Josh Lerner Jacob H. Schiff Professor of Investment Banking Harvard Business School and National Bureau of Economic Research During much of the 1970s and 1980s, venture capital and private equity remained largely a United States phenomena. Over the past decade, how- ever, private equity has spread around the globe, taking particularly firm root in Western Europe-indeed, growing 4,700% since 1984 through 200 I. Today, Europe is the dominant private equity market outside the United States. Despite this tremendous growth and the current recessionary cli- mate, there is ample room for attractive expansion in European private eq- uity; both for venture capital and private equity. There have been several reasons for this growth. The first has been the internationalization of capital sources. The key sources of capital for Euro- pean private equity funds have traditionally been segmented by national boundaries: historically, the pattern in Europe has been for private equity groups to raise funds from banks, insurance companies, and government bodies in their own country, with little involvement from foreign investors. These barriers are now breaking down for two principal reasons. First, in- stitutional investors, particularly in the United States, have become in- creasingly interested in European funds. Second, many international pri- vate equity firms have become more active in Europe. A second driver of growth has been the entry of new talent into the in- dustry. Traditionally, many European private equity investors had come from financial or consulting backgrounds, rather than from operating roles.

Josh Lerner Jacob H. Schiff Professor of Investment Banking Harvard Business School and National Bureau of Economic Research During much of the 1970s and 1980s, venture capital and private equity remained largely a United States phenomena. Over the past decade, how- ever, private equity has spread around the globe, taking particularly firm root in Western Europe-indeed, growing 4,700% since 1984 through 200 I. Today, Europe is the dominant private equity market outside the United States. Despite this tremendous growth and the current recessionary cli- mate, there is ample room for attractive expansion in European private eq- uity; both for venture capital and private equity. There have been several reasons for this growth. The first has been the internationalization of capital sources. The key sources of capital for Euro- pean private equity funds have traditionally been segmented by national boundaries: historically, the pattern in Europe has been for private equity groups to raise funds from banks, insurance companies, and government bodies in their own country, with little involvement from foreign investors. These barriers are now breaking down for two principal reasons. First, in- stitutional investors, particularly in the United States, have become in- creasingly interested in European funds. Second, many international pri- vate equity firms have become more active in Europe. A second driver of growth has been the entry of new talent into the in- dustry. Traditionally, many European private equity investors had come from financial or consulting backgrounds, rather than from operating roles.