A report by Invest Europe reveals that €130bn was invested by private equity and venture capital in 2022, marking the second-highest year for investment. More than 9000 companies were backed, helping drive innovation, job creation and growth, and supporting the transition to a greener, more sustainable economy.
Invest Europe, the association representing Europe’s private equity, venture capital and infrastructure sectors, as well as their investors, estimates in its latest report that there are around 10.9 million people employed in private equity and venture capital-backed companies in Europe.
The figures are more impressive when considered against the backdrop of macro-economic forces and geo-political upheaval. Following several difficult years internationally, as markets were just beginning to recover confidence after the COVID-19 pandemic, the negative dynamics of Russia’s invasion of Ukraine hit hard, leading to inflation hikes, and eating into European budgets, which triggered a lingering energy crisis.
Add to the mix, tensions between China and the US, Europe’s tepid reaction to the United States’ Inflation Reduction Act (IRA) and the as-yet-unknown consequences of AI innovation, and it’s an even more compelling story of resilience.
Weathering extreme challenges
Eric de Montgolfier, CEO of Invest Europe, explained: “Ever since the outbreak of COVID, European businesses have weathered extreme challenges and uncertain markets. Private equity has demonstrated its ability to support companies through volatile conditions and the growth in dry powder – from large buyouts to venture capital – means the industry is well-equipped to help companies face the challenges of today and tomorrow.”
So how has the private equity and venture capital industry adapted and what strategies will work best in the future?
According to the Wall Street Journal, private equity firms set up ‘War Rooms’ to help them navigate disruption caused by the pandemic. These strategies, which create a dedicated space for project teams to strategize and make informed decisions, are key to the ability to pivot and adapt. The best project managers in these scenarios can create an environment that fosters “collaboration, innovation and timely decision-making.” These three ingredients are common to Invest Europe’s success stories.
As the industry looks to its future in Europe, critical sectors like defence, infrastructure, energy, healthcare and digital will need resilient private equity and venture capital.
Building better businesses
According to Invest Europe: “Private equity and venture capital is about building better businesses that create jobs, sustain communities, drive economic growth, and address climate change and sustainability issues while generating value that translates into returns to support European savers and pensioners in retirement.”
They take the view that continued innovation and performance of the industry in Europe has resulted in a massive shift in 40 years, from a cottage industry to one of the cornerstones of Europe’s economy and societies.
In terms of venture capital, Europe is avoiding the global stagnation that has caused turbulence in the US, China, and most of the rest of the globe – where investment levels are predicted to decline from 2020 levels.
According to Seedblink: “The market reset’s significant impact is evident in the short-term performance of venture capital, with one-year venture capital returns in both Europe and the US now deeply negative due to a rise in down rounds, write-offs, and markdowns.”
But venture capital rewards take ten years or more to materialise, the real test of success in the industry is how well a deal is done over the long term.
Technological advances
Karen McSorley and Stephanie Atnas of Aztec Group, put it succinctly: “A combination of regulatory reform, technological advances and global macro-economic factors, the retailization of private markets is giving retail investors the chance to participate in exciting alternative investment opportunities for the first time.”
“One factor supporting private market growth is the increasing involvement of retail investors who are quietly revolutionising their operations. Faced with fewer listed companies to invest in, retail investors have long been eager to participate in exciting new private investment opportunities,” they say in an op-ed.
In 2023, the private equity sector bore the full impact of rising rates, significant inflation, and unpredictability in the economy, yet European private equity fundraising showed remarkable resilience. That resilience will need to grow year-on-year to deliver the future Europe needs.
“The European private equity and venture capital industry continues to scale new heights, demonstrating its growth potential and appeal to investors. The industry’s story is as straightforward as it is compelling. Capital committed to skilled and experienced European private equity managers helps build better businesses that can generate value and superior returns. This steady creation of capital and wealth fuels a virtuous circle that benefits Europe’s economy and society,” remarked de Montgolfier.
[Edited By Brian Maguire | Euractiv’s Advocacy Lab ]
