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🌍 Boosting Growth and Productivity: Europe’s Path to Enhanced Venture Capital Support 🚀 The European Union faces a productivity challenge, producing 30% less per hour worked compared to potential growth had it matched the US since 2000. One key issue? Insufficient development of innovative startups into “superstar” firms. Let's delve into the core issues and potential solutions: 🔍 Key Issues:    📍Fragmented Economy & Financial System: Europe's fragmented markets and financial structures make scaling up successful startups more difficult and costly.    📍Bank-Based Financial System: High-tech startups face difficulties securing financing from banks, which prefer collateral-backed loans.    📍Limited Private Capital Pools: Europeans invest more in bank accounts than capital markets, leading to smaller and fragmented pools of private capital. 💡 Potential Solutions: 🟢National Level Initiatives:    📍Preferential Tax Treatments: Incentives for equity investments in startups and venture capital funds can stimulate growth in underdeveloped sectors.    📍Reduce Regulatory and Tax Frictions: Simplifying regulations can encourage investments in venture capital.    📍Expand Public Financial Institutions' Role: National institutions can support venture capital by providing capital and attracting private investments on commercial terms. 🟢European Level Measures:    📍Complete the Single Market: Harmonizing the market for goods, services, labor, and capital will create a more seamless environment for startups.    📍Enhance European Investment Fund (EIF) & European Investment Bank (EIB): Expanding their capacity to channel resources to venture capital funds can support innovative startups.    📍Develop a Pan-EU Fund-of-Funds: This would attract institutional capital and reduce fragmentation, helping close the financing gap for scaling startups. 🟢Medium-Term Actions:    Reduce Stock Market Fragmentation: Enhancing the depth, liquidity, and valuations of EU stock markets will make EU listings more attractive, furthering the capital market union agenda. 🌱 The Way Forward: 📍Government interventions may be necessary in the near term to accelerate venture capital development, driving EU productivity and competitiveness. 📍Enhanced venture capital support, especially in “clean tech” sectors, aligns with the EU’s green ambitions and can reduce reliance on subsidies. By fostering a more robust venture capital ecosystem, Europe can unlock growth potential, boost productivity, and secure a competitive edge on the global stage. #VentureCapital #EUgrowth #Innovation #ProductivityBoost #Startups #FinancialMarkets #EconomicDevelopment #GreenTech #Investment #CapitalMarkets

This IMF piece published yesterday illustrates the hurdles Europe must overcome to grow a healthier innovation ecosystem and ensure a competitive environment where our boldest innovative companies can develop, scale and fluorish. “A failure to sufficiently develop innovative startups into “superstar” firms is one of the reasons for the bloc’s poor productivity growth. Europe’s fragmented economy and financial system partly underly this problem. Without a more frictionless single market for goods, services, labor, and capital, it’s more expensive and difficult for successful startups to scale up.” Of course, from the start, uneven tax incentives for business angels boost some areas of Europe, leaving others far behind, it’s not surprising the bigger, more mature governments are waking-up finally and leading these latest initiatives. Germany is even incentivizing non tax residents in Europe to invest in German startups. For example: Germany - The “INVEST – Grant for Venture Capital” programme helps young, innovative companies to find someone to provide capital. Business angels get 20% of their investment reimbursed tax-free if they invest at least €10,000 in start-ups. This reduces their risk when they invest in bold ideas. INVEST improves the prospects for innovative firms to find a private investor. In this way, everyone benefits from the government support. INVEST is tailored to the target group and can therefore take even better account of the distinct features of the private venture capital market in Germany. https://lnkd.in/dnsQHXcc France - The French government wants to triple the number of business angels backing early-stage startups. French policymakers are looking for lessons from the UK’s programs of EIS and SEIS, which provide early-stage tax incentives and have been credited with helping to make the UK Europe’s undisputed entrepreneurial leader. https://lnkd.in/dQA3m94U EBAN - European Business Angel Network Lithuanian Business Angel Network LitBAN

#uk  venture capital funding cratered by almost half last year as rising interest rates and an economic downturn choked off the flow of cash into start-ups and tech firms, new data has revealed. In a sign of the bruising conditions facing the sector through the year, #UK venture investment fell to £16.1bn in 2023 down from £28.9bn the year prior, according to preliminary data from PitchBook , compiled for City A.M. Venture capital firms had boomed in the decade to 2022 but began to slow dramatically after Russia invaded Ukraine and central bankers began hiking interest rates to cool inflation.  Investors have also soured on high-growth, loss-making start-ups as borrowing costs increased and increased the need for profit. The UK’s slump in funding came amid a wider drop-off in investment globally. European VC investment, including the UK, tumbled to $57bn from $105bn a year prior, while global investment fell from $531bn to $345bn. Despite a downturn in overall investment, PitchBook analysts said the value of the average deal size had stayed comparatively steady. “Median deal sizes for EU-based startups remained at new all-time-highs across all stages of VC”, said Nalin Patel, an analyst at PitchBook. Dealmaking across Europe continued its descent in the final three months of the year, with fourth quarter deal count tumbling to the lowest total since the third quarter of 2018. https://lnkd.in/eyHW8Gat

The economic outperformance of the US vis-a-vis Europe in the past 20 years can be directly related to its superiority in fostering innovation and breeding global tech leaders. Three areas have been instrumental where the Europeans failed miserably despite spending an awful lot of money too (the European way): 1) The early development of the US VC ecosystem, 2) the early buildout of Silicon Valley, and 3) the establishment of Nasdaq. Part 1 - The major steps in developing the US venture capital ecosystem: 1. Early government support: The US government played a crucial role in the early development of the VC industry, mainly through the Small Business Investment Company (SBIC) program in the 1950s, which provided funding and incentives for private investment in small businesses. 2. Emergence of Silicon Valley: The concentration of tech companies and talent in Silicon Valley created a fertile ground for VC activity, starting in the 1960s and 1970s with firms like Kleiner Perkins and Sequoia Capital. 3. Regulatory changes: Key regulatory changes, such as the 1979 amendment to the "prudent man" rule, allowed pension funds to invest in VC, significantly increasing the available capital for the industry. 4. Success stories and reinvestment: Early successes in tech investments, particularly in the semiconductor industry, led to a cycle of reinvestment as successful entrepreneurs became investors themselves. 5. Development of limited partnership structure: Adopting the limited partnership as the standard organizational structure for VC firms in the 1970s and 1980s helped attract more institutional investors. 6. Specialization and professionalization: As the industry grew, VC firms began to specialize in specific sectors or stages of investment, and the profession became more structured and formalized. 7. Expansion of exit opportunities: The growth of the NASDAQ and the increasing number of tech IPOs in the 1980s and 1990s provided more exit opportunities for VC investments, attracting more capital to the industry. 8. Establishment of different funding stages: The VC ecosystem developed a structured approach to funding, from pre-seed to mezzanine stages, each with specific goals and types of investors. 9. Creation of supportive policies: Government policies were implemented to encourage VC growth, including favorable tax policies and regulations encouraging startup investment. 10. Development of a risk-tolerant culture: The US VC industry cultivated a culture that embraced high-risk, high-reward investments, often adopting a "home run" strategy where one successful investment could offset multiple failures. The role of clever government The Small Business Investment Company (SBIC) program was a significant initiative in developing the VC ecosystem in the United States. It set the stage - very early. There was nothing similar in Europe. The following posts will provide details about the SBIC and the development of Silicon Valley and the Nasdaq.

A few ideas on how to help boost the European Union's growth and productivity from the International Monetary Fund's blog. The point the authors make about the EU internal market fragmentation is spot on: "Without a more frictionless single market for goods, services, labor, and capital, it’s more expensive and difficult for successful startups to scale up." This is true not only for startups but also for established companies. Many European companies, both established and startups, consider their home markets primarily as national markets. This reflects not only the strategic thinking of these companies but also the current state of fragmentation within the EU internal market. Unless this is addressed through greater integration, EU companies will struggle to scale up and grow beyond national markets.

Seed Investing: Europe 🇪🇺 vs the US 🇺🇸 Let's explore the distinctive landscapes of seed investment in Europe and the US. 1. Diversity of Opportunities: In Europe, the startup scene is a tapestry of diverse opportunities reflecting the continent's rich culture. From Berlin's tech prowess to London's fintech frontier, investors have a diverse selection of sectors to explore. On the other side of the Atlantic, the US offers a vast and mature market with deep specialisation, particularly in Silicon Valley. 2. Risk Appetite and Innovation: European seed investors often demonstrate a balanced approach, valuing sustainable growth and impact. In contrast, the US tends to embrace a higher risk appetite, fueling rapid innovation and breakthroughs. The contrasting philosophies reflect in the types of startups that thrive in each region. 3. Regulatory Dynamics: Navigating regulatory landscapes differs significantly on either side. European regulations can pose certain challenges. Meanwhile, the US regulatory environment, particularly in tech, has traditionally been more permissive, encouraging disruptive ideas but also raising concerns around accountability. 4. Funding Availability: The US, with its deep pool of venture capital, offers startups a robust funding environment, enabling them to scale rapidly. Europe, while growing, may have a more measured pace due to a slightly less mature venture capital ecosystem. However, this gap is narrowing, and European startups are increasingly attracting attention and investment. 5. Cultural Nuances: Cultural nuances play a role in shaping investment strategies. Europeans often prioritise sustainable, socially responsible ventures, whereas American investors might place a higher emphasis on rapid growth and market dominance. In conclusion, whether you're eyeing the picturesque landscapes of European innovation or the bustling tech corridors of the US, both regions offer unique opportunities and challenges. Seed investing is not a one-size-fits-all endeavor; it's about understanding the nuances, embracing diversity, and being agile in a rapidly evolving global marketplace. 🌍 #SeedInvesting #GlobalInnovation #InvestmentStrategies

𝐊𝐋20 𝐀𝐍𝐃 𝐂𝐀𝐏𝐈𝐓𝐀𝐋 Raising capital has always been a crucial challenge in the business world. The concept of capital is so fundamental that it shapes government systems, influencing various ideologies like capitalism, socialism, and communism, each with its own approach to capital management. Our economy is not immune to these capital challenges. In the past, we relied heavily on foreign direct investment (FDI) to fuel our country’s economic growth, with previous administrations depending on debt to fund major projects—a path we cannot continue to tread. While governments are intensifying efforts to attract FDI, such investments typically establish large-scale operations in manufacturing and production, often without incorporating locally developed technology. To foster a high-value economy that innovates with homegrown technology, we need two new forms of capital: First, international VC is essential. The global economy is currently in a challenging period, with investors remaining cautious and about USD 4 trillion in capital uninvested, as reported by Bain & Co. This uninvested capital includes funds managed by VC firms seeking high-potential companies innovating with new technologies. Before KL20, the presence of international VC firms in Malaysia was minimal compared to Singapore and Indonesia, forcing our startups to rely heavily on limited government funds. KL20 successfully attracted leading VC firms to establish operations in Malaysia. Additionally, state-owned investment firms have declared investments here, bringing the total capital present at KL20 to USD 1.5 trillion—a significant potential boost for our economy. KL20 also saw 10 international VC firms announce new funds specifically for business operations in Malaysia. These firms include Nordstar, GP. Bullhound, K3 Ventures, HOPU, Lever VC, Intrinsic Venture Capital, Mundi Ventures, Openspace Ventures, NRL Capital, and M Venture Partners. The second form of capital is talent. Without the right talent, capital alone cannot advance industries utilizing our own technology. KS Pua, founder of Phison and often called the "Father of the Thumbdrive," announced a chip design company. This initiative, part of the largest chip design park in the region, will create 500 job opportunities starting at a salary of RM6,000 for graduates. Malaysian chip engineers currently in Taiwan will also return to work in this new park. As we continue to be scrutinized on what the Ministry of Economy has achieved, it’s clear that like a business, the national economy needs adequate capital to grow. The best capital comes from investing shareholders, not debt. This was our core focus at KL20: to attract fresh capital through venture capital and to bring back Malaysian talent working abroad—as well as international talents starting companies here. Insya Allah, we hope to witness firsthand Malaysia's progression toward becoming a leading high-tech global economy.

📢 How can governments create the best conditions for entry of VCs? This forms the crux of one of the panel sessions at the upcoming #Horasis Global Meeting in #Vitória, in the state capital of #EspíritoSanto, #Brazil. 📢 The two-day event, taking place from October 25-26, 2024, will bring together leaders from businesses and governments to seek solutions to pressing global challenges, including climate change, inequality, and peace. 💡Creating the Best Conditions for Venture Capitalists 💡 🔴 Securing venture capital is a critical step for many startups aiming to scale their operations, innovate, and capture market share. Venture capitalists (VCs) navigate multiple issues before investing, such as government regulations, global economic conditions, and the potential trajectory of the innovation. 🔴Regulatory frameworks significantly impact venture capital investment. VCs look for environments where regulations are supportive of business growth and innovation. VCs prefer investing in countries with stable currencies and low inflation rates to minimize financial risks. A stable political environment reduces the risk of abrupt policy changes that could negatively impact investments. 🔴A vibrant innovation ecosystem is also a must – consisting of research institutions, universities, and tech hubs that are crucial to attract venture capital. Governments keen on attracting global VCs should also invest in strengthening their education system, particularly in STEM (Science, Technology, Engineering, and Mathematics) fields, which should also go together with favorable immigration policies, that provides seamless study and working visas to global talent. 🔴In the aftermath of the pandemic, most government treasuries are strained and could benefit from VC funding in health, energy, and social startups. These startups will not only attract much-needed foreign investments but also offer products and services that benefit the local communities. 🔴 Creating optimal conditions for venture capitalists requires a multi-faceted approach. Key elements include supportive government regulations, a stable economic and political environment, a robust innovation ecosystem, and access to a talented workforce. Horasis #Inspiringourfuture https://lnkd.in/eGMaFE-b

Ouch. European venture funding in 2023 takes a deep dive across all regions (YoY), with UK down 49.5% (to 17.2B), France down 38.1% (to 8.5B), Germany down 47.1% (to 6.7B), Sweden down 40% (to 3.2B), over the Baltics Estonia down 77% (to 348M), Lithuania down 22% (to 128M) and Latvia down 59% (to 25.6M). Ouch. Here's hoping that 2024 will bring more optimism and capital to keep fueling and building the innovation and entrepreneurship ecosystems in Europe and around the world.

UK venture capital funding cratered by almost half last year as rising interest rates and an economic downturn choked off the flow of cash into start-ups and tech firms, new data has revealed. In a sign of the bruising conditions facing the sector through the year, UK venture investment fell to £16.1bn in 2023 down from £28.9bn the year prior, according to preliminary data from Pitchbook, compiled for City A.M. Venture capital firms had boomed in the decade to 2022 but began to slow dramatically after Russia invaded Ukraine and central bankers began hiking interest rates to cool inflation. Investors have also soured on high-growth, loss-making start-ups as borrowing costs increased and increased the need for profit. #ukeconomy #inflation #interestrates #venturecapital #venturecapitalists #venturefunding #startups #tech Continue reading 👇 https://lnkd.in/ej2ZQJzp