Private equity is a cyclical activity. Not the only one, clearly. But one with strong and long cycles. My own experience has allowed me to witness already several of these cycles.

In 1978, as a grad student, I invited the CEO of Exxon Enterprises to speak on the various projects in which he had invested. Corporate venture was less glamorous but was already there.

Following an initial experience in industry, I went to private equity in France in 1984, doing development capital. By 1988, the activity became somewhat hyped and we managed a fund in which all sorts of investors were present : corporations, insurance companies, rich family foundations, etc. All wanted to be part of the game for a short while.

Then, the Gulf war and recession... The buzz words became restructuration and focusing on core activities. In 1994, as I was trying to get a French bank to participate in setting up an international VC activity, I could hear :
" Venture capital works in the US. We tried it in France. It will never work here ! " It happened that the same bank told me in 1999 that they intended to invest $150 million per annum across the range of PE investment activities. (Now, that's vision and anticipation.)

Same year, a partner in one of the last VC to perdure in France was indicating to me that he often experienced problems finding co-investors in his deals because of a scarcity of players. Some of those active at the time are now displaying 60 %  IRRs on the funds they were then investing as they were able to select their deals and impose their valuations and conditions. Quite different from the atmosphere of the last months.

In 1998, I attempted to identify an experienced US venture capitalist and alert it to some of the opportunities existing in Europe. The idea was to open a European office on the Continent and seize some of these opportunities, starting with the nascent Internet projects. Most did not answer. "Too much to do over here" said others. Not interested in Europe, I want to grab the whole world, also said one.

Then, Europe woke up to Internet, early local investors got lucky, and before you knew it, a flurry of local organizations, so-called business angels and some US VCs started looking at Europe, opening up London offices or establishing joint ventures.

We are now in the second and down stage of the Internet cycle. Many funds have been raised, some invested at the peak, some managed by people new to VC. Competition has increased. Incubators explode. Start-ups complain about the way their investors behaved (see article in French). Some funds stop investing to concentrate on the existing portfolio, then reduce headcount, then... UK, where US VCs like to stop to open their local office, is probably not the best entry point to VC in Europe.

We are coming to a restructuring point. In the past, some US VCs have come to Europe and returned. Who will stay the course ? Place your bets !

Related links :

On the mistakes brought by the recent hype

Journal du Net (March 2001) (in French) (Babelfish translation)
The former President of Eloan in France

Red Herring
Carlyle shifts direction in Europe (Feb 2001)
How few American VC firms, Benchmark Capital and Internet Capital Group  included, have been able to transfer their U.S. success formulas to Europe.