The Hitchhiker's Guide to Venture Capital

Romans' VC blog with musings and stories related to venture capital, growing value and M&A. Author of McGraw Hill 2013 published book - THE ENTREPRENEURIAL BIBLE TO VENTURE CAPITAL: Inside Secrets from the Leaders in the Startup Game - available in hardcover & e-book formats on Amazon, Barnes & Nobel, iTunes and other online and offline stores. Follow Romans on Twitter: @romansventures www.linkedin.com/in/romans. Full blog posts are posted to http://rubicon.vc/blog/.

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I’ve been talking to a lot of friends in London and Scandinavia recently as we prepare and promote our events and meetings coming up in London and Stockholm below.

I wanted to share an international bit that was cut from my book . My publisher McGraw Hill helped me cut the book down from 600+ pages to 222 pages. See links below to venture capital organizations outside the United States. These lists may be a bit out of date as I prepared this for my book ages ago. View the full list at my Rubicon blog here.

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The Benelux Scene – league tables of most active Benelux VCs – part of my European VC blog series

Belgium, Netherlands and Luxembourg (Benelux) have a steady flow of strong entrepreneurs and a few good VCs. Please view this blog post here: http://rubicon.vc/the-benelux-scene-league-tables-of-most-active-benelux-vcs-part-of-my-european-vc-blog-series/

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In 49 BC Julius Caesar took a risk and crossed the Rubicon River with his army violating Roman law, which stated that no head of troops could command an army inside of Italy. The Rubicon was the border between Gaul and Italy.

Caesar at the head of a single, but loyal legion successfully crossed the Rubicon and took command Rome. As he crossed the river Caesar uttered the famous words “alea iacta est” – the die is cast – symbolizing passing the point of no return.

Read the rest of this blog at http://rubicon.vc/about-our-name-rubicon-in-49-bc-julius-ceasar/.

Tagged in: Caesar name Rubicon
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This is taken directly from my book The Entrepreneurial Bible to Venture Capital, which brings together advice and stories from over 40 VCs. This blog post should help entrepreneurs, VCs and angels understand the key issues worth fighting for in a term sheet and hopefully minimize your legal bill so you don’t need to ask your lawyer what this all means while paying $600 to $1,200 per hour and go back and forth among startup – lawyer – investor – repeat loop. I also find many VCs don’t have a great handle on all of these terms and so I wanted to just put this out on the web. My book gets into a bit more detail on this, but nothing beats Brad Feld’s bookVenture Deals: Be Smarter Than Your Lawyer and Venture Capitalist and blog Ask The VC and Feld Thoughts. I’d also like to thank Nic Brisbourne, Managing Partner of Forward Partners, for his contributions to this chapter of my book and this blog post. Check out Nic’s essential blog The Equity Kicker. You can meet Nic who will participate at both of our investor only and VC-entrepreneur events in London June 9 and June 11, 2014.

First up, some categorization. The “terms” in “term sheet” can be put into four buckets:

  • Terms that drive the economics of the deal—the most important of which are valuation, liquidation preference, and anti-dilution
  • Terms that pertain to control of the company post investment—the most important of which are board structure and protective provisions
  • Clauses that are legally binding on signature of the term sheet—the most important of which are exclusivity and costs
  • Everything else . . . which usually doesn’t matter much.
View the rest of this post at Rubicon.vc. This blog post is best viewed at http://rubicon.vc/blog/ or http://rubicon.vc/mastering-key-legal-terms-in-a-vc-term-sheet/.
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The Future of Venture Capital – London

As part of the book tour for The Entrepreneurial Bible to Venture Capital and meetings with investors and top entrepreneurs we are heading to Stockholm and London. Meet Joshua Siegel and Andrew Romans, General Partners at Rubicon Venture Capital, in London June 7 – 13, 2014 and Stockholm June 3 – 6. We are organizing two events and holding 1:1 meetings with investors and entrepreneurs.

The Future of Angel & Venture Capital Investing – June 9 – London

The Future of Raising Angel & Venture Capital Funding – June 11 – London

Two events in London and 1:1 meetings with investors & entrepreneurs June 7 to 13

View the rest of this post at Rubicon.vc. This blog post is best viewed at http://rubicon.vc/blog/ or http://rubicon.vc/the-future-of-venture-capital-london/.

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As part of the book tour for The Entrepreneurial Bible to Venture Capital we are heading to Stockholm and London. Meet Joshua Siegel and Andrew Romans, General Partners at Rubicon Venture Capital, in Stockholm Sweden June 3 – 6, 2014. We are organizing two events and holding 1:1 meetings with investors and entrepreneurs.

The Future of Raising Angel & Venture Capital Funding – June 3

The Future of Angel & Venture Capital Investing – June 4

This blog post is best viewed at http://rubicon.vc/blog/ or http://rubicon.vc/the-future-of-raising-angel-venture-capital-funding-stockholm/

Read more here...

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Find my latest blog post here...

Reporting: The Art of Communicating with Your Investors

...Now this is for communication with a pool of investors. How to communicate with your board of directors is another topic entirely. I have an entire chapter about managing your board in my book. One point to make on that is to work the telephone and speak with all of your board members frequently and make sure there are no surprises at board meetings. Get the votes via phone before any vote happens in a board meeting. Imagine Kevin Spacey taking names before anything goes to a vote on Capital Hill!...

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It’s been a few days since I got home to Silicon Valley from the SXSW 2014 Interactive event and here are a few perspectives from my own personal séjour in Austin. We made one investment into a startup at SxSW and made a second since getting home. I’ll mention Tackk below...the second I'll announce most likely when we make our third investment, which we are in DD with now.

Best viewed on my blog here:

SxSW 2014 Recap – Austin, Texas

http://georgetown-angels.com/sxsw-2014-recap-austin-texas/

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VC Panel at Capital Factory, Austin, Texas April 8, 2014

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Fireside Chat with Dave McClure of 500Startups at DLA Piper

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What: Meet Dave McLure and 3 winning startups in an intimate setting during SxSW at Georgetown Angels’ Investor Event

When: Monday, March 10, 2014 from 6 – 9 pm during SxSW

Where: DLA PIPER, 401 Congress Ave , 25th Floor, Austin, TX 78701

Register: Eventbrite (Delegates MUST register and be on the list to attend. Accredited investors only! General pubic is welcome to attend our event at Capital Factory March 8th during SxSW which has an all-star VC panel and 9 startup pitches, beer, wine, food and networking.)

Fireside chat with Dave McLure interviewed by Andrew Romans

dave-mcclure

Twitter: @davemcclure
Twitter: @romansventures

  • Network with Angels, VCs and 3 winning startups
  • Pitches from 3 startups selected from our March 8th event at Capital Factory.
  • Learn about Georgetown Angels VC Fund
  • Networking Reception with wine, beer & food
  • Register: Eventbrite
Call us if you want to meet in Austin Saturday to Monday.
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All-star VC panel & 9 startup pitches @ Capital Factory during SxSW March 8th

 

What: VC Panel moderated by Andrew Romans & 9 highly vetted bullet startup pitches judged by Georgetown Angels and 30 VCs

When: Saturday, March 8, 2014 from noon – 3 pm during SxSW

Where: Capital Factory, 701 Brazos Street, Suite 1601, Austin, TX 78701

Register: Eventbrite (You MUST be registered and on the list to get in the door. Accredited investors are invited to attend our Accredited Investor Only event to hear and meet top 3 winning startups on Monday, March 10th at our event with a fireside chat with Dave McLure of 500Startups. Investors welcome to register for Monday’s March 10th Investor Event here.)

VC Panel moderated by Andrew Romans Twitter: @romansventures

 

David BlumbergBlumberg Capital

Blumberg Capital

Alex Niehenke
Scale Venture Partners

Scale

Bryan StolleMohr Davidow Ventures

Mohr davidow

Tom SperryRogue Venture Partners

Krishna SrinivasanLiveOak Venture Partners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Startups:

The participating startups are backed by top VCs and angels, including ff Venture Capital, Founders Fund, 500 Startups, Red Sea Ventures, Richard Branson, Ashton Kutcher, Dave McClure, Bitcoin Opportunity Fund and others.

(All company names will be hidden until the event kicks off)

Startup 1 Only mobile music service that lets the user rent and buy songs in partnership with some of the world’s largest Telcos and brands including Telefonica, Samsung and Vodafone.

Startup 2 The leading service allowing merchants to accept payments in Bitcoin and other virtual currencies.

Startup 3 Brings highly relevant deals and ads to mobile device home screens. Partnership with leading Telcos. Companies get exposure and users make real money viewing ads.

Startup 4 Leading US-based exchange for trading Bitcoin and other cryptocurrencies.

Startup 5 Mobile and web app enabling real time sharing of taxis and black cars. An Uber for Uber.

Startup 6 Mobile app that connects people based on geographic proximity to one another, shared interests, and passions.

Startup 7 An eHarmony-like site changing the online dating world for the LGBT community.

Startup 8 Makes it ridiculously easy to create, publish and share content across the internet. Right in-between Twitter and Tumblr

Startup 9 Provides simplified inventory and data analytics for bars and restaurants.

Register: Eventbrite

Call us if you want to meet in Austin Saturday to Monday.

 

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If you want to raise capital for your business, part of getting it right is structuring your deal and getting the valuation in the right place.

I have recently seen a number of deals where the valuation was just too high and I thought to share some insights on this as I have found myself repeating this advice. Read more here...

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Check out my latest blog post on the GA site:

League Table of Most Active VCs in Norway, Denmark and Finland

My Scandinavian book tour is now scheduled for the evening of June 3, 2014 at Start-up People of Sweden (SUP46). My London book tour event will be June 12th at Rainmaking Loft / Startupbootcamp. I am also organizing an investor work shop in London June 13th. Please contact me if you are a VC and wish to join the VC panel at either event and save the date. Finalizing dates in May for my book tour in Paris at in May at Kahn & Associés and Amsterdam at Startupbootcamp / Vodafone campus. Mark your calendar if relevant. Considering adding Zurich.

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Trevor Kienzle of Correlation Ventures emailed me this data, which I find very interesting. They apply “money ball” principles to venture investing and make for a great co-investor.

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(this image looks better on my main blog at GA.)
Key conclusions we draw from this analysis are:
1. Total returns are typically lower than ultimate realized returns, so they often have the effect of artificially depressing ultimate U.S. venture returns; and
2. Total returns don’t converge with ultimate realized returns until about 7 years following the financing year.  Although not depicted in the graph, 7 years was the earliest time point after the financing year when total returns for all financing years evaluated were less than 10% off from their ultimate realized returns.
Please note that this analysis uses financing years, not fund vintages.  When interpreting reported returns for fund vintages, we should also take into account that VC funds tend to make new name investments over 3-5 years including and following their vintage year.  So, assuming a 4 year investment period, any currently reported returns for U.S. venture fund vintages 2003 and later could be an inaccurate prediction of – and most likely will be lower than – the ultimate returns for those vintages.  A summary of the methodology we used in this analysis is included below.
Methodology:  to create the graph, we used financing years 1992 to 2005 and assumed total dollar-weighted gross realized returns as of 9/30/13 were the ultimate realized gross returns for all financings in each financing year.  Total dollar-weighted returns were calculated for each financing year as of the end of each subsequent calendar year.  So, for example, for financing year 1992, the total return 2 years after the financing year equals the total dollar-weighted return for all 1992 financings as of 12/31/94.   Total returns include both realized returns and unrealized returns.  For this analysis, total returns are based only on the valuation of the latest financing round; i.e., no discretionary write-ups or write-downs by VC funds were assumed.
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My blog looks much better here http://georgetown-angels.com/blog/

Taken as one region, the four Nordic countries of Sweden, Denmark, Norway and Finland, Scandinavia form the second largest market for venture capital in Europe.  These four Nordic countries provide a market of 25m highly educated citizens who earn and spend a relatively high GDP.

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My heart warms up to everything Scandinavian. The way my career unfolded found me frequently in Stockholm. My contact network there just grew and grew. I became quite settled in the original Lydmar Hotel and loved the scene from amazing breakfasts to all of the delights of the Stureplan part of town where many of the VCs are clustered along Bigerjarlsgaten. In Stockholm, cell phones worked in tunnels and wifi was already ubiquitous when the rest of the world was just plugging in their first routers. Sweden is by far the largest venture scene. Kista (pronounced shee’stah) is a veritable Silicon Valley cluster of top tech companies positioned between the capital and the Arlanda airport. I’ve been to Sweden over 100 times. I invested in a few companies and joined a few boards. I love Sweden and feel truly at home with its advanced culture.
If you ever get invited to a “Swedish Christmas table” I suggest you accept the invite. They have private clubs on the archipelago that are amazing properties with priceless tapestries on the walls and what I like the most is the viking goblets outside with burning wood. As you walk into these places they have wood burning outside and the aroma of almond fire wood being burnt just makes it all perfect. This is a country of vikings. They stole pirate’s treasure and women. What is now in their walled garden is rather nice.
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If there is one person I could have dinner with in Scandinavia it would be Per Roman, cofounder of GP Bullhound. These guys are on a roll and are plugged into the very top deals in Scandinavia and all over Europe. After many years of living in London, Per has returned home victoriously to Stockholm. I’d love to join the Christmas table with Per one year.

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Denmark is giving Sweden a run for its money with one of Sweden’s top tech corridors just over the bridge connecting Copenhagen. The Danes work hard and have reason to be proud. I came to know several Danish VCs and entrepreneurs, so I am happily connected to the top deals coming out of Denmark as well as Sweden. Morten Lund, a true super-angel, is the one that I find the most interesting there. Morten got lucky with Skype and continues to back good companies at rapid investment pace. Denmark has a few good VCs.

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years. They will never join the EU as they just don’t want to share their wealth, not to mention their girls. The country has since quietly and peacefully invested all of these oil returns, never touching the principal. Only the oil fund profits are used to fund government programs. So if all else fails as an entrepreneur, my advice is move to Oslo, meet any of their countless beauties, get married and live the good life!

I’m sure entrepreneurs in Norway work hard to be funded, but it seems that cash is on tap for good entrepreneurs. One of my former Oslo deals, ScreenMedia, raised $15m without ever going to a VC. All was from angels. ScreenMedia developed a rugged tablet computer that connected to the web via WiFi and the wireless cell phone network and was pretty much the iPad years before Apple launched its iPad. Early enterprise deployments put them in hospitals. All the patient information was coordinated throughout downstream treatment and beyond. Norway has always been a leader in telecommunications with Telenor, which has sprouted tons of high quality “whatever-over-packet” type ventures. My favorite Scandinavian VC, Northzone, was founded in Oslo. Much of the power is still there, but Northzone has followed the customer and their largest market is now Sweden.

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Finland is also an important Scandinavian market. Unlike Norway, Sweden and Denmark, their primary language, Finnish, is only understood by aliens from far away galaxies, in tiny Estonia across the Baltic and historically in Hungary. That’s not a problem as English is the official language of many businesses. Finland is famous not just for vodka, but also Nokia. The engineering talent in Finland is hard-core, as is product design. One of my favorite VCs on the planet is Antti Kokkinen, co-founder of Nokia Ventures, now rebranded as BlueRun Ventures – a truly good global VC fund. After conquering the world Antti has finally returned home to Helsinki.

The other truly great VC of the land is Jarkko Penttilä of Conor Venture Partners. It’s all about people. Jarkko is a vet from Eqvitec. Experience does matter.

There are plenty of home runs that came out of Scandinavia such as Skype, Spotify and MySQL. Shareholders in these hits have created a strong local angel market backing new entrepreneurs. The venture market in Scandinavia took a beating in the economic recession and some of the best entrepreneurs have moved to the US and London in search of more investors and more vibrant ecosystems.

You will find below the League Table of Most Active VCs in Sweden. My search criteria were a minimum of $3m raised by the operating company in 2010 to 2011. The most active VC in Sweden, Industriefonden, is a government backed VC that has re-invented itself quite a bit. My favorite IT funds are Northzone, Atomico (cash from the founders of Skype), Creandum, InnovationsKapital, Nordic Venture Partners, Conor Venture Partners and Sunstone. I would also advise Swedes to contact the top funds in other Scandinavian countries, in London and VCs in the US. Depending on your industry, you might also contact VCs in the US, France and Germany. More info at http://www.svca.se/.

European VC Roundtable & Book Tour Events

I am planning a series of VC Roundtable & Book Tour events in Europe in May and June of 2014. I am planning events in London, Paris, Berlin, Stockholm, Copenhagen and Amsterdam. If you are a VC and want to participate on one of my VC panels please get in touch. If you are a law firm or accelerator / shared startup work space and host events or if you want to sponsor an event please get in touch. In each city I also organize a VIP dinner the night before or after with a max of 20 people, typically sponsored by wealth managers. Get in touch if appropriate.

League Table of Most Active VCs in Sweden

1 Industrifonden AB Stockholm, Sweden US$ 40 12
2 Investinor Trondheim, Norway Government US$ 338 12
3 Finnish Industry Investment Ltd. Helsinki, Finland US$ 829 9
4 Sunstone Capital A/S Copenhagen, Denmark Venture Capital US$ 644 9
5 Northzone Ventures AS Oslo, Norway Venture Capital US$ 337 6
6 Viking Venture Trondheim, Norway Venture Capital US$ 169 6
7 Creandum Stockholm, Sweden Venture Capital US$ 144 5
8 HealthCap Venture Capital Stockholm, Sweden Venture Capital US$ 893 4
9 Sustainable Technology Partners Nordic Stockholm, Sweden US$ 70 4
10 Vaekstfonden Hellerup, Denmark Venture Capital US$ 361 4
11 Accel Partners Palo Alto, CA Venture Capital US$ 6,000 3
12 Amadeus Capital Partners Ltd. Cambridge, United Kingdom Venture Capital US$ 844 3
13 Fouriertransform AB Stockholm, Sweden Venture Capital 3
14 Hafslund Venture ASA Oslo, Norway Corporate Venture Capital 3
15 Investor Growth Capital Inc. Stockholm, Sweden US$ 1,800 3
16 SEB Venture Capital Stockholm, Sweden US$ 306 3
17 Veraventure Ltd Kuopio, Finland Venture Capital US$ 168 3
18 Alliance Venture Oslo, Norway Venture Capital US$ 65 2
19 Atomico London, United Kingdom Venture Capital 2
20 Capricorn Venture Partners NV Leuven, Belgium Venture Capital US$ 135 2
21 Energy Capital Management Oslo, Norway Corporate Venture Capital 2
22 Ilmarinen Mutual Pension Insurance Co. Helsinki, Finland 2
23 InnovationsKapital AB Gothenburg, Sweden Venture Capital US$ 41 2
24 Inventure Oy Helsinki, Finland Venture Capital US$ 56 2
25 Life Sciences Partners BV Amsterdam, Netherlands Venture Capital US$ 601 2

About the Author: 

Andrew Romans
Andrew Romans is the co-founder and general partner of Georgetown Angels, a VC fund and angel group. Romans is also a director at investment bank Rainmaker Securities (broker-dealer FINRA / SIPC member) focused on providing liquidity solutions for founders, investors & employees. Romans also founded The Founders Club, a venture capital equity exchange fund with over 40 VCs on the advisory board in the US, Europe and Israel. Romans was previously a managing partner at Georgetown Venture Partners (GVP), managing director of Sentito Networks (acquired by Verso) and founder & president of The Global TeleExchange (The GTX), where he personally raised $47m in VC funding. Fluent in English, French and German, conversant in Czech and Slovak, Romans completed a BA at the University of Vermont and an MBA in finance at Georgetown University, which he completed on scholarship. Romans is also the author of THE ENTREPRENEURIAL BIBLE TO VENTURE CAPITAL, Inside Secrets from the Leaders in the Startup Game (published by McGraw Hill available in hardcover & all e-book formats in book stores and on Amazon.com, iTunes & Barnes & Nobel. Book tour http://andrewromans.eventbrite.com/). Romans holds series 79 and 63 certifications and is registered with an authorized broker dealer. www.linkedin.com/in/romans

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Pease check out my blog at http://georgetown-angels.com/blog/. I think it looks better there than on this Founders Club site.

For the purposes of venture capital and entrepreneurship, Austria should be understood as an offshoot of Bavaria and also a gateway to Central and Eastern Europe. It should additionally be viewed as a gateway to the former states that were positions of its old empire. With such a happening city, Vienna is in itself a unique city with an amazing lust for kultur and the arts.

The country is home to 8m people, of whom 25% live in the capital city of Vienna. At one point in history this country controlled more than half of the landmass of Europe and their capital city reflects this history of taxing half the continent. Today, Austria’s capital city seems a bit too big for the tiny country. One echo of former Austro-Hungarian empire days can be heard today because Vienna investors actually do understand the countries of their former empire: the Balkans and surrounding central European countries of Slovenia, Czech Republic, Slovakia, Hungary and the former Yugoslav states – Slovenia, Croatia, Serbia and so on.

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I have a personal connection to Austria as I was hired to move to Vienna and sell fiber optic cables and turn-key network builds for telecom, energy, highway and military applications where fiber optic networks were sprouting up everywhere in the mid 90’s. I actually followed the Austrian historical connections and they introduced me to their counterparts in neighboring countries and I ended up selling fiber optic cables and network components in Slovenia, Croatia and Bosnia & Herzegovina. Those were wild days taking ferries over blown up bridges, having meetings in half destroyed buildings in Sarajevo and meeting French UN soldiers in the hotel bar.

This experience actually led me to found my first venture-backed startup when I moved back to the States. I ended up getting an apartment in Old Town Bratislava which is only a 45 minute drive from Vienna and found it cheaper and more fun as the Berlin Wall falling down was still a recent occurrence back then. I traveled for two years to every single bundeslad (provence) on the job with both snowboard and skis in my car. In 2000 I married a woman from Bratislava (where 18 Austro-Hungarian monarchs were coronated) and actually fly through Vienna International Airport when going to see the in-laws as it is located half way between Vienna and Bratislava; so I have enjoyed the delights of Vienna at Christmas and mid-summer on a regular basis since my two years of working there.

The only VC I’ve ever met in Vienna is Gamma Capital Partners. I keep an eye out mainly for life science companies in Austria which are truly best in class, but don’t be surprised to find some cool music or art company coming from this culture capital one day. More info at www.avco.at.

A bit of humor before the list. Germans make lots of jokes about their Austrian cousins, because things are a bit more relaxed in Austria compared to super organized Germany. The Germans probably feel like they are in Italian chaos compared to being at home; so here are two quick blond-type jokes. Germans tell them back to back and by the 5th one they truly crack you up and after 10 they get cruel ;-)

What’s the difference between the Swiss and Austrian national flags?… The Swiss have a plus sign!

What happens when a blond moves from Germany to Austria?… The average IQ in both countries goes up!

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European VC Roundtable & Book Tour Events

I am planning a series of VC Roundtable & Book Tour events in Europe in May and June of 2014. I am planning events in London, Paris, Berlin, Stockholm, Copenhagen, Amsterdam and other cities. If you are a VC and want to participate on one of my VC panels please get in touch. If you are a law firm or accelerator / shared startup work space and host events or if you want to sponsor an event please get in touch. In each city I also organize a VIP dinner the night before or after with a max of 20 people, typically sponsored by wealth managers. Get in touch if appropriate.

League Table for the Most Active VCs in Austria

These league tables like the other ones I have posted are a bit out of date. These represent research for VCs that invested in Austrian domiciled startups in rounds of at least $3m in 2009 and 2010.

1

SHS Ges. f. Beteiligungsmanagement mbH

Tübingen, Germany

US$ 115

2

2

Aescap Venture

Amsterdam, Netherlands

Venture Capital

US$ 125

1

3

Atlas Venture

Cambridge, MA

Venture Capital

US$ 1,973

1

4

Austria Wirtschaftsservice GmbH

Vienna, Austria

Government

US$ 264

1

5

Credit Agricole Private Equity

Paris, France

US$ 4,456

1

6

Delta Partners Ltd.

Dublin, Ireland

Venture Capital

US$ 303

1

7

Earlybird Venture Capital GmbH & Co.

Berlin, Germany

Venture Capital

US$ 514

1

8

Gamma Capital Partners

Vienna, Austria

US$ 84

1

9

Intel Capital

Santa Clara, CA

Corporate Venture Capital

US$ 1,449

1

10

Merck Serono Ventures

Geneva, Switzerland

Corporate Venture Capital

US$ 48

1

11

MIG Fonds

Munich, Germany

Venture Capital

US$ 481

1

12

MP Healthcare Venture Management

Boston, MA

Venture Capital

1

13

New Energy Fund (NEF)

Portugal

Unknown

1

14

OrbiMed Advisors LLC

New York, NY

Venture Capital

US$ 6,000

1

15

Polaris Venture Partners

Waltham, MA

Venture Capital

US$ 3,049

1

...
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I am now planning my European VC Roundtable & Book Tour and am seeking law firms, accelerators or large corporates that can host these events as well as cash sponsors and media partners that can help promote the events. I’m also seeking sponsors for my small VIP dinners in each of the European cities listed below.

I have already organized VC Roundtable events in most of these cities in 2009 and 2010 and I know most of the active VCs and many relevant folks and expect 100 to 200 participants for each event.

The format of the events is a lot of networking with 1 hour of content.

If you have a venue that can accommodate at least 70 seated participants or if you would like to be a cash sponsor for one of our events please contact me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or +1.650.475.6877. Also send me any ideas of how to promote the events with local media partners such as via StartupDigest or any other relevant email lists that reach local entrepreneurs, angels and VCs.

I am now planning events in April, May and June in the following cities:

  • London (I’m open to adding Oxford and Cambridge if someone can help organize)
  • Dublin
  • Paris
  • Amsterdam
  • Stockholm
  • Copenhagen
  • Berlin
  • Moscow
  • Saint Petersburg

VIP DINNERS

I am also organizing a VIP dinner in each city the night before or after each book tour event with 10 to 20 VIPs that are very successful entrepreneurs, angel investors, VCs, head of M&A at big balance sheet buyers, family office execs or other investors in VC funds. I am seeking a wealth manager or bank to sponsor each of these private dinners. No agenda, no pitches, no presentations – just networking and sit down dinner in a private dinning room.

One more thing, happy new year. New Year’s Eve for entrepreneurs and investors happens from March 7 to 12 in Austin, Texas and it’s called SXSW. For those that have never participated in this one, Austin becomes the center of the entrepreneurial universe and it’s a 5 day party celebrating entrepreneurship. Georgetown Angels will be there with friends from every country in the world. Come and help us ring in the new year there.

Happy New Year!

—–
Andrew C. Romans
General Partner | Georgetown Angels
Later stage seed & series A & B investments
Liquidity solutions for founders, investors & employees
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Download a free copy of my chapter on M&A “Which Way to the Exit?” from my book – THE ENTREPRENEURIAL BIBLE TO VENTURE CAPITAL: Inside Secrets from the Leaders in the Startup Game (McGraw Hill 2013 hardcover & all e-book formats)

Tel: +1.650.475.6877
5050 El Camino Real, Suite 104, Los Altos, California 94022

Next Georgetown Angels VC Roundtable & Book Tour Events: January 14 San Francisco Georgetown Angels VC Roundtable & Pitching event @ WSGR during the J.P. Morgan Healthcare Conference (focus on Healthcare IT & Tech Companies serving healthcare markets), Austin March 8 Georgetown Angels Venture Summit during SXSW @ Capital Factory, Austin March 10 private angel investor workshop & pitching event @ DLA Piper during SXSW,April 2 Boston VC Roundtable & VC Book Tour event @ Choate.

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Switzerland is a small country with a population just under 8m but, punches above its weight. CH has attracted success since ancient times and is now organized with unique investors and strong entrepreneurs.  Switzerland is home to Nestlé, Roche, ABB and some of the major players of big pharma such as Novartis and Merk Serono as well as other big balance sheet acquirers of venture-backed companies.  Switzerland’s beautiful mountains, lakes and towns along with capital gains tax being zero attract the very rich. The very rich make most of their money from investing; so zero capital gains tax is where it’s at! Understanding how the global economy works requires an understanding of Switzerland and the family offices that are based there and the wealth managers that command these large fortunes.

Sometimes I see entrepreneurs from Germany, France and England that already had huge exits bypass VCs and tap directly into the true source of cash raising large $30m or $50m rounds for their tech startups directly from the big families in Switzerland. It’s kind of like the major leagues of European startups. These families know how to find the startups of the most successful European entrepreneurs. Many of these families allocate a small percentage of their fortunes to VC funds in California and globally making Switzerland a very important piece of the puzzle. Some of my investors are from Switzerland, including – André Jaeggi, who is based on a lake outside of Zurich. I have worked with André for a number of years as the chairman of The Founders Club and the lead and first investor in my VC Fund – Georgetown Angels. André has been a personal mentor to me and is the co-founder of Adveq, a Zurich-based fund of funds that has invested over $5.5 billion into VC funds, mainly based in Silicon Valley, but also globally including China. They are in most of the big VCs that you have heard of in the Valley. André wrote the forward of my book and the section in my book on fund of funds. He actually tells the story of starting Adveq and how they raised their first fund.

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I have an additional personal connection to Switzerland in that I spent two summers in Geneva as an intern and still have life-long friends there. (Wishing a Happy New Year to Eric, Emmanuelle and Kinga!) Roel Bulthuis, founder and head of Merck Serono Ventures is based in Geneva (and Amsterdam) and is a personal friend and advisory board member of The Founders Club. Anja König, Managing Director of Novartis Venture Fund based in Basil, Switzerland is also one of my advisors as is Patrik Frei, CEO of Swiss-based Venture Valuation. I have been to the offices of Endeavor Vision in Geneva and these guys helped start and run TechTour in Europe, which is one of the very best set of events in Europe for entrepreneurs and investors to mix. Farley Duvall (who used to crash at my place in London) and his wife Elizabeth are based in Zurich and run White Bull from their Swiss HQ which Farley cofounded after running Red Herring Europe. White Bull has become THE go to conference for the startup elite to assemble in Europe. I would be happy to live the rest of my days in the Canton of Vaud sailing on the lake and skiing the nearby slopes. (This is a photo of Zurich, not Lausanne:-)

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I am humbled at the thought of advising anyone Swiss on where to go to raise funding. They have their own local angel groups, which include very impressive successful business people. Index Ventures, one of the most successful European VC Funds that many think of as a London VC, has roots in Geneva where some of their best guys are based – I always thought Giuseppe Zocco was the smartest guy in the room when pitching deals to Index. There are a few local funds, but Swiss entrepreneurs should consider all German, neighboring Austrian & Lichtenstein as well as French, British and American sources for investment. Here are the league tables of funds that invested in rounds of 3M CHF or more in 2010 and 2011.

European VC Roundtable & Book Tour Events

I am planning a series of VC Roundtable & Book Tour events in Europe in May and June of 2014. I am planning events in London, Dublin, Paris, Berlin, Stockholm, Copenhagen and Amsterdam. If you are a VC and want to participate on one of my VC panels please get in touch. If you are a law firm or accelerator / shared startup work space and host events or if you want to sponsor an event please get in touch. In each city I also organize a VIP dinner the night before or after with a max of 20 people, typically sponsored by wealth managers. Get in touch if appropriate.

League Table for the Most Active VCs in Switzerland

1

BioMedPartners AG

Basel, Switzerland

Venture Capital

US$ 151

5

2

SVC AG fuer KMU Risikokapital

Zürich, Switzerland

4

3

VI Partners

Zug, Switzerland

Venture Capital

US$ 78

4

4

BB Biotech Ventures

Schaffhausen, Switzerland

Venture Capital

US$ 396

3

5

Edmond de Rothschild Investment Partners

Paris, France

US$ 580

3

6

Novartis Venture Fund

Basel, Switzerland

Corporate Venture Capital

US$ 650

3

7

Vinci Capital Switzerland SA

Lausanne, Switzerland

Venture Capital

US$ 155

3

8

Aravis

Zurich, Switzerland

Venture Capital

US$ 175

2

9

BZ Bank

Switzerland

Corporation

2

10

DEFI Gestion SA

Lausanne, Switzerland

US$ 155

2

11

Endeavour Vision

Geneva, Switzerland

Venture Capital

US$ 54

2

12

Index Ventures

Geneva, Switzerland

Venture Capital

US$ 2,250

2

13

MP Healthcare Venture Management

Boston, MA

Venture Capital

2

14

NeoMed Management

Oslo, Norway

US$ 125

2

15

New Value

Zurich, Switzerland

US$ 60

2

16

Novo A/S

Hellerup, Denmark

US$ 2,044

2

...
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Germany is the third largest market for venture capital in Europe after the UK and France. If you accept Scandinavia as one unified market then Germany comes in fourth place. Germany is the most populous and richest country in Europe and has the potential to move into number two or even number one position in Europe. Bolt on the German language speakers in Austria and Switzerland and you’ve got the workhorse of Europe with a solid GDP per capita. Germans are obsessed with education and advanced degrees. The result is more registered patents per capita than any other country in Europe. The concentration of patents per German in the Munich area is 7x the national average. Traditionally, Germans are risk averse, not a perfect fit for entrepreneurship, but that accurate stereotype is fading quickly.

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Peter Thiel is one of my heroes, founder of PayPal, VC at The Founders Fund, early investor and board member of Facebook. Speaking at the German Silicon Valley Accelerator launch, he asserted that, historically, German companies sell early rather than stay the course to build a big stand-alone business. Any good company will receive offers to sell from time to time. Germans tend to take the money and move on, where American counterparts soldier on and sell later. Peter’s point is such early selling is inconsistent with the investment thesis of venture capital. He states that his fund, The Founders Fund, wants to invest in companies that can achieve a $500m or $1bn+ exit. Such exits pay venture returns and make up for the failures. Germans often sell at $10m, $30m or $85m.

When discussing Germany Pitch Johnson from Asset Management Ventures commented, “I don’t know if this is true anymore, but the price of failure was very high in Germany. If you start a company in Germany and fail, you may not go to jail, but you’re an outcast.”

SAP is a company that has bucked this trend. Peter closed his Accelerator launch remarks by noting that the Mittelstand that emerged in Germany in the early 1900’s never sold out, building what many historians credit for the Wirtschaftswunder, the miracle of economic recovery in post-WW II Germany. I think that German VCs will not match their non-German counterparts until successful German entrepreneurs become VCs. By that I mean that before German VCs will become more successful we need to see successful entrepreneurs start or join VC funds and move to the dark side. We are already seeing such entrepreneurs evolve with the Samwer Brothers’ European Entrepreneurs Fund, a Facebook investor, as well as Christian Saller moving from VC fund Target Partners to becoming an entrepreneur founding and selling Swoodoo to Kayak and then joining Holtzbrinck Ventures as a partner. But there is still a long way to go before the population of German VCs have entrepreneurial experience to match their American counterparts.

Burckhardt Bonello, cofounder of Smeet, a member of The Founders Club, told me that when he first went to see German VCs to raise money for Smeet the German VCs asked him, “So who is doing this in the US or the UK?” Burckhardt replied, “No one is doing this. We are unique.” The German VCs replied that they don’t back innovation. They were literally looking to back 100% copycats. Burckhardt managed to raise his series A from Partech International, a VC in Paris, and Hasso Plattner Venturs, the Potsdam venture arm of SAP’s founder, Hasso Plattner. Eran Davidson, who represented Hasso Plattner, is based in Potsdam, but is an Israeli.

All of Germany is highly industrialized, but the original high tech corridor of Germany has long been the beautiful Bavarian countryside surrounding lovingly restored Munich. Think Bayerische Motoren Werke AG (BMW), Siemens, Audi and many tech companies that sprang up around their supply chains. At a time in history when many of the world’s children want to be reality TV stars and no one is studying hard science in school, Germans are still pumping out engineers. So there are two things to know: Munich is a killer technology corridor that has traditionally been captured by big companies and can be harvested by VCs and startups; and Berlin has developed into a vibrant, cool cultural scene and a great low cost place to launch a mediatech startup, with armies of free interns willing to work for beer. Berlin is red hot, but most of the money is still in Munich. Earlybird VC has a presence Hamburg, but most of the VCs are clustered in Munich while trying to open offices in Berlin.

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I have a personal connection to Berlin. When the Berlin Wall fell down in the autumn of 1989 I decided to move there as an exchange student and enrolled in a summer course to learn German and tested into an all German speaking program where I spent 10 months living in East and West Berlin studying at the Humboldt University and the Free University of West Berlin. I remember buying the U2 album “Achtung Baby” at Zoo Station and played the song in my lawn mower-powered East German Trabi car on a boom box with friends in the car as we pulled out of Zoo Station listening to the song “Zoo Station”. Berlin has changed more than any other city since then. More than other transformational cities Austin or Vegas over the same timeframe, but the new Berlin of today is as ultra-hip as the Berlin of 1991 and 1992 was one-moment-in-time Brigadoon cool. I am still good friends with my German then student roommates and have gotten to know most of the active VCs, super angles and many of the startups. The vibe for startups near Alexander Platz in Berlin is contagious to the point that each time I am there I have delusions of moving back to Berlin. A dollar or Euro spent in Berlin also seems to go 5 times further than the same dollar spent in San Francisco, New York or London; so Berlin has a killer advantage that the runway of funding goes much further. Given a choice of a night out on the town from SF, NYC, London or Berlin, I would choose Berlin every time. It’s just cooler and genuinely hip.
Let me introduce Jörg Sperling.
Jörg is a partner at WHEB Partners, member of The Founders Club advisory board and has closed five German cleantech investments during the past 18 months, takes a look what makes the German market so difficult for outsiders to penetrate.

MITTELSTAND:  Handle with Care – Jörg “George” Sperling, partner, WHEB Partners

Many private equity firms have tried and failed to crack the German market. Its bedrock of privately-owned regional manufacturing companies, the Mittelstand, has provided steady growth over the decades and even now – miraculously, some would say – is repatriating business from their low-cost Chinese rivals. A relentless increase in productivity, efficiency and quality has been driven not only by the need for exporters to keep up with a historically-strong currency but by ‘green’ legislation that has the effect of improving industrial efficiency (the German chemicals sector, for example, has become the envy of the world).
Good products, stable working conditions and a healthy domestic market should provide the perfect conditions for such companies to partner with private equity houses equipped with international networks. This is not least the case as the very presence of a large and well-stimulated domestic market can mean international opportunities have been passed over by such firms. And yet such partnerships are rarely seen – to the extent that Munich, Germany’s VC hub, has seen the withdrawal of some international private equity firms’ offices. Why is this?
The answer lies in the strengths and sensitivities of a typical Mittelstand company. Such a company is profitable and has a great product, a fact, which can only be confirmed by me knocking on their door. It has probably been cheaply banked for generations by the local Sparkasse (savings bank). The owner is likely to want to pass it on to their children much as they received it from their parents. For the owners of such a company, the risks of selling equity simply outweigh the rewards.
The implications are that Germany is a seller’s market for late-stage venture-capital deals – a ‘reverse dragon’s den’. The moment you lose sight of this fact, you are out of step with the market and destined to fail. It must go beyond merely opening an office – and doing so in a state capital rather than just Berlin or Frankfurt – but being ready to leave that office. Cold-calling or emailing will not only fail to yield results, it may even cause damage to your future prospects.
Instead, you must be willing to pack your bags for a week or more and tour the provinces in person. You must be prepared to arrive in a town knowing no one and respectfully ask for meetings with respected local intermediaries. Having built trust at that level, you may be onwardly introduced to possible investee companies – of the sort that are invisible to those sitting in Frankfurt skyscrapers. Indeed, to generate respect you should be able to demonstrate personal experience that extends beyond service industries or financial engineering into the hands-on running of a business. When leaving town – whether having found a target acquisition or not – you must aim to leave behind trusted, and signed, introducer relationships. WHEB’s single greatest asset in Germany is a network of over 70 such referral relationships in various remote localities.
If you do find an interesting company, you – as the investor – must create and sustain the rationale for an equity sale. Having done so, you need to demonstrate a second rationale that you are the right partner for that sale – indeed, it is more likely to be this that wins you the deal than the price or the terms. If others start competing on price, you must be willing to stick truthfully to a valuation that prices in your firm’s expertise and, in doing so, represents your LPs interests. I write from personal experience when I say that all deals are not won on price in this market. Reputation and credibility when presenting these rationales counts hugely. You need to be ready for an owner-manager to call up your entire German portfolio – unannounced – to get a confidential reference. One unhappy investee could spell the end of the deal.
In terms of structuring – if you get to that stage – you must demonstrably and credibly respond to your counterparty’s sensitivities. One concern is usually that the equity buyer may flip the investment onto an unknown secondary buyer in the medium term. Another is that the investor will expect unilateral control over appointing management, including removing longstanding or family management. There are plenty of examples from other markets to justify such concerns. An eventual area for real skill might be to find a successor that can help the original owner internationalize the business with confidence. Your deal structure needs to do a lot more than just pay lip service here – it needs to find concrete win-win solutions that are acceptable to both parties, which in turn can require a lot of original creativity in structuring. In many cases the US-UK style standard boilerplate deal structures simply won’t work and will be off-putting.
This can be a long process taking months if not years of patience, which many investors simply do not have. But it is worth it. This year we have already seen another chapter in the maturing of German business-friendly environmentalism with the election of the Green Party to the state governments of Rhineland-Palatinate and the great automotive heartland of Baden-Württemberg. Behind giants such as Daimler Benz, Bosch and Continental lay increasingly efficient and low-emission supply chains, served by newly-positioned Mittelstand companies. The same applies to the e-mobility and de-carbonization projects in its capital, Stuttgart. Indeed, it is no overstatement to say that what in the US is becoming a rustbelt, in Germany is becoming a greenbelt. And private equity needs to be there. – End Jörg Sperling

Please see the League Table of Most Active VCs in Germany. Here again, the search is for investors that participated in an investment round into a company in 2010 or 2011 that raised a minimum of $3m in Germany. High-Tech Gruenderfonds (HTGF) comes out on top, but is a government initiative that typically puts 500k euro into early stage companies with the same cookie cutter deal terms. Last time I looked they take 15% for the 500k, but get you going and will fund almost anyone. The top VCs in Germany that I include for IT are European Founders Fund (the Samwer Brothers), Wellington Partners (one of their former general partners is on The Founders Club advisory board), Earlybird (one of the founders also on The Founders Club advisory board), T-Venture, TVM Capital, Target Partners and WHEB Ventures (one of the partners also on The Founders Club board of advisors). GIMV is also active in Germany with life science VC Karl Nagler based in Munich and also on the advisory board of The Founders Club. I believe German entrepreneurs would be wise to reach out to British, French, Swiss and American VCs as alternatives to German VCs. More info at www.bvkap.de.

European VC Roundtable & Book Tour Events

I am planning a series of VC Roundtable & Book Tour events in Europe in May and June of 2014. I am planning events in London, Paris, Berlin, Stockholm, Copenhagen and Amsterdam. If you are a VC and want to participate on one of my VC panels please get in touch. If you are a law firm or accelerator / shared startup work space and host events or if you want to sponsor an event please get in touch. In each city I also organize a VIP dinner the night before or after with a max of 20 people, typically sponsored by wealth managers. Get in touch if appropriate.

German League Table – Most Active VCs in Germany

1

High-Tech Gruenderfonds Management GmbH

Bonn, Germany

Venture Capital

US$ 327

16

2

KfW Mittelstandsbank

Bonn, Germany

Government

US$ 1,483

11

3

KfW Bankengruppe

Frankfurt, Germany

Government

8

4

Earlybird Venture Capital GmbH & Co.

Berlin, Germany

Venture Capital

US$ 514

7

5

MIG Fonds

Munich, Germany

Venture Capital

US$ 481

7

6

Bayern Kapital GmbH

Landshut, Germany

Venture Capital

US$ 228

5

7

DuMont Venture

Cologne, Germany

Venture Capital

5

8

Life Sciences Partners BV

Amsterdam, Netherlands

Venture Capital

US$ 601

5

9

T-Venture Holding GmbH

Bonn, Germany

Corporate Venture Capital

US$ 748

5

10

BayBG Bayerische Beteiligungsgesellschaf

Munich, Germany

US$ 361

4

11

Creathor Venture Management GmbH

Bad Homburg, Germany

Venture Capital

US$ 163

4

12

Edmond de Rothschild Investment Partners

Paris, France

US$ 580

4

13

IBB Beteiligungsgesellschaft mbH

Berlin, Germany

Venture Capital

US$ 99

4

14

NRW.BANK

Dusseldorf, Germany

Venture Capital

4

15

Wellington Partners

Munich, Germany

Venture Capital

US$ 962

4

16

BioMedPartners AG

Basel, Switzerland

Venture Capital

US$ 151

3

17

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France is the second largest VC market in Europe after the UK. If you take Scandinavia to be a single market then France comes in third. Germay is challenging this position and may have already become number 2 by deal volume and dollars / euros invested. Scandinavian funds have also struggled to bounce back from the 2008 venture melt-down response to the financial crisis.

The French government has put in place amazing tax incentives for wealthy folks to minimize their tax burden and encourage investing in early stage companies. Some of the funds have also benefited by providing major tax incentives for their institutional LP cash investors. The French labor market requires employers to pay significant severance to terminated employees; so if you were just laid off from Accenture or France Telecom, you will enjoy unemployment benefits (paying you around 50% of your salary or better for over a year), plus some tax free termination money in your pocket. Maybe that’s a good time to start a new web site or tech company and tap angels and VCs.

France has always been an early technology adopter. The Minitel was well in place and adopted by the population in the 1980s, a decade before Mosaic came along with the first web browser. Broadband arrived with higher levels of penetration and edge speeds than in the UK or the US. Deregulation of telecoms and high penetration of IPTV (or what is functionally two-way, interactive TV) has made France a hotbed for entrepreneurship. In contrast to their risk-averse cousins in Germany, the French have excelled in entrepreneurship and venture capital. They also have Europe’s second largest population after Germany with over 60m people. Bolt on French speaking Belgium and Switzerland and you have a sizeable market base of customers or users from which to grow. Culturally the French don’t care what their boss thinks and they sometimes speak their mind without appearing concerned with whom they might offend. In my view, this breeds natural entrepreneurs that take action on ideas rather than keeping that job at a state owned monopoly and never making the entrepreneurial plunge.

Today I find the Paris startup scene to be red-hot. My meetings in cafés and offices feel just like my meetings in San Francisco or Palo Alto. Often the entrepreneurs have already sold a company to Microsoft, worked and lived in Silicon Valley or London and now they are LP investors in one or more VC funds as they launch their new startup. Paris has mature angel investors some of whom are operating like super-angels investing in two companies per week. Accelerators are popping up all over. Entrepreneurs and bankers are creating crowdfunding platforms and the number of VCs actively investing from seed to later stage growth has reached a critical mass. Deal-making lawyers like Daniel Kahn from Kahn & Associés almost feel more like investment bankers than lawyers reminiscent of the guys at Wilson Sonsini and Orrick in the Valley.

I lived in Paris for two years as a teenager, graduated from a bilingual high school, speak French and have life-long friends there. When living in London, I took the Eurostar to Paris whenever I could and worked from a second home in the south of France during the summer months. At The Founders Club I had general partners from two top Paris VCs – Idinvest (formerly AGF Private Equity) and Ventech on my advisory board; so I still see the good growth stage deals. Sofinnova Partners, considered by many to be the number one venture capital firm in France, is an example of a fully global investor. French companies make up a small minority of its overall portfolio. Established in Paris in 1972, Sofinnova has invested in nearly 500 companies and has about $1.3bn of assets under management. Currently, 30% of their investment companies are headquartered in the US, the remainder spread across Europe. Sofinnova invests across healthcare, IT and cleantech.
Let me introduce you to Antoine Papiernik, Managing Partner of Sofinnova. His focus is healthcare and life science investments.

We are Not Looking for a Needle in a Haystack.  We are Looking for the Head of the Needle in the Haystack! – Antoine Papiernik, Managing Partner, Sofinnova Partners

Sofinnova is not looking for a needle in a haystack, but the head of the needle in the haystack. “Some of the deals we are doing have two guys in Minneapolis and two in Antwerp with clinical trials in South Africa.” I asked Antoine about the Food and Drug Administration (FDA) which is the American regulatory government body that has increased the time and cost of getting a device or drug to market.  There is no getting around the FDA. Without FDA approval, he said, you can’t pass go.  Every one of our companies has an FDA strategy.  It used to be that 510k was the fast track to FDA approval and that Pre Market Approval (PMA) was the long path.  The FDA has become so strict that the time lines and cost for a 510K have become the same as PMA.  The 510k strategies for our companies have simply become PMA strategies.  Time lines for product development can be three to five years and then more years for approval.
“Europe is key.  In Europe we can get a drug into humans here first and begin to prove the regulatory path.  Moving part or all of your team to Europe is not getting around the FDA.  You keep your US strategy and actually sit down, meet and even negotiate with the FDA with total transparency.  We show them everything we are doing and agree on a path.  We don’t hide anything.  We get actual specific end points from the FDA on what they want to see, such as the number of patients to test a drug.  The location of clinical trials should be in a tier I country, normally North America and Western Europe, but some eastern European countries and South Africa are being recognized as tier I countries as well.   In reality, there are centers of excellence everywhere.  When you see clinical trials being conducted in China and India, they are really preparing their drugs for those specific home markets.”

Bankruptcies and the French VC Model – Mark Bivens, entrepreneur & VC at Truffle Capital

Nic Brisbourne crafted a clear and cogent post about the economics of venture capital.
To be succinct, the VC model as practiced by the DFJ US is “for every 10 deals we do, we lose all of our money on 5 to 6, we make a modest multiple on 2 or 3, but we make a lot of money on 1 or 2.”  Whereas DFJ Esprit leans more toward a 1/3, 1/3, 1/3 spread.
The vast majority of VC funds in France do not follow this model.  I can recall an experienced and well-respected VC investor from a prominent French fund boast at a conference how, in all his years investing, he has never had a portfolio company go bankrupt.  That spirit still reigns in France today.
VC funds in France eschew bankruptcies. The common process of portfolio attrition practiced by our anglo-saxon counterparts is practically non-existent here.
A partial explanation is structural. Many French VC funds are essentially subsidiaries of banks or family offices. The fund “GP’s” are in reality employees of the subsidiary. Carried interest is difficult to implement and hence rare. Accordingly, the fund management team forfeits the strong alignment of incentives to produce capital gains that a carried interest mechanism promotes.
Furthermore, the head office of the fund subsidiary and, by definition, the employer of the fund management team, does not want the black eye of a bankruptcy marring their bank’s reputation.  Which brings me to my second explanation…
There’s is a strong cultural element at play here too. Bankruptcies are anathema to reputation in French business. Failure is a scar for life. The preferred option is to support the zombies, drip-feeding them with an occasional capital infusion when in critical condition, or better yet, turn to the government for a quick fix in the form of a subsidy.
I would be remiss to disparage this VC model à la française without acknowledging the pain of attrition. Laying off headcount, for example, is technically very difficult in France, and even more importantly, is a very unfortunate situation for those employees who suddenly find themselves back in the throes of a glacier-like hiring market.
However, I question the effectiveness of the model over the long term, its direct ability to generate capital gains, and the subsequent indirect impact on economic growth and job creation.
There are of course exceptions. I can name a few French venture funds that genuinely practice the model of bolstering the high-performers and killing the zombies. But they represent a rare minority on the French marketplace… as do high 10-year VC IRRs.

Too Big to Care – Mark Bivens, entrepreneur & VC, Truffle Capital

There is a subtle but insidious trend burgeoning within France’s private equity industry. This trend is a shift in fund objectives from a “capital gains generation” model towards a “fee generation” model.

In other words, the financial benefits accruing to private equity GP’s are increasingly coming more from management fees than from carried interest.

As many of you may know, venture capital and private equity general partnerships extract value from the investors of the money they manage in two ways: fees and carried interest. Historically, a conventional LP/GP agreement would have a “2 & 20″ structure, meaning that the GP assessed an annual fee of 2% on the amount of money they manage, while sharing in 20% of the funds’ capital gains in the form of carried interest. The conventional wisdom held that the 2% management fee was sufficient to cover the operating expenses of a fund (i.e. office rent, staff salaries, legal expenses, conferences, etc.), while the 20% carried interest was intended to reward supersize performance of the fund managers once they’ve returned all of the investors’ money.

So for example, a general partnership managing a fund of 100m in size and returning 3x the investors’ money at the end of the life of the fund commitment would receive:

• 2m per year in management fees

• 40m in carried interest (20% of fund gains of 200m)

Whereas an underperforming general partnership that fails to return all of the investors’ money (usually + some minimum “hurdle” rate of return) will not receive anything in the form of carried interest.

This “2 & 20″ model, with slight variations across general partnerships, has generally worked well for the past several decades in the sense that both LP’s and GP’s found their respective returns and incentives to be properly balanced.

This model merits scrutiny, however, when fund size becomes disproportionately large. An annual management fee of 2% of 100m sounds appropriate, but the same fee percentage on a fund size of 1 billion would be 20m per year. Because administering a fund of 1 billion doesn’t require a significantly larger management structure than for a 100m fund, 20m a year seems like an awful lot of money just to keep the lights on.

Concerns over this model surfaced in the U.S. some years ago, before the private equity bubble burst, when many buyout funds were becoming multi-billion dollar behemoths. The subsequent credit crunch and ensuing defaults or drastic reductions in commitments to the asset class from LPs served to correct many of these imbalances. I fear however, that in France these imbalances, while also currently masked to some extent by the credit crunch, are threatening to grow unchecked.

Wouldn’t France’s private equity industry follow a similar course correction on this matter as its anglo-saxon counterpart ? Three primary distinctions suggest otherwise:

1. Investors in French private equity and venture capital funds encompass much more than institutional LPs. While the classic LP/GP fund still exists, it is being forced to make room for retail investment vehicles. Increasingly, tax-incentivized retail investors represent significant sources of funds for the asset class. In 2009 for example, retail investors represented a whopping 1.1 B€ of the 3.6 B€ in total fundraising. Retail investors, (“unsophisticated investors”, to borrow the U.S. term) are as a class empirically less discerning and demanding than institutional LPs.

2. Tax incentives skew the retail investors’ motivations. Retail investment vehicles are booming thanks to generous tax incentive mechanisms. For example, an investment in a typical FCPI or FIP vehicle allows a 25% instant tax credit on one’s income tax and up to a 50% instant tax credit on one’s wealth tax. Then there are the incubator holding vehicles which can offer a wealth tax credit of as much as 75% of the invested amount. Retail investors’ expectations of capital gains are overshadowed by the immediate gratification they receive in the form of a tax shield.

3. Egos abound in both cultures, but manifest themselves differently. The pride factor in anglo-saxon private equity and VC culture centers on capital gains (e.g. every VC dreams to find the next Google); whereas France’s industry professionals tend to favor the amount of assets under management as a measure of testosterone. The first two distinctions might explain the dramatic disparity between returns of institutional funds and retail funds. For example, a comparison of IRRs for French private equity funds since inception through year-end 2008 depicts a 26.8% IRR for the top quartile of institutional funds versus a paltry 1.9% IRR for the top quartile of retail funds.

The damage of these characteristics of France’s private equity industry is compounded by the steadily ratcheting up of management fees: while 2% used to be an industry standard, fees in the 3~4% range are rapidly becoming the norm in France.

So wherein lies the “break-even point”? I.e. how large can the pool of assets under management be without tipping the motivations of the GP’s away from capital gains generators to fee generators? My fear is that this threshold is not that high.

League Table of Most Active VCs in France

1

CDC Entreprises

Paris, France

Venture Capital

US$ 1,923

21

2

CM-CIC Capital Prive

Paris, France

Investment Bank

US$ 373

13

3

Amundi SA

Paris, France

US$ 826,684

12

4

Credit Agricole Private Equity

Paris, France

US$ 4,456

12

5

Seventure Partners SA

Paris, France

Venture Capital

US$ 601

11

6

Idinvest Partners

Paris, France

Venture Capital

US$ 3,366

10

7

XAnge Private Equity

Paris, France

US$ 353

9

8

Auriga Partners SA

Paris, France

Venture Capital

US$ 397

8

9

Sofinnova Partners

Paris, France

US$ 1,328

8

10

A Plus Finance

Paris, France

US$ 66

7

11

Emertec Gestion

Grenoble, France

Venture Capital

US$ 144

7

12

Serena Capital SAS

Paris, France

Venture Capital

US$ 120

7

13

Ventech SA

Paris, France

Venture Capital

US$ 439

7

14

Alto Invest

Le Chesnay, France

6

15

...
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For the purposes of venture, Ireland should be considered part of the UK. (I can hear the cries of many thinking this is offensive or ignorant, but it’s what I believe. Time to get modern and move onward and upward.) One challenge facing Irish entrepreneurs is currency. Irish companies typically keep costs in Euros, the home currency in Ireland, but allow for revenues in Sterling, the currency of their British customers or USD. I was once the financial advisor to an Irish company in the online price comparison space for home bills and utilities. We raised 19m Euros from VCs, but all the revenue was in Sterling. At first, the exchange rate of Sterling to Euros paid all of the expenses; the company was profitable. The Euro then surged against Sterling; the company went from being profitable to very unprofitable. We were forced to negotiate numerous cash lifelines from the existing investors and struggled to close a deal with new investors.

The guy I would go to with an IT startup in Ireland, after taking the Enterprise Ireland government funding, is Dermot Berkery at Delta Partners. Irish entrepreneurs should not limit themselves to the local VCs, but target British, American and other European investors, too. There are new funds sprouting up in Ireland, but the classics that were in the business seem to be fading away. I do like the place and would not be surprised if the best startup in my career came from Ireland. If you are going to spend 3 months somewhere for an accelerator program it may as well be in Dublin. Startupbootcamp, one of the best accelerator programs in Europe and Israel, launched Startupbootcamp Health focused on digital health companies and is in Dublin. (BTW, we are still considering healthcare IT / digital health companies for our Georgetown Angels event during the J.P. Morgan Healthcare conference in San Francisco January 14th. Get in touch if you want to present. Free to pitch and in some cases we will pay your your plane ticket to SF.)

Too bad Bono invests most of his for profit money into restaurants and private equity! As a chap so interested in charity, he could create a $100m mediatech fund to tap into the unique Irish spirit and get a reverse brain drain going with the best mediatech companies from Europe and the world. It would be nice to see Ireland leave the PIGS (Portugal, Ireland, Greece & Spain) and join the net payer countries funding the European Union. Bono, give me a call☺ More info at www.ivca.ie.

League Table of the Most Active VCs in Ireland  (I did this research a 3 years ago)

1

Enterprise Ireland

Dublin (HQ), Ireland

Venture Capital

US$ 210

3

2

Kreos Capital

London, United Kingdom

Leasing

US$ 721

3

3

ACT Venture Capital

Clonskeagh, Ireland

US$ 436

2

4

Balderton Capital Management LLP

London, United Kingdom

Venture Capital

US$ 1,900

2

5

Fountain Healthcare Partners

Dublin, Ireland

Venture Capital

US$ 90

2

6

Novusmodus LLP

London, United Kingdom

2

7

Seroba Kernel Life Sciences

Dublin, Ireland

Venture Capital

US$ 114

2

8

Silicon Valley Bank

Santa Clara, CA

Other

US$ 4,000

2

9

AIB Seed Capital Fund

Ireland

Venture Capital

1

10

Capital-E

Antwerp, Belgium

Venture Capital

US$ 58

1

11

Credit Agricole Private Equity

Paris, France

US$ 4,456

1

12

Cross Atlantic Capital Partners

Radnor, PA

Venture Capital

US$ 500

1

13

Delta Partners Ltd.

Dublin, Ireland

Venture Capital

US$ 303

1

14

Emertec Gestion

Grenoble, France

Venture Capital

US$ 144

1

15

Endeavour Vision

Geneva, Switzerland

Venture Capital

US$ 54

1

16

Focus Ventures

Palo Alto, CA

Venture Capital

US$ 830

1

17

Institutional Venture Partners

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