Business Builder, Chairperson of privately held tech businesses
PitchBook mentioned today, that in Europe "VC fundraising heads for a slump”. The last time this happened was in 2008, VC investments in Finland declined by 75 %. By how much will they decline this time, if fundraising slumps?
I am in my 5th VC cycle downturn since 1983. I fear the “denominator effect” in fundraising.
The largest fund investors are pension funds may have a limit, just to put up a number, 5 or 9 % of their assets in PE, VC and real estate funds. For 15 years asset valuations have increased, driven partially by quantitative easing ( QE ), thus one reason in my mind why new fund formation and VC investments have reached record levels in Finland and in Europe.
Asset valuations have already come down, and many fund investors may already be over-invested beyond their limits. With a downturn and central banks, the Fed tightening money supply, asset valuations may come further down and fund investors may be increasingly over-invested in the coming year or two.
In 1 - 2 years many European VC funds, often Fund I's, will need to raise a follow-on fund. Only the best will succeed and survive, those that have returned cash on cash or have a good value growth story with some of their portfolio companies. Many have not. So I fear investment levels may come drastically down.
Until the next uptick in the global economy, when it all starts again with a new generation of VCs. And so it goes.
Prior to the financial crisis of 2008 investments in Finnish tech start-ups were ca. 300 M € per year, mainly through Finnish funds. That dropped by 75 % to 75 M € at the bottom of the last cycle 15 years ago and most of those funds are not around anymore.
This time the market in Finland has peaked at 1,8 B € - a growth of 25x in 15 years! Most of the increase in Finland has come from international investors. Will it again drop by 75 %? And in Europe?
My close network thinks it may be less than 15 years ago because European governments are strongly behind VC and because there now is a much broader acceptance of technology and investments in technology. Time for governments to step up. Again? Or can major investors and large corporates become more innovative in supporting innovation?”
Source: LinkedIn
