45% of European venture capital (VC) investments fail or do not secure returns above 2x the investment, according to a new report by leading European business schools.
The report also found that 28% of the investments exceed expectations, and 9% earned above 10x invested capital.
The report discovered that European venture capitalists receive on average 851 investment proposals per year, of which only 6% lead to investments. While VCs expect to earn about 30% IRR (Internal Rate of Return) on their investments, the average return they effectively realise is only 13% per year.
‘Practices of European Venture Capitalists’, authored by leading venture capital faculty experts from Audencia Business School, Vlerick Business School, London Business School, Politecnico di Milano School of Management, Stockholm School of Economics, Universidad Complutense de Madrid, Université du Luxembourg, and Ghent University, offers a comprehensive overview of the European venture capital market.
The findings come from a survey of 885 venture capital investors across Europe, with the majority of the responses coming from VCs in France, Germany, Spain and Sweden, Belgium, and the UK. VC investors were asked numerous questions about their investment journey from investment to exit, including the reasons as to why they invest in firms in the first place, the process of doing so, and what makes an investment successful.
The researchers found that VC investors view the management team’s ability as the most important factor influencing their investment decisions. In fact, 72% of European VC firms consider a competent management team the most critical driver behind investment success. This is understandable, as the vast majority of the VCs agree that the management team is the most important determinant of a venture’s success but also of its failure.
When asked what other factors make an investment successful, VC investors stated that the offering, i.e., the product, service, or…
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