How Does VC Drive Innovation in Europe and What More Needs to Happen?


November 29, 2013

Belgian MEP Philippe de Backer has told the European Private Equity and Venture Capital Association (EVCA) Venture Capital Forum in Berlin that European politicians and policymakers are key stakeholders in encouraging venture capital (VC) to be injected into industries and businesses across the continent.


De Backer asserts that VC is one of the key factors that allows and drives innovation within businesses, which then in turn fuels growth both within business and industry but for the wider economy, too.


These comments follow an Economist blog in September 2013 that welcomed the improvement of the European VC marketplace but reaffirmed that the bigger opportunities and markets remain in the United States. In a video posted on the EVCA’s YouTube Channel InvestinginEU, de Backer told the Berlin forum, “[Venture capital in Europe is] very important…to make sure innovation stays in academia, universities, but also comes to the market. We [the European Parliament] have to create the right policy incentives for private investors to find the right business opportunities to invest in.”


De Backer also spoke of the work done around the Horizon 2020 project, acknowledging that VC plays a “very important role” in making these projects, which have a total budget of €76.8billion, come to fruition. Without directly referencing the United States VC market or the Economist blog, de Backer also said more needed to be done at European Parliament level to ensure Europe “remains at the forefront of excellent research in the world.”


This was said in contrast to expecting industry and investors to exclusively drive the biggest deals and growth across the continent, although he later called on VC and private equity groups to continue taking the lead in delivering innovations.


A key component of this, he said, was looking at, and potentially reviewing the “negative aspects” of the “necessary” regulation that has been placed on European financial markets following the well-documented economic trough of the last five years and the impact they have. De Backer said, “Institutional investors…have left venture capital because they are hampered by the regulations at European level…this hampers innovation, growth, and job creation.”
Promisingly, a number of industries are already seeing growth in VC deals across Europe, including technology, where Ireland’s re-emerging economy is leading the way. An article in the Irish Independent newspaper cites Dow Jones commissioned research for its findings and says that 40% of all tech VC deals in the last 10years in the country have been done since the country’s economy collapsed in 2009.


Ireland has also recently been revealed as the “most entrepreneurial” country in the EuroZone. The Scandinavian nations, most notably Finland, are also attracting large tech investments from across the world, with a recent Japanese investment valuing Supercell at $3billion according to CNBC.


Although concerns remain over the state of VC in Europe, as acknowledged by de Backer and numerous commentators, the performance of tech and the current standing of Berlin, as well as Israel, in addition to the areas already mentioned, means there is plenty to be positive about.


European industry just needs the ‘perfect storm’ of safe and sensible regulatory tweaks, to encourage large-scale VC investment, and cross-industry innovation and the European VC market will start growing rapidly.


Although it will likely take years to catch up to the United States in this respect, arresting the trend of start-ups emerging in Europe then migrating across the Atlantic in search of more lucrative deals will accelerate this process.

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