Europe 2.0

Crunch times indeed : Mike Butcher of TechCrunch UK had said it, again, and again, now it’s confirmed by the Financial Times. London-based investment powerhouse 3i is exiting the early stage venture capital scene.

This is certainly disappointing news for startups, but can be better understood by looking back at how 3i’s investments in early stage fared since 2000. Back then, it had more than 700 tech investments, and was on a par with some Silicon Valley VC firms. But while the US has been able to breed a string of tremendous successes (Yahoo, Google, eBay come to mind, but many others such as DoubleClick would make the average European VC happy), Europe has had less stellar exits (the usual Skype, Last.fm stories spring to mind, but they were acquired, and there is no European internet ‘giant’). As a consequence, investors such as 3i had to write-off large shares of their portfolio. Here’s not the time to complain, but to try and understand the dynamics of this market (expect more thinking and commentary on this subject).

As Philip Yea, 3i’s chief executive told the Financial Times :

Early-stage has not been an easy place.
[...]
It is a statement about us, not about the markets.

Note that 3i will still fund later-stage companies in telecoms, digital media. Looking at 3i’s website, I see that they intend to be investing between €1M to €75M… So there’s still hope for startups… if and when they reach a ‘later stage’. The fact that (3i portfolio company) Peerflix is exiting its main business is probably a coincidence. Or is it ?

In the meantime, who will fill this void in funding for startup companies ? Will business angels step up to the plate ? Will other VCs increase their reach for startups, or will they follow 3i in shifting to larger deals ?

Let’s remain confident : in an industry that’s all about opportunity, I’m sure that some will find that this move by 3i clears the space, and will give more visibility to “up and coming” funders such as Atomico, TAG (despite the recent controversy), European Founders (Samwer brothers).