Study of Barriers to, and Drivers of, the Scaling-Up of Funds Investing in Innovative and Growth Companies (European Commission / Civitta / Bourse Consult / EBAN)

Summary

• In 2023, large funding rounds (above EUR 100 million) generated only EUR 21 billion in Europe, compared with EUR 81 billion in the US.p.19
• Over 60 interviews across all EU Member States were conducted with fund managers and institutional investors.p.21
• Average management fees for growth-strategy funds are 1.99% in the EU and 1.92% in the US.p.24
• The average carried interest rate is 19.25% in the EU, compared to 20.46% in the US, and the average hurdle rate is 7.75% in the EU against 7.93% in the US.p.25
• The majority of venture and growth funds in the EU are below USD 150 million in size.p.26
• European funds with a buyout strategy have yielded a net IRR of 14.86% since inception.p.29
• European growth capital funds have shown a net IRR of 14.77% since inception, but lag behind North American growth capital.p.30

Key insights

1. The US has at least seven times as many funds managing assets exceeding EUR 600 million as the EU.p.19
2. Out of 39 growth funds in the EU with detailed fee information by stage, 31 funds (79%) had the same rate on invested capital in the post-investment period, against 43% of 69 funds in the US.p.24
3. A seed-to-Series A fund with approximately EUR 60 million under management estimates a breakeven fund size of EUR 50 million when domiciled in Luxembourg.p.27
4. Swedish LPs interviewed expect returns of over 20% from a VC/PE fund before committing.p.28
5. Among European growth funds with a 2018 vintage, bottom-quartile IRRs range from 3.0% to 7.6%, while top-quartile IRRs span from 22.6% to 67.4%.p.31
6. The highest ranked fundraising barriers that can be tackled legislatively are prudential rules for pension funds, insurers and banks, and uncertainty over capital gains taxes.p.12
7. Institutional investors most often cite lack of track record, difficulty aligning alternative assets with portfolio strategy and perceived high costs of investing in venture and growth.p.15