US VCs might hold bragging rights to the world’s best-funded startup ecosystem, but European investors make smarter bets, according to a new report by trade association Invest Europe.
Since 2002, European VCs have bagged a net annual return of 12.65% on investments — pipping US investors’ 12.25%.
European funds have also performed better than their US counterparts across five and ten-year time horizons.
Europe vs the US
The 10 years leading up to 2022 saw European VCs’ net annual returns hit 23.07% — rising to 31.44% across the five years prior to 2022. In comparison, US returns were 21.15% and 25.20%.
The net annual return is calculated using funds’ internal rate of returns (IRR) — a metric often used to represent returns in the private markets. While the typical 10-year lifecycle of a fund means some returns may not yet be realised, the figures are still a useful indicator of VC performance.
The report analyses data pulled from equity insights platform Cambridge Associates, which sources the data directly from the funds, on 199 European funds, 2,361 from the US and 415 from the rest of the world between 1986-2022.
Fund performance in all of those regions rose steadily over the past 20 years — with the exception of 2021. That drop could be due to a number of VCs writing down startup stakes in the wake of a tech funding crunch that’s seen valuations slashed as companies grapple with harsh economic conditions.
Since 1986, European VCs have also trumped their US counterparts on multiples on invested capital (MOIC) — which calculates the combined value of stakes that have been sold and active investments — hitting 2.4x compared to 2.11x across the Atlantic.
