Axon presents its latest report on participation of institutional investors in European VC in front of Comissioner Moedas and his team in Brussels
Axon Partners Group organized a closed-door workshop with Commissioner Carlos Moedas, his team, and other honored guests to discuss key issues affecting European VC.
As part of the workshop, Axon’s president, Francisco Velázquez, presented the main findings and conclusions of our own publication “Participation of European Institutional Investors in VC”. The research covered key reasons for the low participation of European Institutional Investors in VC by conducting a large-scale survey and interviews with Institutional Investors such as Pension Funds and Insurance Companies.
Axon has found two main groups of reasons which limit investor’s ability to increase allocation to VC. The most important limitation observed was related to the perceived “Risk Return Profile” of VC. Specifically, this limitation refers to three common beliefs: one, that Buyout outperforms VC, two, that U.S. VC is still able to provide better returns, and three, that VC is too risky for Institutional Investors. As it is explained in the report, the first two of the three reasons provided are not well supported by market data and represent an outdated perspective on the asset class. The third is indisputable, as VC shows the highest return dispersion among alternative strategies. However, as shown, VC also gains the largest benefit from diversification, which does not only lower the return dispersion but also shifts median returns to the right.
The second group of constrains refers to “Internal Limitations” faced by many Institutional Investors and consists of minimum ticket/fund size problems and the lack of dedicated allocation to VC by European Institutions. These limitations present a real problem in the context of European VC as it sets a minimum fund size in order to be investable for €300-500m. This size is highly uncommon in Europe due to the geographic focus of European funds which makes them smaller. This is only made worse by the lack of internal expertise within these organizations which, in essence, means that most VC opportunities are simply disregarded before they can be analyzed.
Based on these findings, the European Commission and the participants have confirmed that programs such as VentureEU are on the right path to attract more private capital into European VC. Funds of Funds are real solutions to most of the problems described above, as they provide a professional approach to the asset class needed to attract Institutional Investors. However, it is also clear that further actions are needed to promote the asset class and explain the current opportunity in Europe.