The lack of European investment in its own startup ecosystem is causing most unicorns that are born in the region to end up settling in the United States. The alert is from APCRI – Portuguese Association of Venture Capital, which is in force as a protégé established by Atomico, in a study published at the beginning of the month, to ask for measures to change the situation and to highlight the fundamental role of Venture Capital in this equation.
More than 60% of the capital invested in European technologies between 2016 and 2020 still came from outside Europe, with the majority being American, a clear sign for the association that European investors are betting little on Venture Capital funds, even if the levels of profitability these funds is far superior to other investments such as stocks, bonds, etc.
The same data show that European investors only dominate as capital rounds up to two million dollars, or that there are 140,000 startups in Europe, but only 74 received investments in excess of 250 million dollars.
For APCRI, the problem is not one of lack of capital, but of choice, on the part of those who invest. “It’s not that there isn’t enough private capital in Europe, or even in Portugal, to change this situation and grow Venture Capital funds: the point is that capital is not placed in this asset class, unlike what happens in the United States ”, highlights Stephan Morais, from the APCRI board and leader of Indico Capital Partners.
“European startups developed by private Venture Capital funds – among them, unicorns – are a good asset class, with returns far superior to other investments”, adds the responsible, exemplifying with the Portuguese reality.
“Unicorns are born in Portugal, they employ people in Portugal, they contribute to social security and the Portuguese economy, but almost all will be based in the United States and animate its capital market, instead of doing so on this Atlantic side” . In Portugal it is a base of seven unicorns, but only Feedzai maintains its headquarters in the country.
Overcoming the distrust of European investors in relation to these assets involves reinforcing the pedagogical role of Venture Capital, which should circulate more objective information about its value proposition, believes APCRI, but also requires measures from the Governments. The association calls for new policies to encourage investment in private and independent Venture Capital funds that will help accelerate the emergence of unicorns in Europe by removing regulatory roadblocks. One of the current rules criticized by the association is the fact that, in some cases, investment in this asset class is accounted for as lost capital, discouraging or deterring investors.
Last November, APRI presented the study “Analysis of the Venture Capital Industry in Portugal” to the Government and was invited to participate in working groups of the Ministry of Economy to think of new solutions to increase the capitalization of startups, namely through funds from Recovery and Resilience Plan – PRR and Portugal 2020-2030, also revealed the association.