European governments provided nearly a third of venture funding last year as poor long-term returns and the financial crisis forced others away from the industry.
In its Private Equity Market Outlook report published yesterday, the European Investment Fund (EIF), the public and private-funded body which provides risk financing to small and medium-sized companies in the European Union’s 27 member states, said the outlook was improving as it expected at least five years of economic growth globally and in Europe.
Based off data for last year from the Belgium-based trade body the European Private Equity and Venture Capital Association, the EIF said: "The countercyclical role played by government agencies is apparent. The share of government agencies in the total funds raised in 2009 was 11%, and for VC it was 18%. This, in fact, amounts to 30% of the VC funds raised from identifiable sources (i.e. excluding funds raised from ‘other’ sources). In reality this [30%] share is even slightly higher as some of the government agency contributions are classified as banks or fund of funds.
"In terms of sources of capital, there has been a move away from pension funds, which provided around 28% of capital in 2008 and last year provided only 11%."
Using data from ThomsonOne Reuters, the EIF said VC returns over three and 10 years had been negative. However, governments have been trying to support nascent companies.
The UK formed its Innovation Investment Fund to support two funds of venture capital funds in technology and environmental sectors.
The £200m ($294m) UK Future Technologies Fund, which is half backed by both the UK government and the EIF, which also manages the fund, made its first two commitments in April.
They were to UK-based VC DFJ Esprit and Acton Capital Partners, the independent VC manager formerly part of Germany-based media group Hubert Burda. Acton closed its first independent fund, with Hubert Burda as a large limited partner, last month at €150m ($183m).