Session 1. Completing the funding escalator for young, small and innovative firms:

From the perspective of European Private Equity

and Venture Capital

Dr Cornelius MuellerResearch Director Invest Europe

CEPS and ECMI 2nd Task Force MeetingBrussels, 6 February 2019

Invest Europe is the voice of investors in privately-held companies in Europe

2

3

Why firms, particularly SMEs and high-growth

potential firms, prefer to not enter and raise capital

on public and private capital markets?

Venture capital in practice

4

Benefits:

• Provide funding to grow young businesses

and realise the ambitions of entrepreneurs

• Mentoring and strategic advice

• Professionalisation of management teams

• Access to market information, strategic

partners and alliances

• Sector expertise

• Secure additional funding rounds, investors

and other financing options

For consideration:

• Founders share ownership and

control with VC investors

• VC firm to take board seat

• Exit strategy matters

• VC firms are often organised in clusters of

geography and sectors

• Negotiation and contractual agreements

required

• VC firms need to be very selective

Proven ability to select promising companies and create global leaders…

Source: Company data, Capital IQ, Mergermarket, press articles, GP Bullhound analysis as at April 2016

& Invest Europe & CB insights https://www.cbinsights.com/research-unicorn-exits

5

…in Fashion, Music, Fintech, Biotech, B2B and Gaming

Country

UK Germany Sweden France Netherland Denmark Luxembourg Russia Finland Belgium Ireland Italy Switzerland

No. of unicorns 15 10 6 4 3 3 2 2 2 1 1 1 2

Emerging unicorn foals

Since the financial

crisis, European VC has

gained traction,

investment is rising and

European VCs have

demonstrated their

ability to help build

global leaders

… sourced from local opportunities and investment teams across Europe…

Source: Invest Europe / EDC 6

By country

By city

30%5% 15%

Concentration of staff working

for European fund managers

1,250 fund managers are active in Europe

every year with over €640bn Capital under

Management

Geographic diversity is key to put capital to work

… reflected in European Private Equity’s buoyant activity

7

50

33

44

38

9

1213 13

18

24

16

11

2931

20

32

25

29

43

39

59

33

46

36

39

32

26

10

15

19

2523

25

18

22

18

2322

24 24

31

2728

3536

31

17

12

87

6

910 10

20

16

14

11

1820

21

2425

20 20 2021 22

12

H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 * H2

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

€ b

illion

Funds raised Investments Divestments

Source: Invest Europe / EDC

8

Does the current capital market ecosystem allow SMEs

to grow, mature and reach their full potential?

SME investments are key to Europe’s private equity and venture capital market

9

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-

10

20

30

40

50

60

70

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

EU

R b

illion

Number of companies Equity amount invested

0%100% - 100

2…

2…

2…

2…

2…

2…

2…

2…

2…

2…

2…E U R

b i l l i o n

Buyout Growth Venture

Buyout SME % Growth SME % Venture SME %

Note: SME = less than 250 employees at initial PE investment.

% share extrapolated based on known SME status information

Source: Invest Europe / EDC

Scale-up:Importance of international capital flows

10

Seed and start-up Later-stage and growth

Location of

fund advisory:

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

% amount

% number

companies

0%

5%

10%

15%

20%

25%

30%

0%

5%

10%

15%

20%

25%

30%

0%

5%

10%

15%

20%

2007

EU 28

Rest ofEurope

Rest oftheworld

• Source: Invest Europe / EDC

Access to finance differs by geography

11

United Kingdom

Finland

Germany

Austria

Poland

Sweden

Lithuania

France

Denmark

Netherlands

Spain

Luxembourg

Belgium

Malta

Ireland

Czech Republic

Estonia

SlovakiaSlovenia

Latvia

Hungary

Romania

Portugal

Italy

BulgariaCyprus

Croatia

Greece0.000%

0.010%

0.020%

0.030%

0.040%

0.050%

0.060%

0.070%

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7

VC

Investment

as % GDP

(average

2013-2017)

SME Access to Finance Index – EIF (average 2013-2017)*

Source: Invest Europe / EDC

* EIF Working Paper 2018/49: EIF SME Access to Finance Index - June 2018 update

http://www.eif.org/news_centre/publications/EIF_Working_Paper_2018_49.htm

12

How retail and institutional investors’ participation in capital

markets can be fostered? Does the current supply of products

meet their real savings/investment needs?

Challenge and opportunity:Linking international and institutional capital with Europe’s SMEs

13

0% 5% 10% 15% 20% 25% 30% 35% 40%

Capital markets

Academic institutions &…

Banks

Sovereign wealth funds

Corporate investors

Insurance companies

Family offices & Private individuals

Fund of funds & Other asset…

Government agencies

Pension funds

0% 20% 40% 60% 80%

Outside Europe

Non-Domestic Europe

Domestic Europe

Type of LP Geographic origin of LP

Fundraising

2013 - 2017 Growth

€ 24 billion

Buyout

€ 238 billionVenture

€ 31 billion

Source: Invest Europe / EDC

Regulatory impact on financing of SMEs

14

Investors Fund

managers

SMEs

Factors/Barriers to investment in SMEs

• Taxation incentives

• Definition of an SME

Factors/Barriers to investment in funds

• Basel III

• Solvency II

• Fund legislation (passporting rights)

• EU definition of retail investor

Sale proceeds of which are returned to the investors

Seek return on capital through Which invest in

Source: Invest Europe

Access to (all types of) investors

15

CRD/CRR

Pension funds

Insurers

Fund-

of-

funds

Banks

Family

offices &

private

individuals

IORP

Solvency II

MiFID II

Source: Invest Europe

Potential barriers

FUND

REGULATION• AIFMD review

• “Omnibus” proposal

INVESTOR

REGULATION

• Solvency II

• CRD/CRR

• Sophisticated investors

VC FUNDING• VC Fund-of-Funds

• ESCALAR

TAX ISSUES• Tax transparency

• Tax fairness

OTHERS

• ESAs review

• SME definition

• Sustainable finance

BREXIT

1

2

3

4

5

16Source: Invest Europe

Thank you

Contact:

Dr Cornelius Mueller| Research Director

Invest Europe | The Voice of Private Capital

D +32 2 749 95 10

E cornelius.mueller@investeurope.eu

www.investeurope.eu

@InvestEurope_EU

European Transparency Register 60975211600-74