Epoch 44: US vs EU Venture Capital

Which approach is more effecient?

Hello Avatar! Welcome back for another week of biotech analysis. Today is Sunday, which means this is our Building Biotech newsletter that is focused on discussing biopharma strategy topics. Today we will discuss the evolving dynamics of venture capital in the biotech sector, with a particular focus on the performance of U.S. and European funds. We'll explore how the U.S. continues to leverage its mature ecosystem, larger pools of capital, and robust exit market to drive strong returns, while Europe’s more disciplined approach to capital allocation, budget management, and smaller, focused company-building has begun to close the gap in recent years. We will also touch on the the tightening of IRRs between U.S. and Europe style venture investing and its go-forward implications. Is recent EU performance a blip, or a signal that more disciplined company building can yield superior returns.

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INTRODUCTION

Venture capital funds in the United States and Europe have demonstrated distinct performance patterns over the years. Historically, the U.S. has been the dominant force in venture capital, driven by its mature ecosystem, larger pools of capital, and a more developed exit market. This has allowed U.S. funds to consistently deliver higher returns over the long term, particularly during periods of significant tech-sector growth. However, as we all are aware, recently the U.S. venture capital market has also faced volatility which has certainly impacted exits and overall fund performance.

On the other hand, Europe’s venture capital ecosystem has undergone notable expansion, especially in the past decade. While traditionally smaller and less mature than the U.S., Europe has experienced strong growth in deal activity with increasing investor interest and a burgeoning startup ecosystem. Recent trends show that Europe is becoming more competitive, particularly in terms of short-term returns, as its valuations have been more stable and less susceptible to drastic fluctuations. As both regions navigate post-downturn recoveries, the ongoing evolution of venture capital in the U.S. and Europe will continue to shape the investment landscape and offer different opportunities for investors.

If you missed last weeks writeup on the state of European innovation we encourage you have a read through it: