Development of private equity in general and venture capital as a segment 

The first trend has been the increased consciousness of the impact of venture capital and private equity on the economy. Statistics from the NVCA claim that 7.6 million jobs have been created over the last 30 years and that firms financed this way total 1 300 B$ turnover. These effects have called the attention on the effectiveness of private equity as compared to  state intervention in the economic field and pushed organizations such as IFC or EBRD to participate. This long term trend, as shown by statistics, has gone to a climax with the emergence of the NTICs and the rush to benefit from it. A correction is under way but we believe the trend will remain.

More professionals working along the lines of the US VC industry

Europe came to learn about Internet and NTICs much later than the US, but met the counter shock at the same time.  The time span between the moment the opportunity appeared and the moment excesses appeared was very short. In that time span, everybody tried to jump on the bandwagon and participate in a get rich quick scheme. That brought many people in the trade from all sorts of horizons except private equity investments. The activity seemed easy and everybody thought himself fit for it. Now, the time has come back to realize this activity requires professionals honed over the years, who cost a bundle to pay for their salary and initial bundles, and that not everyone is fit for it.

Also, because the US started earlier, it implemented the rules of the trade that other countries now see as useful such as funds with a limited life span, management by independent teams, performance measurement, rules of conduct, etc.

A larger role for technology and start-ups

Despite the excesses of the millenium, the role and the potential of new technologies in the economy and everyday life has been recognized. Telex has disappeared, my cleaning lady has a mobile phone and my former boss, a Sciences Po humanities bachelor who used to wonder what a computer was required for, has an email.

More international networks

The globalization of the markets has pushed companies and private equity firms to expand beyond the scope of their own country. Although some firms will remain local and happy, others will manage multiple offices and develop internationally. We believe both models to be valid and that execution makes the difference. 

Correction of past mistakes

Many mistakes have been made in the excesses of the millennium: recruiting inexperienced investors, moving from buyout to startups without due thought, expanding internationally at the wrong time to the wrong place with the wrong people. This site at the time was trying to warn against some of these mistakes as I was attempting to convince a US VC to come and seize the opportunities that were present. Some of the moves that were made at the time were relying on me-too attitude, incorporated all the standards of an off-the-shelf approach, and are now being corrected. 

An illustration of mistakes accomplished comes from US firms which opened offices in UK in 1999. While some firms with an international presence already existed in the 80's, they were the exception. If you tried to persuade someone to follow that road in the mid-90's, you would get an answer like "Too much to do here".

From US to Europe ... and back

The lack of interest of US VCs willing to invest in Europe in 1998 was followed by the 2000 craze to do so. While the move makes sense, too many did it only to follow their peers and now change views as the first difficulties emerge. Only the far sighted with attention to detail and a  true commitment will remain.

The strategy used to develop operations abroad needs to be thought out carefully. Long term plans cannot rely on short term motivations. Even otherwise successful firms in their own country can stumble on that sort of development. While some rapidly become respected names and establish their brand, others will barely be seen in the arena.

One of the stumbling point on the way is where to open an office. Most US firms prefer to do so in the UK where differences from the US culture are less pronounced. However, the Continent is a rich and diverse ground for VC, in which the British themselves generally do not deal from their island. A look at trade statistics shows that, while UK is the most developed market in Europe for private equity, it is so because of the part taken by buyouts activities.

Additionally, VC is a proximity business. Whereas it might be cost-effective and sensible to do large LBOs using a central European team ready to go to any country to look at an investment opportunity, this is not the case for early stage companies. These companies are often managed by individuals who require the local presence of their investors.

Another stumbling block will be the capacity to identify and recruit local experienced investors, with that international culture that  provides the ability to relate to both the firm for which they work and to the practices, expectations and motivations of local entrepreneurs.

The supply of individuals who were involved in private equity 15 years ago cannot be stretched (as far as I remember for France, it was pretty darn limited). Many funds are being set up using smart people from various origins : consulting, large companies, previous entrepreneurs, etc. Experience shows that this is no guarantee to performing investments. The attraction of fast money will lure them to the next attraction before investors have had time to recover their investment. 

The day of reckoning has come. Of course, in the US. But also in Europe. In Europe is no walk in the park (Herring, June 2000), some of the challenges facing US newcomers to Europe are exposed. And here in Paris, the number of recent actors which have stopped making any investment is increasing.