Measuring Venture Capital Sentiment in Europe

Abstract

Sentiment indices are widely used tools that are often used to predict market developments. However, only a few indices exist for venture capital (VC) markets, mostly specializing in certain regions or types of investors. This paper introduces a VC market sentiment index that is based on a survey of 379 European VC investors who are almost all decision-makers within their firms, such as partners or CEOs. Hence, it is possible to compare the expected VC market development across different European regions, as well as across industry focuses and investment stage focuses. Additionally, the introduced index allows for a separation between the perception of the market and the perception of the participants’ own funds and portfolios. This study aims to set the starting point for a sentiment index of the European VC market that will be repeated on a regular basis. The results of this index, or a modified version of it, will be published by the European Investment Fund’s Research & Market Analysis. While overall European VC market sentiment is found to be very positive, investors consistently perceive their own businesses as more positive than the market. Later-stage investors perceive the market slightly more positively than seed/startup investors. Investors that focus on cleantech investments regard the market as worse than investors focusing on information and communications technology and Life Science but still relatively positive. VC investors that are located in the UK and Ireland show only a slightly positive sentiment. Their assessment of the market, especially compared to that of other European regions, is barely positive. On the other hand, they assess their own funds and portfolios comparatively positively.