There was a time not very long ago when Europe and the US were two different continents as regards private equity. US developed the modern concept. Europe adopted it slowly and progressively.  While UK was active, it was essentially so in Leverage Buy Outs. Germany used to let  banks finance its corporations. France had a small level of activity. And you could not get a US VC interested about Europe. More on this in history...

More recently, private equity became a recognized source of finance and profits. It participated in the emergence of a fascinating breed of entrepreneurs, because they typified success or because they showed an effective way to reduce unemployment, modernize economies and reduce government waste. International development organizations switched to financing VC funds as a more effective way to modernize countries than large state-sponsored projects.  In Europe, this new consciousness collided with the emergence of the Internet. As a result, over a period of a few months, venture capital and Internet met explosive growth.

Everybody wanted to participate in it, down to individuals and newly born business angels. At this stage, some US VCs  came to realize a presence in Europe could be an opening into a less competitive market, a source of additional profits and a differentiating factor. In the process, some even went to the extreme to intend to fund the entire world entrepreneurs... Corporations set up venture arms. Major US funds started (re-)opening up European offices and then 3I went back to the States.

What happened? A local industry suddenly became global. Investors followed up investee companies as they expanded worldwide, and started looking for good projects beyond their door. But because the change was so brutal, linked to the new economy and stock markets, it was filled with misjudgments and off the shelf approaches. An adjustment was required  and has started. Many had satisfied themselves with raising an appropriate fund, renting office space in UK, and hiring an arrogant and self-assured representative. The market got unbalanced.  Those confusing London with Continental Europe will have to try again! Inexperienced investors come to see the activity as less rewarding than anticipated. Those which forgot the importance of experience and local culture will be reminded of them. And those which forgot the key role of proximity are coming back to old values !

But the adjustment has only just started and will take some time to work its way through the industry.

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This site last updated on December 12, 2003.

Two recent views of interest 
published by Private Equity Online:

Europe's VC underhang

and 
Private equity lite on 
the situation in Germany