Battisti warns corporates cannot save European VC

The head of Western Europe and Israel for Intel Capital, the corporate venturing unit of the US-based chipmaker, has warned corporates and other new entrants will not end the crisis in European venture capital [VC] caused by poor returns. 

Marcos Battisti, one of the keynote speakers at our London Symposium this week, cautioned that the growth in corporate venturing units in Europe, was unlikely to create a more successful European ecosystem. 

He said: “We are starting to hear corporate VCs are here. They will save the ecosystem. I fundamentally disagree. Historically they have been the last in and the first out. They have previously come in when the bubble is about to burst. When it bursts they walk away.”

Battisti’s comments come as many in Europe are hoping for corporates to provide more funds to European start-ups because the wider venture capital industry in the continent is generally perceived as struggling.

The remarks were part of a wide-ranging interview, where Battisti detailed many fundamental problems in the European venture ecosystem, despite an independently recognised culture of innovation, which Battisti said was “necessary, but not sufficient” for the innovation funding ecosystem. Intel Capital itself has been stepping up activity in the region, because of the quality of innovation the unit could identify.

However, Battisti also made clear he was deeply concerned by problems in Europe, saying limited partners were sensible not to back many venture firms in the region. “Why is less money going into Europe? The fact is returns have not been there.

“Over five and 10 years returns of top quartile funds have been in the low single digits. Only on a three-year basis are things getting better, with low double-digit numbers. Yet with the venture model you take humungous risk, which mean top quartile funds should be doing very well. This means there is a problem. This means there will be fewer funds raised. This, of course, does not paint a full picture, as the top five to ten funds do well. As an investor what you have to be is in that- group.”

However, he added while it was logical many venture firms would not be funded, this posed a concern for venture in Europe, as many of these traditional investors may start to act “irrationally” due to their fears over their funding. 

Battisti pointed to independent reports by organisations like France-based university Insead, which have shown 15 European, Middle Eastern and African countries are in the top 20 for innovation globally. “This shows there is a lot of innovation here. In the areas of interest I have in the segment of TMT [technology media and telecoms] specifically we are finding incredibly innovative companies in areas that are in the top 20 for innovation globally. There is lot of innovation; however that is necessary, but not sufficient to create an ecosystem to fund innovation.” 

He added European companies had more global ambitions than they used to have and that many venture investors had development investment discipline. “People in France used to be content to be the best company in France or Germany. Yet that is not interesting enough. People are now thinking way outside their borders, and those venture investors which are still investing are a little bit more savvy than they were 10 or 15 years ago.” 

Investors  should look to invest for financial return, he said. “The fundamental thing is if you make an investment you have to ensure you are aligned and conscious about the price you are paying and are savvy enough to manage your own investments. If that happens, you will succeed, regardless if you are corporate or a non-corporate.” 

He added: “My speech will be about what it means to be a good venture capitalist. There are a lot of other people in this industry who are valuation insensitive which makes the market worse for everyone. At the end of the day you cannot exclude that fact that VC is a part of financial markets.

“Financial return has to be a main part of the activity. You have to make sure you add value to companies you invest in and care about valuations to avoid distorting the market. If you can’t do that you are probably going to be out of the market the first time there is a downturn. This will happen. This is a cyclical industry.”

Battisti also warned government money was distorting the market as “there is no funding gap at early stage” but actually at the later stage. He said it was a concern this money came with “strings attached and/or political interests.”