Venture Capital, US and Europe different in approach but similar in performance
Research by a pool of European universities investigates the differences between the two systems through interviews with 611 managers from 400 companies
Key points
The dominant model is the US one and, on this, there is little doubt: the numbers show that the US venture capital market is about five times larger than the European one. And, by the way, the US venture capital model itself, established in 1946, was also adopted in Europe in the 1970s, as Massimo Colombo, professor of Innovation Economics, Entrepreneurship and Entrepreneurial Finance at the Polimi School of Management, one of the European business schools (together with Audencia Business School, IE Business School, Stockholm School of Economics (SSE), Universidad Complutense de Madrid, Vlerick Business School and University of Ghent, University of Luxembourg) that carried out the study 'Practices of European and American Venture Capitalists: homogeneity and heterogeneity at work'.
Differences and specificities of the two models
Focusing on the differences between the two ecosystems, the study analyses how institutional contexts influence venture capital decisions in Europe compared to the US, based on a survey of 611 managers from 396 companies, representing 55% of market capitalisation and €130 billion under management.
The results reported in this paper disprove the commonplace that US venture capital outperforms European venture capital, supported by the data: 'The performance metrics are almost identical, you target similar returns, face the same failure rates, and achieve equivalent high-level results,' the study says. The difference lies in the way investment decisions are made, deals are chosen and risk is assessed, determining who gets funding and who does not'.
European venture capitalists have a narrower deal flow, as they seize fewer opportunities: they rely on current market conditions, whereas US venture capitalists mainly use predictive financial models to estimate scalability and project potential.
Operators in both systems believe that success depends on the team (96% of the sample) as well as failure (92%), but Europeans seem to place less importance on the business model (43%), strategic fit (43%), and other fundamentals such as product and market, which in the United States count for 74% and 68% of managers respectively. These differences also extend to the perception of the ideal founder: 'in Europe, priority is given to individual qualities such as passion, determination and commitment. in the US, the focus is on team cohesion, organisational structure and interpersonal dynamics,' the study continues.
