rations Evaluation - Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation

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  • rations Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation -

    Table of Contents

    List of Acronyms..........................................................................................................................ii Executive Summary....................................................................................................................iii Table of recommendations .........................................................................................................v 1. Introduction .........................................................................................................................1

    1.1. Purpose..................................................................................................................................... 1 1.2. Scope ........................................................................................................................................ 1 1.3. The mandates ........................................................................................................................... 1 1.4. The European venture capital industry...................................................................................... 2

    2. Policies and strategies - Relevance ..................................................................................4 2.1. Relevance to EU / EIB policies.................................................................................................. 4

    2.1.1. Policy references ......................................................................................................................................4 2.1.2. The mandates stated objectives ..............................................................................................................5 2.1.3. Conclusion on Relevance to EU/EIB policies ...........................................................................................7

    2.2. Design of the Mandates ............................................................................................................ 8 2.2.1. Analysis of the mandates targets ............................................................................................................8 2.2.2. Analysis of the mandates constraints ....................................................................................................10 2.2.3. Financial returns: a hidden issue............................................................................................................12 2.2.4. Conclusion on the Design of the Mandates............................................................................................12

    3. Performance Status of Mandate Implementation .......................................................14 3.1. Portfolio overview.................................................................................................................... 15 3.2. Implementation as per the Mandate ........................................................................................ 16

    3.2.1. By stage..................................................................................................................................................16 3.2.2. By sector.................................................................................................................................................17 3.2.3. By geographical coverage ......................................................................................................................17 3.2.4. SME definition ........................................................................................................................................19 3.2.5. Co-investment ........................................................................................................................................19

    3.3. Interim financial performance .................................................................................................. 20 3.3.1. Choosing an appropriated benchmark ...................................................................................................20 3.3.2. Pooled IRR by vintage years ....................................................................Error! Bookmark not defined. 3.3.3. Portfolio structure by quartiles ................................................................................................................21 3.3.4. Conclusion..............................................................................................................................................22

    4. Role of the EIF / EIF contribution ....................................................................................23 4.1. Investment strategy ................................................................................................................. 23 4.2. Catalytic effect......................................................................................................................... 24 4.3. Support to first-time teams ...................................................................................................... 26

    Annexes A1 Evolution of the Mandates A2 Illustrations of the trade off between policy and financial objectives A3 An account of the European venture capital industry

    Page i

  • rations Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation -

    List of Acronyms

    ASAP Amsterdam Special Action Programme

    BMWA German Federal Ministry of Economics and Labour

    EC European Commission

    EIB European Investment Bank

    EIF European Investment Fund

    ETF European Technology Fund

    EU European Union

    EV Operations Evaluation

    EVCA European Private Equity and Venture Capital Association

    I2i Innovation 2010 Initiative

    IG Investment Guidelines

    IRR Internal Rate of Return

    PC Portfolio Company

    PE Private Equity

    RC Risk Capital

    RCM Risk Capital Mandate

    SME Small and Medium Sized Enterprise

    UK United Kingdom

    US United States

    VC Venture Capital

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  • rations Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation - Operations Evaluation -

    Executive Summary

    Introduction This evaluation is the second evaluation performed by Operations Evaluation (EV) for the European Investment Fund (EIF)1. The objective of the evaluation is to provide an assessment of the European Investment Bank (EIB) venture capital mandates to the European Investment Fund (EIF)2. To date, the EIB has given the EIF three such mandates: the European Technology Facility Mandate (ETF, 1997), a follow-up mandate known as ETF-2 (1999) and the Risk Capital Mandate (RCM) signed in 2000 and which is committed through annual tranches. EIB Mandates included more than 3 billion at the end of 2006, which represents about 80% of the EIFs activity in venture capital. The rest is fund through its own resources (9.5%) and through third party mandates. These include mandates from the European Commission (7%) and the German Federal Ministry of Economics and Labour (2.8%).

    The evaluation focuses on the Relevance of the Mandates, which includes: the consistency of the Mandates with respect to the policy framework as well as the design of the mandates (their internal coherence and their relevance to the venture capital market in which they operate). A section on performance reflects the current status of Mandate implementation and concentrates on those aspects that complement and illustrate the analysis on Relevance. Likewise, the Role of the EIF as a fund of funds manager is reviewed where it complements and illustrates the analysis on Relevance. Due to the youth of the portfolio, the evaluation does not include in-depth evaluations of the individual operations. Relevance and design of the Mandates It is concluded that while ETF objectives are clearly aligned to the Amsterdam Resolution, the objectives of the RCM mandates could be better aligned to EU policies as the specific objective of the Mandate is announced as contributing to develop a venture capital market while the Council Resolutions calls the EIB for redirect funding towards support for business start-ups, high-tech firms and micro-enterprises... ( 2.1) The Mandate provides too many different policy objectives and does not prioritize among them. There are a series of objectives, targets and constraints. Some targets and constraints are even redundant, mix different conceptual levels or do not take sufficiently into account the characteristics of the market in which the Mandates operate. Even more important, it does not explicitly tackle the key issue of the equilibrium between policy and financial objectives even if this is a key element to define the investment strategy. ( 2.2) As a consequence, the Mandate leaves ample room for interpretation on the role to be played by the EIF as a public institution contributing to EU policies and thus on the implementation of the Mandate. In practice, today, it is the request for self-sustainability, and therefore for increased financial returns, that is mainly reflected in the investment strategy, resulting in a portfolio structure that is now closer to that of a private fund-of-funds than in the past.

    1 This report has been prepared in consultation with the EIF services and the EIB services. In line with EV Terms of reference agreed with the EIF, the final report has been submitted to the EIF services which have added th