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No surprises in latest EVCA survey and outlook

The European Venture Capital Association has announced a 34 percent drop in private equity financing activity in 2001 at its annual investors conference in Geneva. The industry expects no big changes this year.

The amount invested in private equity transactions in 2001 totals some €23 billion, according to preliminary data announced at the European Venture Capital Association annual investors’ conference on March 13.

The data is based on 606 responses from venture capitalists (46 per cent response rate and no estimates made) in a survey conducted by PricewaterhouseCoopers for the EVCA.

In 2000, the total invested was €34.98 billion, a decrease of 34 per cent from the previous year.

Further figures reveal that private equity investors report €31.44 billion in new funds were raised in 2001, a decrease of 34 per cent from €48.02 billion raised in 2000.

While the year on year decline of 34 percent in both categories appears significant, the industry is treating the hyper growth of 1999 and 2000 as an aberration, rather than a trend.

“The year 2001 remains substantially higher than 1998,” points out Max Burger-Calderon of Apax Partners, indicating that this is the trend line going from 97 to 98 to 2001 is the trend line the industry is following.

“The amount invested in 2001 is 70 to 80 percent greater than 1998. The private equity industry in Europe is healthy,” says Burger-Calderon.

The private equity industry is taking the 34 per cent drop in investment and fundraising activity in stride. “There is no reason to be concerned,” says Burger-Calderon, who as Chairman (elect) of the EVCA was part of a panel which reveal the statistics in Geneva.

The drop-off was to be expected after the ballooning of the industry in 1999 and 2000, the subsequent dearth of exit activity throughout 2001, and the economic uncertainty wrought by the events of Septermber 11.

Also placing 2001 in context was Edoardo Bugnone, the current Chairman of the EVCA, in addition to being a partner at Argos Soditic, a buyout fund management firm. “It was an encouraging year. Until 1996, there was not much going on in Europe,” says Bugnone.

EVCA statistics for 1995 show a total of €5.54 billion invested and 4.39 euros funds raised. By 1997, the industry had almost doubled its activity, investing €9.65 billion in private companies. And by 1998, the total had grown to €14.46 billion invested in private equity in Europe.

Consolidation expected

When the discussion turned from amounts invested to performance, the industry expects were less sanguine. They say to expect more consolidation among investors.

Burgnone states that he has never seen such a wide gap between the top quartile and the lower quartile in terms of performance. “The top performers will continue, but there is a much bigger difference between the top and bottom performers. It has never been this big,” says Burgnone.

Fund valuations are also expected to notch downwards this year as the effects of the 1999 and 2000 valuation balloon has not yet been worked out of the market.

“It is probably not all over yet. More re-valuations will be made,” says Gillian Middleton, European Private Equity Research Manager, Venture Economics.

What is up for 2002?

“The outlook for this year for investment and fund raising activity is expected to be flat to slightly higher,” says Burger-Calderon.

Bugnone predicts that early and seed stage rounds will get smaller but the number of firms being funded will remain the same or climb slightly higher.

“You want to put up new funds this year,” says BC. “You’ve got low valuations and seasoned managers. This year and next will be vintage years for funds.”

For Swiss entrepreneurs, especially those running startup companies, it is important to keep in mind that these two experts have a perspective that is not looking inwards at Switzerland, but outwards at Europe.

Neither is terribly active in Switzerland and neither is very active in the early stage. Bugnone’s fund is a buyout fund and Burger-Calderon’s is a giant global fund looking for very large, development stage investments.

Swiss Venture Update sees 2002 as a year of growth in the venture capital and private equity industry in Switzerland. Last year some SFr400 million was raised by technology oriented Swiss companies. The figures for 2002 are well on their way to beating that figure.

Some SFr112 million has been raised since January 2002 by eight innovative Swiss companies. Swiss Venture Update expects to report another SFr30 million in transactions raised by four more companies this month.

by Valerie Thompson

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