Do you feel frustrated investing in funds whereas you invested directly in companies when you started your career?
Bjorn Tremmerie: At the beginning, yes, before joining the EIF. However, I thought it would be a nice place to spend some time until the dust settled down. A world has opened unexpectedly in front of me. I met highly motivated entrepreneurs, not in firms directly, but with people raising capital for their fund. Nowadays, I could not return into the business of investing directly in companies because it is not my expertise anymore.
Celebrating 30 years, how have investments in technologies evolved over those years?
At the beginning of the 2000s, the [European] venture capital fund market was embryonic, whereas the market existed since the 1970s in the US, with Sequoia founded in 1972. The early excitement gave way to a never again attitude on the back of the bursting of the internet bubble. Several entrepreneurs even wondered why they had tried this kamikaze mission instead of listening to their parents who suggested [that they] start their career in consulting or a bank and enjoy their pension 30 to 40 years later.
With a mission to promote entrepreneurship, innovation and technology, the EIF continued its march against all odds, supporting the VC funds, being almost the only player in the market along with / in France, in Italy and , the Danish Growth Fund. Contrary to the EIF and the European Investment Bank at the time, these national promotional institutes were also investing directly in the underlying firms.
Step by step, returns became attractive and appetite to become an entrepreneur grew again as a result of available public funds but also on the back of some spectacular successes such as Kelkoo, the French price comparison service company sold to Yahoo for €500m in 2004. It was followed by Skype, sold to Ebay for €2bn, a poster child for Mangrove in Luxembourg, and Lovefilm in the UK [acquired by Amazon in 2011]. A feeling of amazement started to build in the sector.
An accumulation of successes has put Europe on the map of innovation, stimulating the interest of students into entrepreneurship when at university instead of a career as a consultant.
Slowly but surely, these successes also attracted the interest of family offices, corporates and a few institutional investors. In one case, we observed the spin-off of [an early-stage venture capital firm] from a Nordic pension fund that used its public track record to attract investors.
Some of these newly and highly wealthy individuals wanted to carry on and become serial entrepreneurs whereas other wanted to become investors.
in Germany was formed by founders of Zalando. Wherever there were successes, there was the willingness to share wealth and knowledge. Having started on the French Minitel, launched and carried on with , his family office, which further sparked additional successes.
, the founder of Skype, with a newly accumulated wealth, decided not to stop there and began to invest as business angel in small startups through Atomico 1 [a 2006 vintage early-stage venture capital fund] which was followed with Atomico 2 [2010 vintage], a fund externally funded that also included the EIF.
I also noted the creation of a nouveau genre of mafia. The Skype mafia, the Paypal mafia and the Blablacar mafia. They are no criminal. It is a group of likeminded persons that created an ecosystem. For instance, 138 new startups were nurtured out of 24 unicorns in Berlin [representing more than €1bn in market cap]. Very often these ripple effects will occur in the same country or even the same city.
What about the performance?
According to Pitchbook, you had to generate an internal rate of return (IRR) above 3.78% to be in the first quartile for the funds launched in 2005. You do not want to invest in VC funds for that type of return.
To be the first quartile nowadays, you must have a net IRR above 15%, 20%, 25% depending on the vintage year. These levels are comparable to the threshold observed in the US. 50% of the time, the top quartile in Europe is higher than in the US. It attests [to] the maturity [of] the ecosystem… that can raise capital often without the support of EIF. In an ideal world, we need to become redundant.
.