The European Commission said it would propose changes to the venture capital regulatory framework and set up a fund of funds. Together with Eurostat, the commission said it would “provide further clarity and review, where appropriate, relevant guidance as regards accounting aspects of public-private partnerships”.
The commission is also working with the European Investment Fund (EIF) to establish a pan-European venture capital fund of funds that would combine public finance and private capital for additional stimulus and scale for new companies.
This follows analysis by the EIF on its impact on the venture landscape over the past 20 years. Its report – The European Venture Capital landscape: an EIF perspective – was the first in a series of publications edited by the EIF’s research and market analysis team aimed at presenting the outcome of EIF activities in the venture capital market over the past 20 years by assessing their economic impact on European startups as well as the entire VC ecosystem.
It found investment activity backed by the EIF represented 41% of total investments in Europe in 2014 (29% in 2007). The share directly attributable to the EIF amounts to 10% (5% in 2007), hinting at the significant leverage that characterises EIF-backed investments. Moreover, we estimate that fundraising volumes backed by the EIF in 2014 amounted to 45% of the overall volumes collected by European VC investors (36% in 2007), against a share directly attributable to the EIF totalling 12% (5% in 2007).
The finding is evidence that the EIF has effectively crowded in VC capital, both from EIF co-investors and non-EIF co-investors, in the analysed period. Its estimates show that, on average, a 1% increase in EIF-provided VC capital in a region led to a 1.41% increase in other investors’ activity in the same region, one year later.
An analysis of the geographic distribution of 2,934 EIF-backed startups in the seed and startup stage, invested over the period 1996-2014, found a significant degree of geographic concentration in a few key areas. Just 20 European cities have collectively attracted about 40% of all EIF-backed investments until 2014 and also originated 83% of all invested amounts in the same period.
The report said: “By tracing the investment channels across the elicited hubs, we highlight an intricate network of mutual investment exchanges, which is particularly dense in more mature hubs. We find that European hubs, and in particular those backed by EIF investments, act as the beating heart of a complex network of national and international investments.
“Such a claim is supported by data on investment amounts originated by hubs – 23% of these remain in the hub, 40% reach out to other in-country locations and the remaining 37% travel beyond the national frontier. Since higher cross-border investments can be interpreted as a signal of deeper integration of the European VC market, we conclude that the EIF may hold a vantage point in fostering the consolidation of a European-wide VC ecosystem.
“Moreover, in some specifications of our model, we find that the positive effect of EIF activities is bigger in regions with lower levels of educational achievement. Since higher educational levels are associated with higher VC investments, our finding hints that the catalytic effect of the fund may be stronger in geographic areas characterised by less developed venture capital markets.”