-docs/investments/policies/asset-allocation/asset-alloc-strgy.pdf 
26 http://www.calpers.ca.gov/eip-docs/investments/policies/asset-allocation/asset-alloc-strgy.pdf 
27 Control ratio : investment of a single investor/total size of the fund 

 
 
 
 
 
 
                                                           
institutional investor to another but typically most European venture capital funds are too small 
in size to be able to receive institutional money.  

During our interviews, we have witnessed a very diverse situation between countries in terms of 
average size of funds. 

Country 

France  

United Kingdom 

Germany 

Sweden 

Spain 

Italy  

Portugal 

Average fund size (in EUR million) 

90 

165 

150 

185 

68 

40 

40 

As at March 2014: estimates from qualitative interviews 

Three  countries  with  developed  industries  have  an  average  fund  size  passed  the  EUR  100 
million mark (United Kingdom, Germany, and Sweden). France is the only country in the group 
of  4  to  be  under  that  mark  and  seems  to  display a  rather  fragmented  venture capital  industry 
with a large number of funds managing less capital than in the other core countries. 

Positive externalities 
Not only do successful startup companies generate shareholder value, but they also create social 
welfare  as  presented  in  France  through  the  France  Digitale  barometer28:  with  +22%  of  job 
creation in 2013 and 91% of permanent contracts and 32 years old of average employee age. 

As demonstrated by Prf. Enrico Moretti (2013)29, Professor at Stanford, for one tech job created 
in a hub, five additional jobs are created outside high-tech in the same city. “A tech job is much 
more  than  a  job”,  it  has  a  large-scale  multiplier  effect.  “Take  Apple,  for  instance.  It 
employs 13,000 workers in Cupertino, but it generates almost 70,000 additional service 
jobs  in  the  region.  This  means  that,  remarkably,  Apple’s  main  effect  is  not  among  high 
tech workers. It is outside high tech”. 

LPs like insurance companies and pension funds work on a pool of capital brought together by 
the labor force. Without a doubt, this particular effect on innovative industries on employment is 
representative  of  a  strong  long-term  alignment  of  interest  between  LPs  and  VCs  that  could  be 
promoted by the Commission. 

Present challenges 

It  should  be  noted  that  due  to  the  challenging  fundraising  (LPs)  situation  in  Europe,  the  VC 
profession  faces  great  concentration  that  may  coincide  with  a  shortage  of  available  capital  for 
startup companies and Europe’s innovative potential.  

28 http://fr.slideshare.net/FranceDigitale 
29 Moretti, E., 2013. The New Geography of Jobs, Reprint edition. ed. Mariner Books, Boston, Mass. 

 
 
 
 
                                                           
 
Venture capitalists have developed unparalleled knowledge and expertise in web businesses and 
investing  which  must  be  highly  valued.  The  right  investments  consist  of  capital  and  expertise: 
capital  alone  will  not  lead  to  a  generation  of  value  for  companies  and  competitiveness  for 
Europe. 

A  concentration  of  the  venture  capital industry  would  mechanically  lead  to fewer  investments 
made,  if  it is  not  supported  with  growth  of  private  capital  inflow.  In  order  to  do  so,  European 
savings should nurture the venture capital industry: even an insignificant portion would make a 
great difference. Household savings are higher in Europe than in the US, and this sleeping capital 
if directed the right way, could help Europe build on its competitiveness in the digital field. 

Difference between regions 

Southern and Eastern Europe: a need for momentum creation 
The south and east of Europe suffer from a lack of capital on a very early part of the value chain 
at the seed and pre-seed levels (any investment ranging between 100K and 1m euros). Portugal 
and  Italy  are  countries  where  entrepreneurs  have  a  hard  time  finding  enough  capital  to  start 
developing their product even in the early stage. . 

Core countries: still more to go 
For other countries (core) where the industry is further developed, equity shortage starts to be 
felt from series A to B and above all at the later stages. 

Supporting seed investments: how the European Investment Fund empowers business 
angels 

The EIF has launched a pilot project in Germany which has then been replicated in Spain and 
Austria  that  aims  at  co-investing  with  a  small  number  of  carefully  selected  top-tier  business 
angels.  

The EIF considers working with angel networks and association to be more difficult within the 
frame  of  this  program  and  has  decided  to  focus  on  individuals  who  can  prove  their  ability  to 
add true value to their portfolio companies. Business angels go through a due diligence process 
led by the EIF, and once granted the green light in terms of expertise and investment capacity, 
the  EIF  allocates  to  the  “super-angel”  a  pocket  of  capital  ranging  from  EUR  250  K  to  EUR  5 
million on a 1 for 1 matching basis. 

If an angel invests 1 euro on a company, the EIF will invest 1 euro in the same company with the 
same  terms,  thus  giving  to  the  angel  a  higher  investment  capacity  and  more  capital  to  the 
entrepreneur in order to prove his/her point. 

This program does not pay any management fee to the selected angel, but if the investment is 
successful,  the  business  angel  earns  a  carried  interest  on  a  deal  by  deal  basis  in  order  to 
incentivize performance. 

This  program  has  been  acclaimed  by  the  investment  community  and  could  be  replicated  in 
more member states. However, in order to grow its program the EIF needs the support of local 

 
 
 
 
 
counterparts, which has slowed down the expansion process.  

A pan-European equity shortage: creating global leaders 
Later stage funding demonstrates a true equity shortage in Europe as only 4 to 6 funds are able 
to  support  these  types  of  deals  in  the  digital  space.  Later  stage  financing  rounds  are  essential 
when the ambition of a founding team is to become a global leader in their field. 

The consequence of this lack of capital for more mature startups is an important number 
of  premature  sell  offs  for  companies  that  could  have  the  potential  to  continue  to  grow 
independently. 

All  over  Europe,  public  fund  of  funds  have  proven  themselves  to  be  instrumental  in  providing 
the  right  amount  of  capital  to  develop  a  local  or  pan-European  VC  industry  under  great 
economic pressure. It is a policy tool that is essential to consider at when it comes to creating a 
good  funding  environment  for  startup  companies,  especially  in  less  developed  regions  like 
Southern and Eastern Europe. 

Local public fund of funds and direct co-investments: the case of Bpi France 

Bpi  France  is  the  French  Public  Investment  Bank  designed  to  bring  finance  solutions  to 
companies  from  the  seed  level  to  maturity.  Bpi  France  has  developed  a  large-scale  program 
spanning the entire financing lifecycle of innovative SMEs through 15 dedicated fund of funds 
designed to boost the French investment activity in venture capital and more.  

As  an  example,  the  Fonds  National  d’Amroçage  (FNA)  is  now  endowed  EUR  600  million  to 
invest  in  20  to  30  funds  dedicated  to  seed  investments  in  innovative  companies.  The 
intervention  regime  was  validated  by  the  European  Commission  in  2011,  and  has  served  a 
crucial  purpose:  bringing  a  solution  to  equity  shortage  at  the  seed  level  that  France  was 
witnessing at the time. 

Funds are allocated directly by Bpi France and its specialist teams to venture capital teams that 
can prove able to bring value to their companies. As of March 2014, the FNA has invested EUR 
308 million in 16 funds and has further investment capabilities. 

In  2013,  Bpi  France  identified  the  lack  of  financing  for  later  stage  companies  and  created  in 
January 2014, a large venture fund. With EUR 500 million in management, Bpi France now co-
invests  directly  in  funding  rounds  starting  from  EUR  10  million  on  companies  seeking  large 
amounts of capital to finance their growth and expansion. As of June 2014, Large Venture has 
invested in 13 companies in the ICT, medtech and cleantech fields. 

This  case  is  not  isolated  in  Europe.  But  this  type  of  public  initiative  and  best  practice  is  not 
generalized  to  every  country.  It  should  be  repeated  at  the  local  level  wherever  possible, 
especially  in  those  countries  with  a  newly  developing  ecosystem    (Southern  and  Eastern 
Europe).  

At the local level, other public initiatives could be pinpointed such as Portugal Ventures (direct 
investments in Portugal) or the High-Tech Gründerfonds (public/private direct investments in 
Germany). 

 
 
 
 
On  the  pan-European  level,  the EIF  is  the  main  player  in  providing  public capital  to VC  funds 
and  helping  them  raise  additional  capital.  The  EIF  has  been  instrumental  in  supporting  the 
industry for over the past two decades and its teams have among the most advanced levels of 
expertise in the European VC field.   

Public grants: Tekes 

In  Nordic  countries,  the  digital  startup  scene  has  rapidly  evolved  thanks  to  a  number  of 
aggressive government initiatives dedicated to building global and innovative companies. 

Tekes  in  Finland  was  created  in  1983  and  has  backed  a  number  of  companies  such  as  Rovio, 
Nokia, and Supercell via financial assistance in excess of EUR 135 million per year (2012)30 

Tekes  finances  rapid  growth  companies  with  a  strong  potential  to  expand  internationally.    In 
European  public  policy  this  practice  is  unique,  in  that  most  initiatives  focus  on  a  more  local 
scope.   

Tekes finances small innovative companies that are less than six years old with a maximum of 
EUR 1 million. Generally starting with a EUR 250 K subsidy or loan with 75% of the project’s 
cost eligible to the grant. 

This  program  is  acclaimed  by  Nordic  venture  capitalists  as  it  has  helped  Finland  to  create 
momentum for early stage investors.  

30 http://www.businessinsider.com.au/running-a-startup-in-finland-2013-11 

 
 
 
 
 
 
 
 
 
                                                           
Insufficient coordination between European Tech Hubs 

Thanks to policy programs like  EIS/SEIS scheme and London tech city in the  United Kingdom, 
BPI France and  La French Tech in France, the Gründerfonds in Germany and Tekes in Finland, 
the development of a certain number of tech hubs such as Paris, Berlin, London, Stockholm and 
Helsinki has begun to improve the overall quality of the deal flow for investors. These hubs are 
contributing to developing the overall European entrepreneurial startup culture and landscape. 

However, due to the fierce competition between nations for entrepreneurial supremacy, there is 
a  lack  of  sufficient  cooperation  between  hubs  that  could  help  companies  in  expanding  into 
different markets. 

As key players in the ecosystem, venture capitalists could be the key facilitators of these 
hubs  if  they  invested  more  freely  in  different  markets  beyond  their  local  ecosystems. 
However,  we  have  seen  very  few  players  that  are  truly  able  to  achieve  a  pan-European 
investment activity. 

Indeed,  discussions  during  the  Web  Investors  Forum  workshop  highlighted  that  investing  in 
multiple countries is a rather complicated activity, as often, on-the ground presence is required, 
This  makes  the  creation  of  efficient  investment  teams  even  more  challenging.  If  it  is  not 
established as pan-European, a venture capital firm will always be more comfortable investing 
on a local basis, with few investments made. 

Coordination  between  hubs  could  benefit  countries  with  a  less  mature  environment  seeking 
expertise  and  knowledge  transfer  from  more  advanced  hubs.  Spain,  Italy,  or  Portugal  could 
develop themselves much more rapidly via exchanges with epicenters such as London and Paris.  

In  some  cases,  local  public  policy  instruments  slow  down  this  coordination.  In  fact,  in  some 
countries, public money inflow comes along with a certain number of constraints. In Portugal for 
example, publicly funded companies face problems when expanding their operations in foreign 
countries  and  are  sometimes  forced  to  reimburse  the  public  portion  of  their  capital  before 
expanding to other countries. 

These  types  of  constraints  may  also  have  a  negative  impact  on  investments  made  by  VCs  in 
foreign countries, although investments made outside their own boarders would also benefit the 
local  portion  of  their  portfolio.  When  a  VC  invests  abroad,  it  grows  its  network  as  well  as  its 
insight on this foreign ecosystem. In terms of networks, and other non-financial value added, a 
local entrepreneur would benefit from  this type of  investment. Startup companies work under 
economies of scale and will always need to scale internationally at some point, and not always 
from  their  place  of  creation.  However  public  investments  in  VC  funds  tend  to  impose  a  high 
degree  of  constraints  in  terms  of  investment  geography,  which  in  the  end,  do  not  help 
coordination between ecosystems. 

 
 
 
 
 
 
Tax & legal environment needs to be improved (adapted) in 
certain geographies 

In some regions, the tax and legal environments can negatively impact the effective alignment of 
interest at all levels. 

Between entrepreneurs and employees 

Stock  option  plans  and  more  generally  employees’  shared-ownership  plans  are  an  important 
part of industry standards set in the startup world. Startup companies need to attract the best 
talent available and incentivize them to deliver the best. They often pay a premium, which takes 
the form of a shared-interest in the company. This practice is very common and has been proven 
to  have  a  positive  impact.  Employees  are  interested  in  the  potential  future  success  of  the 
company. If the company succeeds, employees get rewarded for their work. 

In  certain  parts  of  Europe  like  Spain  and  Italy,  stock  options  are  regarded  as  a  way  for 
large  organizations  to  pay  high  compensation  to  their  top  managers  and  are  taxed 
accordingly.  However,  this  policy  has  a  negative  impact  for  startups.  Stock  option  plans 
serve a rather different and more labor-friendly purpose for this ecosystem. 

Case Study: French BSPCE program 

BSPCE  (Bons  de  souscription  de  parts  de  créateur  d’entpreprise)  are  subscription  warrants 
usually cost-free for employees in the startup standards. These warrants give the possibility to 
the employee to subscribe during a pre-determined period to stocks of which the price is set at 
the time of BSPCE attribution.  

They provide more favorable tax treatment then traditional stock options both for the company 
and the employee. 

This tool has been met with great success in the entrepreneurial community and according to 
the 2014 France Digitale Barometer31, 90% of startups now use equity instruments with 30% of 
employees owning equity 

Between GPs and LPs  

In some regions, capital gain taxes are not favorable for alignment of interests between VCs and 
their investors. In Spain, the capital gain tax scheme can discourage potential future investment 
teams to form, as a fairly high proportion of their gains will be captured by the state.  

When they invest in a fund, LPs must be sure that venture capitalists will be rewarded if their 
portfolio  companies  are  successful.  This  incentivizes  VCs  to  maintain  a  high  quality  level  of 
advisory  to  their  companies.  If  potential  VCs  anticipate  that  a  very  large  part  of  their  value 
creation is going to be captured by public agencies, they might simply  choose not to enter the 
market.  

31 http://fr.slideshare.net/FranceDigitale 

 
 
 
 
 
                                                           
In  southern  and  Eastern  European  countries  where  the  investment  industry  is  still  in 
early development and in need of momentum, talented investors should be incentivized 
to gather into teams and invest in startups. 

Attractiveness of the asset class 

A  number  of  countries  in  Europe  have  engaged  in  creating  specific  tax  schemes  to  attract 
individual investors to invest directly or through funds in innovative startup companies. 

Case Study: French FCPI 

Created  in  1997,  the  FCPI  (Fonds  Commun  de  Placement  dans  l’Innovation)  is  a  French 
regulated  investment  vehicle  allowing  private  individuals  to  invest  in  venture  capital  with  a 
fiscal  incentive  attached  to  it.  The  fiscal  incentives  are  designed  to  relieve  part  of  the  wealth 
taxation in France. 

In  order  to  benefit  from  this  fiscal  relief,  the  FCPI  has  to  be  invested  for  at  least  60%  of  the 
portfolio in innovative SMEs which are defined as follows: 

- 

- 

either  granted  an  innovation  label  by  Bpi  France  (public  French  investment  bank)  following  a 
certain number of criteria 
or spending a significant amount in R&D 

In 2012, the FCPIs and FCPI-like funds have collected in excess of EUR 638 million, accounting 
for  approximately  half  of  the  amount  raised  by  the  venture  capital  industry  that  year32  in 
France.  Traditionally,  these  funds  are  distributed  by  Individual  Financial  Advisors  (IFAs), 
private  banks,  and  other  wealth  management  institutions.  Below  are  key  figures  per  vintage 
from 2008 to 2012. 

Vintage 2008  Vintage 2009  Vintage 2010  Vintage 2011  Vintage 2012 

Number of VCs 

33 

38 

38 

39 

34 

Number of 
subscriptions 

Average 
subscription 

145’000 

135’000 

124’000 

91’000 

83’000 

7’780 

6’650 

6’700 

8’100 

7’560 

Total raised 

1’129 

898 

835 

736 

628 

Total 
vehicules 
launched 

87 

102 

90 

109 

83 

Source: AFIC, AFG, 2013 

32 Source : EVCA 

 
 
 
 
 
 
                                                           
Even  if  they  are  beneficial  to  French  investments  in  tech  startups,  FCPI  may  present  some 
weaknesses  regarding  the  structural  impact  on  the  digital  economy  in  terms  of  investment 
timing constraint and shorter duration of FCPI vehicles. 

The main liability of an FCPI fund is materialized by its constraint to invest 100% of the capital 
collected within two years after closing, regardless of the available deal flow. The result of this 
constraint is that it forces VC managers to invest rapidly even if there is not sufficient quality in 
the  deal  flow.  Two  years  might  be  too  short  to  manage  a  quality  deal  flow  and  to  identify 
enough high potential startups for the portfolio. There is not enough time for the VC manager to 
diversify in an optimal way, therefore leading to higher risk in the portfolio. 

Management  fees  on  such  vehicles  are  calculated  on  assets  under  management  and  not 
commitments in the fund, which have led in some cases to “zombies”, companies that are kept 
alive  even  if  they  should  be  liquidated.  Conversely,  industry  standards  (ex-FCPI)  have  set 
management  fees  at  a  percentage  of  commitments  under  management  in  order  to  align 
interests between VC managers and investors. 

Benoit  Grossman,  General  Partner  at  Idinvest,  one  of  the  highest  performing  and  most 
acclaimed FCPI managers, believes that the industry has adapted and investments are now run 
smoothly with FCPIs as with any other investment vehicle. 

Despite its  weaknesses,  the  main  objective  behind  FCPIs  of  pouring  private  savings  to  supply 
innovative  SMEs  with  capital  is  a  step  in  the  right  direction  to  improve  the  VC  landscape  in 
France.    This  effort  is  well  regarded  across  Europe  according  to  our  interviews,  even  if  the 
specifics of the policy can still be improved. 

Case Study: Enterprise Investment Scheme in the United Kingdom 

The British Enterprise Investment Scheme (EIS) was launched in 1994 and is designed to help 
small  high-risk  companies  raise  funds  by  offering  a  range  of  tax  reliefs  to  investors  who 
purchase new shares in those companies. 

Certain  rules  have  to  be  followed  in  order  for  this  tax  relief  to  apply,  not  only  at  the  time  of 
investment but also three years afterwards. 

When  investing  in  private  equity  companies  under  this  policy,  individuals  can  expect  the 
following benefits: 

Income tax relief 

- 
-  Capital gains tax exemption: investors who have received income tax relief (which has 
not  subsequently  been  withdrawn)  on  the  cost  of  the  shares,  and  the  shares  are 
disposed  of  after  they  have  been  held  for  a  qualifying  period,  any  gain  is  free  from 
capital gains tax 
Share  loss  relief:  if  the  shares  are  disposed  of  at  a  loss,  investors  can  elect  that  the 
amount of the loss, less any income tax relief given, can be set against income of the year 
in  which  the  shares  were  disposed  of,  or  any  income  of  the  previous  year,  instead  of 
being set off against any capital gains. 

- 

-  Capital  gains  tax  deferral:  available  to  individuals  and  trustees  of  certain  trusts.  The 
payment of tax on a capital gain can be deferred where the gain is invested in shares of 

 
 
 
 
 
an EIS qualifying company. The gain can arise from the disposal of any kind of asset, but 
the investment must be made within the period one year before or three years after the 
gain arose. 

According  to  Her  Majesty’s  revenue  and  custom  department,  since  EIS  tax  relief  scheme  was 
launched  in  1994,  over  18’500  companies  have  benefited  from  the  scheme  and  over  £  8.6 
billion have been raised (as of 2012). 

Source: www.hmrc.gov.uk, 2012 

In 2012, the government launched a new sub-program named the Seed Enterprise Investment 
Schemes (SEIS) designed for companies at a lower stage of maturity seeking seed investments. 
The SEIS aims to help small, early-stage companies to raise equity finance by offering a range of 
tax reliefs to individual investors who purchase new shares in those companies. It complements 
the existing Enterprise Investment Scheme (EIS). 

As  a  result  of  these  successful  policies,  the  United  Kingdom  has  now  the  highest  number  of 
business angels in Europe. However, one of the drawbacks of massive new money inflow is the 
large proportion of “dumb money” it pours into the startup scene. In some cases capital without 
the  expertise  that  a “super  angel”  or  a  professional  investor  could  bring  may  have  a  negative 
impact in future funding rounds and the future growth of the company. However, coupled with 
crowdfunding platforms which offer the right level of legal and investment handrails, this type 
of program spread to the rest of Europe could strongly be beneficial to other ecosystems.  

As  another  positive  effect  of  the  policy  program,  EIS/SEIS  is  a  driver  for  successful 
entrepreneurs  to  remain  on  land  once  they  have  exited  their  companies  to  make  new  angel 
investments. 

 
 
 
 
 
Action plan recommendation 

With  regards  to  the  stated  conclusions  of  the  report,  the  Web  Investors  Forum  has  set  the 
following recommendations in a 4-step action plan to develop the European financing scene and 
allow better financing of European quality entrepreneurs. 

Policy 1: Boost the European exit market 

Purpose 

The  European  exit  market  is  the  most  challenging  obstacle  faced  by  venture 
capitalists in Europe. European Corporations should be incentivized to make more 
acquisitions and increase their willingness to innovate through external means. 

Examples 
(how?) 

This is a  crucial  point  because  exits  generate  a  huge  amount  of  positive  feedback 
within  the  European  startup  ecosystem.  They  allow  entrepreneurs  to cash-in  and 
become  angels  or  repeat  the  entrepreneurial  process  and  build  new  startups. 
Moreover,  they  allow VCs  to  gain  substantial  success  and  keep  raising  new  funds 
towards private institutions and individuals. 

9 out of 10 European startups are acquired by foreign buyers, among which a 
large proportion comes from the US. 

The exit environment is a crucial part of any startup ecosystem and must be 
supported.  

 

Incentivize  European  corporations  to  invest  in  startups  and  acquire 
knowledge  through  external  VCs  or  accelerators  by  replicating  and 
tweaking initiatives such as the French “Corporate Venture Plan33”. 

  More  favorable  conditions  for  tech  IPOs  could  be  developed  throughout 
Europe as a secondary target.  The best means would be to create demand 
incentives  (i.e.  tax  efficient  investment  vehicles  dedicated  to  listed  tech 
companies).  The  objective  of  better  conditions  for  IPOs  would  be  to  give 
more financing options for later stage companies, and more exit options for 
VCs and entrepreneurs.  

to 

Time 
impact 

Without action, we estimate the time for a virtuous acquisition ecosystem to build 
itself in 10 years. 

With  high  impact  incentives  programs,  we  estimate  this  period  to  be  radically 
shorter, showing improvements in to 5 years to 8 years. 

This could be implemented through dedicated policy programs  with the initiative 
of the European Commission under directives to unlock the European exit market 
with huge positive impact potential. 

Comments 
and  how 
to 
implement 

33 http://www.economie.gouv.fr/corporate-venture-financer-innovation 

 
 
 
 
 
 
 
                                                           
Policy 2: Reduce equity shortage 

Purpose 

Everywhere  in  Europe,  equity  shortages  appear  at  various  stages  of  a  company’s 
lifecycle.  

The  pan-European  ecosystem  and  more  specifically  developed  industries  from 
North and Central Europe are witnessing a shortage of capital for companies that 
have  the  potential  of  becoming  large-scale  Global  leaders.  Very  few  companies 
make it to the EUR 10-50 million funding landmark as only a handful of European 
funds  are  able  to  provide  this  level  of  capital.  The  consequence  of  this  lack  of 
capital for more mature startups is an important number of premature sell offs for 
companies that could have had the potential to grow further before an acquisition. 
In Southern and Eastern Europe, equity shortages appears at an earlier stage, with 
a low number of funding rounds in the EUR 1-10 million range.  

The following recommendations aim at reducing this equity shortage. 

Examples 
(how?) 

  Redirect  European  household  savings  towards  innovative  companies 
financing through adjustments in Basel III and Solvency II regulations and 
tax efficient investment vehicles. 

  Support  the  creation  or  expansion  of  public  driven  fund  or  funds  in 
Southern  and  Eastern  Europe.  Public  funds  are  not  a  tool  traditionally 
employed  by  local  governments.  However,  it  has  been  proven  to  be  an 
efficient  means  of  creating  momentum 
industries  or 
reestablishing  balance  in  local  financing  chains,  as  was  the  case  in 
Barcelona.  

for  young 

  Support the creation of pan-European later-stage capital funds dedicated to 
internet-driven  and  software  companies  which  are  crucial  for  creating 
global leaders.  

  Empower  smart  business  angels  through  further  support  of  the  European 
Investment  Fund  (EIF),  angel  co-investment  program  in  terms  of  capital 
and  closing  of  agreements  with  local  counterparts.  Smart  business  angels 
who  are  capable  of  adding  a  significant  amount  of  non-financial  value  to 
their portfolio companies should also be empowered. 

  Support  the  creation  of  a  small  number  of  later stage  capital  funds  with a 

pan-European focus. 

  Support  the  organization  of  a  large-scale  pan-European  event  with  strong 
involvement of top-tier public representatives such as Vice President Neelie 
Kroes,  aiming  at  promoting  the  potential  of  internet  and  mobile  tech 
companies  to  potential  limited  partners  (pension  funds,  Corporates, 
insurance companies, banks, family offices, etc.) and connecting them with 
general partners. 

 
 
 
 
to 

Gradual raise in investments from year 1, up to 5 years. 

Time 
impact 

Comments 
and  how 
to 
implement 

For each countries, the Web Investors Forum could engage local VC communities in 
order to measure the local equity shortage and drive the  creation of either public 
fund of funds, and/or later stage direct investment funds. 

Smart  business  angels  should  be  empowered  everywhere.  The  European 
Commission could grant a mandate to the EIF to invest with smart angels according 
to the existing guidelines of their program under trial. This mandate should come 
along with support to find local counterparts to the EIF. The Web Investors Forum 
is ready to help in the primary identification of potential local smart angels. 

Later stage capital funds creation could be supported by the European Commission 
through dedicated envelopes in addition of private and other public capital inflow 
in new funds. 

Policy 3: Strengthen the integration and coordination of European tech hubs 

Purpose 

Currently in Europe, tax treatment and the marketability of investment vehicles are 
very heterogeneous across countries. 

A  pan-European  tax  transparent  investment  vehicle,  marketable  internationally, 
would be considered by the Venture Capital community as a major achievement. If 
an  effort  were  put  in  to  place  to  create  such  vehicle,  the  Web  Investors  Forum 
would be ready to engage with the entire community in consultations and support 
of the European Commission with expertise in the field. 

A  VC  that  invests  internationally  is  always  of  good  value  to  an  entrepreneur. 
However,  only  a  very  limited  number  of  investors  work  outside  their  local 
environment. In order to support coordination between ecosystems, the European 
Commission should support the creation of pan-European GPs with enough critical 
mass to be able to invest globally. 

Examples 
(how?) 

Create simpler, uniform tax34 and legal environments between hubs through 
the  European  Commission’s  dedicated  startup  directives  by  leveling  up  the 
frameworks according to European best practices in terms of: 

  Attractiveness  of  the  VC  profession:  In  southern  and  eastern  countries 
where  the  investment  industry  is  still  in  development  and  in  need  of 
momentum, talented investors should be incentivized to gather into teams 
and invest in startup companies. 

  Alignment  of  interest  between  VCs,  founders,  and  employees  (dedicated 

34 http://startupmanifesto.eu/files/manifesto.pdf 

 
 
 
 
 
                                                           
startup  stock  option  plans  and  more  generally  employee-ownership 
taxation) 

  Attractiveness  of  the  asset  class  for  institutional  and  individual  investors 
(tax  incentives  on  investments  in  VC  by  individuals,  corporates,  banks, 
insurance companies, pension funds, etc.)  

  Attractiveness  to  invest  in  startups  as  seed  investors:  EIS/SEIS-like 

programs 

to 

Gradual raise in investments from year 1 up to 5 years. 

Time 
impact 

Comments 
and  how 
to 
implement 

If these issues were addressed (and above all for the pan-European tax transparent 
investment vehicle), the venture capital community in Europe would consider it a 
huge achievement. 

The  Web  Investors  Forum  is  ready  to  gather  the  VC  community  to  work  on 
consultations with the European Commission to work on these specific issues and 
deliver top-tier solutions. 

Policy 4: Grow public and private involvement in the industry 

Purpose 

The interviews and workshop have demonstrated a lack of dialogue between large 
Corporations  and  the  startup  world.  A  pathway  to  further  involvement  of 
corporations and the public sector in digital startups across Europe.   

Corporations could be the engine to power a faster evolution of the European 
ecosystem. 

Examples 
(how?) 

 

Incentivize European Corporates to invest in external accelerators, venture 
funds,  or  co-working  spaces  in  order  to  foster  platforms  pooling  several 
Corporates  rather  than  internal  structures  that  usually  do  not  result  from 
long-term  Corporate  strategy.  For  example,  this  could  be  done  through 
Private Public Partnership such as the High Tech Gründerfonds in Germany 
that could be generalized to every country and supported by the European 
Commission or dedicated tax relief schemes. 

  Push  the  “Small  business  act  for  Europe35”  further  by  integrating 

procurement measures 

  Work  towards  a  Small  Business  Act-like agreement  between  Corporations 

and startup representatives 

to 

5 years 

Time 
impact 

Comments  Local  replicates  of  the  High  Tech  Gründerfonds  would  also  bring  high  value:  this 

35 http://ec.europa.eu/enterprise/policies/sme/small-business-act/index_en.htm 

 
 
 
 
 
                                                           
and  how 
to 
implement 

could  be  implemented  through  envelopes  of  capital  unlocked  by  the  Commission 
for  this  purpose  with  selection  of  local  public  counterparts  to  manage  these 
envelopes and engage with local Corporates community. 

 
 
 
 
 
 
 
 
Conclusion  

Since May 2013, France Digitale has been working on this report, as a final step in the mandate 
entrusted  upon  us  by  the  European  Commission.  After  meeting  44  investors  among  the  most 
active  in seven  countries and  engaging  the  entire community  of  European investors  and other 
stakeholders during an exclusive workshop in Paris, we have been able to pinpoint the current 
most  significant  challenges  met  by  the  venture  capital  industry.  If  these  challenges  are 
addressed  correctly,  it  could  significantly  boost  European  investments  in  digital  startups  and 
structurally feed a virtuous cycle. 

After  a  number  of  difficult  years  following  the  financial  turmoil  of  2008,  European  VC  is 
recovering and beginning to rebuild. The community agrees that now is the ideal time to invest 
and  build  companies.  More  success  stories  are  emerging,  more  role  models  are  being  created 
and more quality companies are getting the funds they need to succeed.   

However,  in  order  to  create  global  leaders,  the  young  European  industry  needs  to  focus  on 
maturing  through  the  formation  of  a  truly  Pan-European  comprehensive  ecosystem  that  will 
structurally feed itself.   

The  effort  to  create  a  better  funding  environment  in  Europe  must  start  at  the  end  of  the 
financing lifecycle. The exit environment in Europe is currently not working in startups’ favor. A 
better exit environment would create more success stories, and substantial new money inflows 
into innovative European startups with the potential to be global leaders.   

The European financing landscape is currently unbalanced. Later stage capital we need to create 
Global leaders is missing.  Governments should put substantial effort in to building up a strong 
venture capital industry capable of growing world-class companies. 

Coordination between ecosystems of varying maturities should also be strengthened, as it will 
create the first step to a true European startup ecosystem. Less mature ecosystems will benefit 
from  their  more  developed  neighbors,  and  mature  hubs  will  benefit  from  better  exchanges 
amongst one another.  

Finally,  European  corporations  should  play  a  real  role  in  the  startup  ecosystem.  A  number  of 
stakeholders  in  the  startup  world  have  an  unfortunately  pessimistic  view  of  the  European 
Corporations from traditional industries. A large number are now turning to the US to explore 
exit options or to SMEs to sell their services outside of Europe. We need corporations to play a 
bigger part in fostering our innovative startups via investment, incubators and shared expertise.  
Better  awareness  and  coordinator  of  startups  and  corporations  within  our  community  will 
positively  impact the entire ecosystem. 

Entrepreneurship  provides  a  pathway  for our  talented  and  bright  Europeans  to  build  the  next 
leading  global  organization.  As  the  European startup  ecosystem continues to  grow,  the  time is 
now  to  foster  these  entrepreneurs  via  the  capital  they  need  in  order  to  succeed.  As  a  pan-
European  institution,  the  European  Commission  could  be  instrumental  in  designing  the  best 
environment  to  challenge  the  World’s  leading  ecosystems.  We  appreciate  the  current  efforts 

 
 
 
 
made by the Commission in implicating ecosystem players to bring European entrepreneurs to 
the next level, and the Web Investors Forum will continue to serve this purpose.  

 
 
 
 
European Commission 

Web Investors Forum 
Luxembourg, Publications Office of the European Union 

2014 – 51 pages  

ISBN 978-92-79-39285-6 

Doi  10.2759/64203 

 
 
 
 
 
 
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doi 10.2759/64203                       ISBN 978-92-79-39285-6