Venture Capital From European Sources
Venture capital from European sources has undergone a major correction in recent years. The market has adjusted, some lessons have been learned, and another boom may be starting.
Although the United States has followed the lead of the ‘Old World” in so many areas, they have paved the way in the area of private equity. Europe was slow to recognize the value of venture capital equity based financing. The financial conservatism of the region did not lend itself to this manner of venture funding. Then suddenly, Europe caught on to the value. This change of attitude both came at the same time as the emergence of the internet and was spurred by it. The flow of venture capital was a two way street at first. Venture capital from European sources was followed by the an increased interest in Europe by US venture capital funds.
This created a boom that was like the dot com boom, and in some ways connected to it as the internet was spurring much of the activity. American firms were moving rapidly into the European market place, and European entrepreneurs were banding together to penetrate some American opportunities. The whole thing began to become very global as European funds, especially those based in England, looked to India and China for investment deals.
Actually, it all happened too quickly. Many mistakes were made in this surge into a venture capital boom. The cultural differences between much of Europe and the United States were underestimated. No one thought of how much time it takes to develop effective venture capital fund managers. No one really appreciated the difference between European sources and British sources. This led to many mistakes and they were costly.
The original thoughts behind a global venture capital investment base were not wrong, however. The hard lessons were learned, and the weaklings and foolish were weeded out. Europeans had gained valuable, if costly experience. The flow of venture capital from the old world to the new has been picking up again, but this time a lot less frantic. Most important is that both sides have learned that global venture capital is very depended on local managers who can deal with cultural issues and accept the management expertise of the foreign venture capital fund managers.
An understanding of some key venture capital issues such as value added financing and networking play an important part in global operations. Obviously, the culture differences between Europe and the United States are not on the scale of those between Europe and the Far East, but this does not mean they do not exist. The history of venture capital is one of lessons hard learned, but today venture capital from European sources is again on the rise.