How Europe’s VC & PE industry achieves consistent outperformance
Matias Kaila
As a new member of the Limited Partner Council at Invest Europe, I am often asked how Europe’s venture capital (VC) and private equity (PE) industry has managed to consistently outperform its global peers, particularly those in the United States, as well as listed equities, over the past 10 to 15 years. The answer lies in a unique combination of factors that have positioned Europe as a leading market for investors seeking substantial returns.
Solid performance across the board
The latest Performance Benchmark Report from Invest Europe reveals a compelling narrative: over the past decade and a half, European VC, growth equity, and buyout segments have not only kept pace with their U.S. counterparts but have also outperformed them, as well as listed equities. This outperformance isn’t incidental; it’s a direct result of the structural strengths that Europe offers. Unlike listed equities, where opportunities are often limited to mature companies with slower growth trajectories, European PE & VC funds provide access to high-growth, emerging segments not readily available in public markets. European venture capital funds have delivered returns of more than 20% over the past ten years, surpassing their North American peers. Since performance records began in 1986, European venture capital has achieved returns of 11.49%, significantly ahead of the MSCI Europe’s return of 8.05% over the same period, illustrating the consistent long-term outperformance of European VC.
Access to untapped growth potential
One significant driver of this outperformance is the unparalleled access to emerging growth opportunities within Europe. The continent’s rich and diverse talent pool propels innovation across a wide range of sectors. Whether it’s fintech in Berlin, renewable energy in Scandinavia, or life sciences in France, Europe offers a breadth of opportunity that is difficult to match. These growth avenues allow investors to engage with nascent industries before they become mainstream, creating opportunities for outsized returns. This is further emphasised in Invest Europe’s recent study, ‘Venture Capital: Fuelling European Innovation,’ which highlights that over the past decade, venture capital funds have invested over EUR 101 billion into more than 25,500 start-ups. This unprecedented investment has tripled in 2023 compared to 2014, driving innovation across sectors such as Information Communication Technology (ICT) and Biotech & Healthcare. As a result, over 1 million people are employed by VC-backed companies, demonstrating the sector’s significant social and economic impact. VC strong social returns are also evident when it comes to job growth: VC-backed companies created jobs at a rate of 14.6% in 2022, far outstripping the overall European job market growth of 2.0%.
Finnish funds leading the charge
Outperformance can happen within a more limited geographical area, too. Let’s take my homeland Finland for an example: Tesi’s survey of investment returns from May 2024 shows that Finnish venture capital and private equity funds consistently outperform listed shares. This success reflects a broader trend across Europe, where the active ownership model of PE & VC funds plays a crucial role in driving superior performance. Unlike passive investments in public markets, European PE & VC investors actively guide their portfolio companies, from strategic decision-making to operational improvements. This hands-on approach not only mitigates risk but also enhances value creation, contributing to robust returns.
Finnish venture capital and private equity funds consistently outperform listed shares.
A market rich in opportunity
Europe remains an emerging market in many segments, offering lucrative entry points for private investors. The competitive global market ensures that when European companies reach maturity, they command full value at exit. Whether it’s the next tech unicorn or a sustainable agriculture leader, Europe’s emerging market status allows investors to capitalize on high-potential opportunities at early stages, leading to substantial returns when these companies eventually go public or are acquired. At the end of 2023, VC funds had over €50 billion in dry powder available for investment, indicating significant potential for continued support of innovative start-ups. This ready capital positions Europe to seize future growth opportunities and maintain its trajectory of outperformance.
Fragmentation: an asset, not a liability
Europe’s market fragmentation, often considered a challenge, actually offers an advantage. The local characteristics across the continent provide unparalleled access to opportunities less visible to global investors. This fragmentation, combined with Europe’s varied economic landscape, ensures that niche opportunities continue to emerge, making Europe an increasingly attractive destination for those seeking diversification and growth. Fundraising growth in regions like Southern Europe (6.3x increase over the last decade), France & Benelux (3.7x), the Nordics (3.4x) highlights the diverse and rich opportunities that exist within Europe’s regions.
Europe: a must-consider market for investors
In conclusion, Europe’s PE & VC market offers a compelling proposition that insightful investors cannot afford to ignore. The consistent outperformance of European funds is driven by access to untapped growth opportunities, active ownership models, and a dynamic, diversified talent pool. For those aiming to capitalise on the next wave of global innovation, Europe presents a highly attractive opportunity.
As I continue my journey with Invest Europe, I look forward to further exploring these opportunities and contributing to the ongoing success of Europe’s venture capital and private equity ecosystem.
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