Europe just as entrepreneurial as the US, says London VC study

There is a widely held — and now outdated — view among institutional investors and policymakers that Europe is lagging behind the US in respect to the financing of entrepreneurship, according to a new study from the London School of Economics

The study by Dr Ulf Axelson and Milan Martinovic of London School of Economics, uses data provided by Dow Jones VentureSource, a global venture capital research database, and empirical evidence, to challenge enduring myths. It illustrates that European venture capital and entrepreneurship is in far better health than often portrayed.

Richard Anton, a partner at Amadeus Capital Partners and chairman of the British Venture Capital Association in 2011-12, said: “The European venture capital industry has changed dramatically over the last decade yet unfavourable perceptions, formed in the fallout of the bubble, continue to influence opinions within the investment community and beyond.

“Such attitudes have unfairly hampered European high-growth companies which in turn poses a serious threat to the future of both entrepreneurship and the economy across the Continent.”

He said the LSE report is “an extremely welcome and robust contribution” to the debate over the financing of European start-ups. “The sooner we can dispel the myths that unnecessarily hinder venture capital, the sooner venture capital can help power the next generation of world-beating companies.”

The “myths” the BVCA identifies are:

Myth 1
US venture capital firms are more likely to hold successful exits than European VC houses.

Reality 1
US and European VC houses have roughly the same likelihood of an IPO exit (though Europe underperforms the US in trade sales).

Myth 2
US VC success is down to insurmountable differences between the US and Europe.

Reality 2
Venture success has the same determinants in both Europe and the US, with experience of both venture capitalists and entrepreneurs a key factor. The larger pool of repeat entrepreneurs in the US, combined with the relative immaturity of the European VC sector, explains the difference in performance between the US and Europe.

Myth 3
There exists a stigma surrounding business failure in Europe, which harms entrepreneurship and the ability of start-ups to raise funding.

Reality 3
There is no evidence of a stigma surrounding failure. A previously unsuccessful entrepreneur has at least as high a chance of getting financing for a new venture in Europe as in the US.

Scott Button, CEO of UK tech-start-up Unruly Media, said: “The European start-up ecosystem is a weird place. You’re always hearing how much more difficult it is to find co-founders, get funded, or exit successfully than it is in the valley. For sure, none of this is easy, but it’s never struck me that it’s really any harder in, say, Shoreditch than it is in Mountain View. This research explains why. It is not. Much of the received wisdom about entrepreneurial success and the conditions for that success is unfounded myth”

The full report can be found here: European M&F Report


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