From Pieter Welten – Prime Ventures (@pieterwelten)
Europe hasn’t produced the equivalents of Google, Facebook and Apple yet. Whether this will happen in the short to medium term? I am not convinced, but there is no reason why the same can’t happen over here. I believe the European ecosystem is very well developed and can support such a ‘flagship’ company since our continent has already demonstrated that it can produce successful tech companies. We are all familiar with companies such as Funding Circle, Adyen, Rocket Internet, BlaBlaCar, Spotify, Skype, Booking.com, Skyscanner and Criteo. I can therefore understand that US VCs are increasingly taking notice of the European tech scene.
European tech companies will surely benefit from increased access to capital and increased competition amongst investors. Lately I have been noticing the increased US presence in the European tech markets myself. First of all, notable investors like NEA, USV, Benchmark, Sequoia and Andreessen Horowitz are investing in European companies such as Elastic, Shapeways, TransferWise, and Relayr. Secondly, entrepreneurs tell me these days more often than before that they are “talking to US investors” or “are only interested in US funds”.
In my opinion cash is cash and it shouldn’t matter where it is coming from in order to fund your business. I can imagine, though, that having an established and respected US investor on board sounds (and can be) very appealing to entrepreneurs for various reasons. At the same time, I do believe that (1) entrepreneurs sometimes ‘talk US VCs’ to impress European VCs and (2) that US VCs are more restrained to invest in (pure) European tech companies as one might expect. Why? This is my understanding:
- First of all, although the established US investors have overall been successful in the past, not everything they touch turns into gold (e.g. Fab, Quirky, and Dash Navigation). Hence, talking to them doesn’t make you a better or more interesting company.
- Secondly, these days there is a lot of venture capital in Europe and European VCs are evolving. US VCs also ask themselves the question why this great European company hasn’t been approached or funded yet?
- Furthermore, US VCs often like to see initial traction in their home market in terms of customers, downloads or revenues before they invest.
- Investors overall like to see local operating presence, ensuring proximity to themselves and their market. Since the US market is a very important market from various perspectives, US local presence could even be a prerequisite.
- Finally, established US investors have access to a large pool of talented entrepreneurs and high levels of company formation in their own market.
Because of the above, I have always mixed feeling about entrepreneurs that mention dozens of US funds in the first 15 minutes of my first call with them. If there is serious (US) interest in your business, great, but mention it only when push comes to shove. Until I have formed my own opinion about the team, business and market (read: opportunity), US interest won’t change my perception of the company. I will only start wondering why somebody is mentioning all these names.
I would like to finish this post by emphasizing that I do welcome US VCs in the European market, especially since there seems to be a lack of growth and late stage funds that can easily write tickets of +€25 million. This is a good development for the European ecosystem and European entrepreneurs. Yet at the same time, it sometimes feels to me as if the likes of Barcelona, Bayern Munich and Manchester United start playing in the Dutch soccer league. It is simply a challenge to compete with theselarge (+€500 million), respected and experienced US funds who can invest in startups at all stages. But hey, challenges keep us motivated right?! And at the end of the day, VC firms like ours have also been around for a long time and posses plenty of experience and knowledge to support entrepreneurs. Simply put, otherwise you won’t be able to raise four funds! Have a good one.