Ebook Employment contribution of Private Equity and Venture Capital in Europe
Over the past ten years, private equity and venture capital have played an increasingly important role in the European economy. Investments by European private equity and venture capital funds have increased by more than six times from €5.5bn in 1995 to a record of €36.9bn in 2004. Correspondingly, the number of companies receiving private equity or venture capital was 5,000 in 1995 and has increased to 7,000 in 2004.
In 2004, two thirds of the €36.9bn invested by European private equity and venture capital players was invested in companies at the buyout stage (€26.6bn), with the remaining €10.3bn invested in companies in the venture stage. As companies at the buyout stage are more mature, the average investment size is normally larger.
However, more than three quarters of the companies financed (5,557) were in the venture stage, compared to only 1,427 companies that underwent a buyout. Despite the fact that the largest proportion of capital is invested in buyout deals, it is the venture sector that accounts for the majority in terms of number of investments.
In parallel to the increase in private equity and venture capital investments, the industry’s contribution to employment, growth and innovation in Europe has grown. The industry’s role in rejuvenating and restructuring existing companies, as well as its support in financing high-potential and often innovative enterprises has become widely recognised. This has been reflected in several previous studies analysing the economic and social impact of private equity and venture capital at both European and national levels.
Against this background, EVCA has commissioned the Center for Entrepreneurial and Financial Studies (CEFS) at the Technische Universität München to undertake a research study on the contribution of the private equity and venture capital sector to European employment. The study aimed to gauge the effects upon overall employment for the whole of Europe, as well as the separate contribution to employment by buyouts and venture capital investments and the growth rates in employment for each stage. In addition, it analyses the qualification of the employees and the research activity in venture capital-financed companies in particular.
contents
Foreword
Executive Summary
1 Introduction
2 Estimate of total employment contribution
- 2.1 Private equity and venture capital-financed companies employ close to 6 million people
2.2 Majority of portfolio companies are small
2.3 Buyout-financed companies account for 80% of total employment in portfolio companies
2.4 Buyout-financed companies with more than 1,000 employees contribute the most to European employment
3 Employment growth in buyout-financed companies
- 3.1 Employment in buyout-financed companies grew 2.4% on average annually
3.2 Two thirds of buyout-financed companies increased headcount
3.3 Small portfolio companies show highest employment growth
3.4 Buyout-financed companies outgrew listed companies in most industries
3.5 Buyouts of family businesses entail highest employment growth
3.6 Managers from within the portfolio company soften the restructuring process
4 Employment growth in venture-backed companies
- 4.1 Employment among venture-backed companies grew by one third each year
4.2 73% of venture-backed companies increased staff by more than 25% per year
4.3 Portfolio companies with up to 20 employees grow fastest
4.4 Highest employment growth in biotechnology and health care & medical devices industries
4.5 University spin-offs grow fastest
5 Research activity and employment quality in venture-backed companies
- 5.1 Every third employee in venture-backed companies works in R&D
5.2 Most researchers employed in biotech companies
5.3 Venture-backed companies spend on average 45% of their expenses on R&D
5.4 Biotech companies invest most in R&D
5.5 Venture-backed companies have been granted eight patents on average
5.6 Venture-backed companies remunerate above EU average
5.7 Venture-backed companies are more committed to training
6 Total employment growth
7 Conclusion
Appendix 1: Methodologies and sample descriptions
- A.1 Estimate of total employment effect
A.2 Employment growth in buyout-financed companies
A.3 Employment growth, research activity, and employment quality in venture backed companies
Appendix 2: Definitions
Appendix 3: Overview of related studies
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