There are good-value opportunities in Europe for VCs with money to invest, but those seeking new funds face an unprecedentedly tough challenge that’s compounded by euro uncertainty.
Europe’s venture capital landscape is a tale of two halves. Those that have money see things in a very positive light: lower (“fair”) valuations, little competition on terms sheets and a plethora of exciting opportunities, whose quality and capital efficiency is rising as the tough conditions serve to weed out all but the strongest.
Those whose funds are running dry are more circumspect. Fundraising is tougher than ever as some limited partners pull out of life sciences amid continued global financial turmoil; the euro uncertainty also means European VCs are even less likely to draw in U.S.-based limited partners to support new fundraising activity.
But although Europe’s financial woes may continue to make headlines, for investors and biotechs operating in the region, the story’s no longer new. It’s just gotten a bit worse. Capital supply has been limited for unprofitable, risky biopharma plays since the start of the financial crisis in 2008. Europe’s investors have always been more cautious, and less numerous, than those in the U.S., just as funds are generally smaller.
So, just as the crisis-linked flurry of government austerity in the past two years is only accelerating big pharma’s ongoing moves to cut costs, expand into emerging markets and trim portfolios, so the tougher funding environment for biotech will just accelerate young firms’ hunger for R&D-funding revenue streams, ultra-efficient (often virtual) operations and cash-driven M&A.
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