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Recent developments in the European private equity markets
01/10/2008. Source:The Directorate-General for Economic and Financial Affairs (ECFIN). Kristiina Raade, Catarina Dantas Machado
 This paper from the Directorate-General Economic and Financial Affairs of the European Commission examines market developments in venture capital and buy-out investment in Europe and the US through the analysis of funds raised, investments and exits. It discusses the profitability differential of European venture capital investment in comparison with the US and suggests that it could originate in the different ways in which research is financed and the unequal supply of financing, notably from business angels, for young companies that are not sufficiently mature for venture capital financing.
This paper updates and expands previous analytical work by the Directorate-General Economic and Financial Affairs of the European Commission on private equity market activity and the performance of buyout and venture capital investment in Europe and the United States.
According to the statistics of the European Private Equity and Venture Capital Association (EVCA), the amount of funds raised by private equity houses in Europeduring 2006 reached a record €112.3 billion in 2006, up from €71.8 billion the year before. Around 75% of the total funds raised, or €84.3 billion, was earmarked for buyout investment. The share of venture capital in fundraising was €17.5 billion, or 15.5% of total funds raised, including €5.9 billion for early-stage venture capital investment. The successful fundraising was led by investor interest in buyout funds, but the relative share of venture capital in fundraising also increased, even if less dramatically. Low interest rates combined with the easy credit conditions that prevailed until recently helped create an ideal environment for leveraged buyout investment in 2006, and contributed to the consequent strong supply of funds for investment. The favourable fundraising environment was further reinforced by institutional investors' increasingly positive attitude towards the asset class underpinned by attractive returns generated by buyout investment. The appeal of venture capital also appeared to be slowly improving in response to an initial recovery in performance since the bursting of the technology bubble in 2000.
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The Directorate-General for Economic and Financial Affairs (ECFIN) is a Directorate-General of the European Commission. The DG ECFIN is located in Brussels, Belgium and Luxembourg. Its main responsibility is to encourage the development of Economic and Monetary Union both inside and outside the European Union, by advancing economic policy coordination, conducting economic surveillance and providing policy assessment and advice. For more information go to: ec.europa.eu/dgs/economy_finance/index_en.htm
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