Although modern venture capital appeared after the second world war, some trace its roots much earlier to Thalés de Millet and later to Vasco de Gama and Christopher Columbus. In the US, French General Doriot became president of ARD (American Research & Development Corporation) in 1946, a company that started with 3.4 M$. It stressed the value of patience, but was sold in 1972 for 35 times the initial investment. Its biggest success was Digital Equipment Corporation where it multiplied its initial investment by 5 800 over 15 years. A recession shook out the sector at the beginning of the 70's and left only a handful of survivors in the industry.

The first similar attempt of General Doriot in UK, Technical Development Corporation, launched in 1962, was sold at a loss to the ancestor of 3I. A second attempt in 1965, European Enterprises Development (EED), set up in Paris, was more successful despite an unsupportive environment. The financial uncertainties of mid-70's led it to stop its activities in 1976. Its example however had led a number of institutions to get interested in the activity. From 1977, the EEC started to study action plans to finance enterprises, inter alias high tech start-ups.

Besides a culture unsupportive of entrepreneurial spirit, two of the main practical stumbling blocks came from the poor exit alternatives offered by the stock markets at the time, and from the absence of pension funds on the Continent to provide the capital required for the activity (the UK being an exception in that respect). As a consequence, funds developed mainly from banks and financial institutions, funded on their own limited resources and with a very long life time that would allow to wait for an exit.

In the second part of the 80's, a fad similar to the more recent one led many to think venture capital was easy and their experience / intelligence / knowledge would lead them to surefire success. 

Then, the Gulf war and recession... The buzz words for corporations became restructuration and focusing on core activities. Most recent investors suffered from their foray in an activity they did not understand. In France, two of the most illuminating experiences were that of the investment arm of Crédit Lyonnais, and that of the SDRs (Société de Développement Régional). In both cases, the state had to intervene to save what could be saved.

A period ensued in which nobody could be drawn to discuss even the principle of venture capital investing. As a result, the few surviving funds were able to choose among the best projects and set the way for what would become their record performance in years to follow. In 1994, as I was trying to get a French bank to participate in setting up an international VC network, I could hear :" Venture capital works in the US. We tried it in France. It will never work here ! " (The same bank that told me in 1999 that they intended to invest $150 million per annum across the range of PE investment activities. Today, their team is in shatter.)

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 opportunities, starting with the nascent Internet projects based on a local adaptation of a proven US model. "Too much to do over here" said some. Not interested in Europe alone, I want to grab the whole world, said another. Most just did not answer.

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

The cycle began to sour in 2000. Incubators never managed to find a viable model. Many funds had been raised, invested at the peak, quite a few managed by self-assured people new to VC. Competition increased. Start-ups complained about the way their investors behave (see article in French). Then funds stopped making new investments to concentrate on their existing portfolio, reduced headcount, and started reevaluating their investments...

Many mistakes have been made. We are now at a restructuring point. A number of funds will disappear. In the past already, some US VCs have come to Europe and returned. Who will stay the course ? Place your bets and watch the macro picture in our statistics page, the micro picture in the news page.

Related links :

On the scarcity of funds and entrepreneurial spirit in Europe pre-1999

Several articles in the Red Herring described the difficulties faced by entrepreneurs in Europe, including :

Off the Infobahn and into a rut (December 95)
On Europe's chilly investment climate and alternative funding sources.

European Outlook supplement (October 97)
On attempts to replicate the Silicon Valley and their mixed success in Scotland, Sweden and elsewhere.

A National Science Foundation study from October 1998
          Venture Capital Investment Trends in the United States and Europe

Business Week also published the comments of an entrepreneur in :
          US Venture Capital is welcome in Europe (September 98)

On the opportunity presented by Europe to US VCs before the bubble

While articles above witness to the difficulties of being an entrepreneur in Europe at the time, others had identified the opportunity it offered to experienced US firms.

Red Herring
Think globally, act locally (May 96)
"Given the opportunities in Europe, there is room for more US VC firms to return to the Old World more frequently"

Eurobankers found missing (June 96)
U.S. investment bankers scoop up young European growth companies while torpid European bankers have a nap.

Hambrecht & Quist
Americans Abroad: Seizing the Internet Opportunity Overseas (June 97)
How U.S. Internet companies need to expand abroad to keep growing and have to adapt to stay successfull.

Business 2.0
Go Global (May 2000)
Most ecommerce players in the United States are so caught up in their battle for eyeballs and traction that they haven't even begun to think about the global market, let alone about actually launching a global operation.

Wired
Venture Capitals (July 2000)
Wired list and comparison of the 46 locations that matter most in the new digital geography.

On the present difficulty of times

Upside
VC metamorphosis (September 2002)
On the evolutions at work in the industry, those that might work and those that will not.

Red Herring
Trap Door (November 2002)
In an activity that is supposed to involve long term views, no short term fix will compensate bad performance.