New research from eFront shows that while the 1990s might be thought of as a “golden era” for venture capital, returns figures do not back this assumption up.

• Conventional wisdom has it that in the decade 1990, returns of venture capital funds were higher and cash was returned faster.
• The decade 1990 can indeed be singled out for its shorter time-to-liquidity, but not for its higher returns.
• The 1990s recorded an average time-to-liquidity for US early-stage VC funds of 3.62 years, compared with 6.7 years for the 2000s.
• Returns (TVPI), meanwhile, stood at 1.1x for the 1990s and 1.57x for the 2000s.
• The figures for European early-stage funds were similar, with holding periods of 3.7 years and 6.9 years in the 1990s and 2000s respectively. Returns were just 0.96x for the 1990s and 1.56x for the following decade.
• A more detailed analysis shows that there are in fact three successive and distinct periods in the decade of 1990, which marks a transition for venture capital.

Analysis

Were the 1990s the golden decade of venture capital? Listening to veteran investors of that time, it would be easy to conclude positively. In collective the memory, that decade remains associated with high VC fund performance, meteoritic entrepreneurial successes and a certain ease of doing business. Fast-forward to today, and VC fund managers complain today of high levels of competition and high valuations of start-ups.

Conventional wisdom is right on one point: that the 1990s can be singled out. But this is because of a much shorter time-to-liquidity that seen before or since. The 1990s recorded an average time-to-liquidity for US early-stage VC funds of 3.62 years, compared with 6.7 years for 2001-2010. However, overall performance for the decade does not look particularly good, with funds returning just 1.1x, compared with 1.57x for the 2000s. If a few vintage years made a strong impression on investors, the overall decade appears as fairly poor in terms of pooled average total value to paid-in (TVPI).

Figure 1 – Performance and time-to-liquidity of US early-stage VC funds, by decade

Beyond the aggregate figures, a more detailed analysis by vintage years shows that there is a tale of three successive and distinct periods in 1990: one with high TVPIs and short time-to-liquidity in 1993-1996, then one with low TVPIs and short time-to-liquidity in 1997-1998 and a final one with negative returns and long time-to-liquidity in 1999-2000. Therefore, more than a golden decade, the 1990s appear as a period of transition.

The following decade is more consistent over time both in terms of seeing fairly high TVPIs of 1.5 to 2.5x (except in 2001) and a longer time-to-liquidity (4.8 to 6.4 years).

Could this be a US-centric phenomenon? Looking at Figure 3, the answer is negative: the picture is rather similar for Western European VC funds. European early-stage funds saw time to liquidity of 3.7 years and 6.9 years in the 1990s and 2000s respectively, while returns were just 0.96x for the 1990s and 1.56x for the following decade.

Figure 3 – Performance and time-to-liquidity of Western European early-stage VC funds, by decade 

Thibaut de Laval, Chief Strategy Officer of eFront, commented:

“A few exceptional years have marked a decade and an asset class. The venture capital boom years of the decade 1990 have left investors with the wish to see them happen again. The analysis of that decade has shown that indeed it was unusual, not because of overall high TVPIs but mostly due to shorter time-to-liquidity.

“Said differently, the vintage years associated with the subsequent stock market crash have wiped out a significant part the overall outperformance of the decade. In that sense, wishing to return to the ‘golden years’ bears the risk of calling as well for a performance bust. The following decade, still partially in the making, contrasts with the 1990s in surprisingly positive ways.”

(Source: eFront)

With the explosion of cryptocurrencies over recent years, many businesses and start-ups are turning to Initial Coin Offerings, or ICOs, to raise money to get their projects up and running. This week Finance Monthly gets the lowdown on ICO management from Dr. Moritz Kurtz, CEO & Co-Founder of Acorn Collective, clarifying the point, purpose and benefits of launching an ICO.

In an ICO campaign, early backers of the venture buy a percentage of the cryptocurrency, often based on one of the existing public blockchains, in the form of tokens created by the company they are supporting.

An ICO can theoretically be used to fund any project or product in any category, however, before an ICO is launched it needs to clarify:

• The concept
• The token model
• Funding required
• Next stages if funded

With so many ICOs in the marketplace you must lay out your concept in detail before launching an ICO. This way contributors can see the utility of your token, and understand what they are buying into. It also makes token holders feel part of the process of creating a new technology, platform or product.

Who should run an ICO?

Whilst any product or project CAN launch an ICO, that does not mean anyone SHOULD. ICO’s have become a popular funding model with start-ups looking to bypass the traditional, and more rigorous, process of gaining funds via venture capital backing.

Although technically an ICO model can be used to fund anything, it is important to consider:

• The necessity of the blockchain
• What you want to achieve
• Utility of your token: What real-world utility will your token have?
• Potential for regulation: Currently, ICOs are largely unregulated, but that does not mean they will be in the future. As the ICO market grows, many countries plan to impose stricter regulations.

ICO for Crowdfunding

An ICO could be greatly beneficial for the crowdfunding space, as it allows for the following:

• Removes transaction and platform fees: Current platforms charge 5-10% in fees.
• Be accessible to all: Without the same commercial pressures as traditional crowdfunding platforms, an ICO-funded platform would be able to accept any legal project in any category and country.
• Integrated post-campaign marketplace: The token economy created through ICO funding means the platform could have an integrated post-campaign marketplace, alongside reasonably priced campaign support services for founders.

Essentially, an ICO can be used to ‘crowdfund crowdfunding’.

How is an ICO mutually beneficial?

Successful ICOs benefit both backers of the venture and those relying on the funds it provides.

The backers can contribute towards a product or project at an early stage, thus benefitting from the increased demand for the token as utility increases. Meanwhile, projects can receive early funding to build their business venture without having to give away equity in the company.

Things to think about

Although launching an ICO can hold great promise for start-ups, it’s not all plain sailing.

Getting the funds can be tricky. When launching an ICO you must generate interest from contributors to encourage them to buy your tokens which, in a crowded marketplace, can be challenging. Not getting enough funds is one of the biggest risks. Not meeting the minimum target means the funds are returned to the token holders and the ICO is deemed as having failed.

An ICO is a great way of raising funding for the right projects in certain industries, but is by no means an easy solution. The ICO world is currently saturated with projects and competition for funding is intense. Making sure you have a viable and sustainable idea that requires blockchain is a good start. From then on, a successful ICO requires all the same focus on marketing and community building as any other form of fundraising.

Movinga recently completed a study which investigates the possible benefits of foreign human capital in Germany. In order to do this, research was conducted into each of the 16 federal states. The number of firms receiving venture capital, the number of patent applications, the unemployment rate, and the percentage of the state that were born in another country were all examined. The findings show that German states with a higher percentage of foreign-born citizens see higher levels of innovation. They also illustrate that attracting more people from other countries does not mean higher unemployment.

In order to analyse the possible benefits of foreign human capital, the diagrams compare the key indicators on innovation and economic prosperity (firms accepting venture capital, patent applications, unemployment) with the percentage of the population that are born in another country. All data used for this report was provided by The Organisation for Economic Co-operation and Development (OECD) and the German Federal Statistical Office (Destatis).

With 81.4 million citizens, Germany is Europe’s largest country by population. It is also the nation with the largest foreign-born population in Europe, with more than 7.8 million (9.6%) originating from another country. However, this diversity is not evenly spread across Germany’s 16 federal states: five states have more than 10% of citizens who are foreign-born compared, whereas five states have a foreign-born population of less than 3%. This disparity is illustrated in Figure 1.

Figure 2 shows that the city states such as Berlin and Hamburg that have a higher percentage of foreign-born citizens are also home to a higher number of firms receiving venture capital. Similarly, Figure 3 displays that the two federal states with the most patent applications (Bayern and Baden-Württemberg) are also diverse demographically, with around 10% of their populations being foreign-born. In contrast, Figures 1, 2 and 3 also convey that the federal states with fewer firms receiving venture capital and lower numbers of patent applications like Sachsen-Anhalt and Mecklenburg-Vorpommern have smaller foreign-born populations.

Figure 1- Distribution of foreign-born workers in Germany

Figure 2 - Number of firms receiving venture capital

These findings convey that people born in other countries are of great economic value, and that an attitude of openness to foreign-born citizens is important in order for support innovation, research, development and growth. The relative weakness of the federal states with fewer numbers of people born in other countries suggests that they could boost innovation and their general economic performance through attracting more talent born outside Germany.

Figure 3 shows Bayern and Baden-Württemberg also have some of Germany’s lowest unemployment rates, whereas Sachsen-Anhalt and Mecklenburg-Vorpommern have some of the highest unemployment rates. This shows that having a higher number of foreign-born citizens does not mean that fewer people will be able to find jobs. Unemployment is higher in the diverse states of Berlin and Hamburg compared to the national average, but this is more indicative of their unusual positions as city states rather than their economic weakness.

‘The impressive amount of firms accepting venture capital and the number of patent applications in the diverse regions of Berlin, Bayern and Baden-Württemberg suggests that foreign human capital helps support innovation and growth’ said Movinga's MD Finn Age Hänsel.

Figure 3