5 ms·

Investing In Startups In Europe

51 points by adunk 13y ago

kops 13y ago
I wonder what european VCs make of the fact that the VCs from US are talking about european startup scene as a virgin land, ready to be conquered. So far I see only 3 parties in this discussion 1) US startups 2) European startups 3) American VCs. Would be nice to hear the views of the 4th party conspicuously missing from the discussion.
- toyg 13y ago
  European VCs are few and far between. Despite working in the largest market on Earth, the overall level of investment is half what you'll find in the States (if that). Some of that is due to cultural issues, some to economic ones (wealth is much, much more distributed here, making the average investment smaller and the average investor more conservative and wary). I suspect EuroVCs would be absolutely ecstatic if "them Yanks" were to bring lots of cash to the table while, at the same time, relying on "local knowledge" to direct that cash.
  - kops 13y ago
    > making the average investment smaller and the average investor more conservative and wary X Million dollars are worth the same regardless of the owner (US vs EU). On the other hand a smaller average investment size should make the deals so much more lucrative and a turf worth defending. Edit : on second thoughts it may have more to do with the cultural issues(as you pointed it out) combined with the regulatory boundaries e.g. amazon.de can't deliver half the things to Switzerland.
    - deleted 13y ago
      [deleted]
    - toyg 13y ago
      > On the other hand a smaller average investment size should make the deals so much more lucrative No. Small investments -> less startups -> less deals -> less profit. Also small investments -> small growth -> small deals -> small profit.
  - draugadrotten 13y ago
    Tax laws in Europe sucks for VCs compared to silicon valley or anywhere in the US. As I understand it, a silicon valley VC can balance wins/losses over many years, perhaps even indefinitely. In most of Europe, the balance can only be made year 1, then the loss is a permanent loss and a win the next year will be taxed fully. This means any sane VC will base her operation in another tax zone. Hence the problem with billions of euros in "tax havens" controlled by European "foundations". (EU is chipping away at that problem now but it will take many more decades to resolve.)
    - pea 13y ago
      UK has incredible tax regulations for investing in startups. Through SEIS you can write off 105% of losses and pay essentially no tax on profits.
s_dev 13y ago
I've often thought about why it's easier to get investment in the US compared to Ireland(EU). I suspect the culprit reasons are: US VCs are backed with more money and also less risk averse. Developers are cheaper here. There probably is an opportunity for US investors to come to Europe to fill this role.
- tinbad 13y ago
  My experience raising money in Europe are the very low valuations you get from EU VCs. I've only raised for one company and probably talked to a dozen EU VCs and eventually got 2 term sheets where the highest valuation was a third from the deal we eventually got. This tells me that the amount of good/promising startups is low, hence VCs can invest at lower valuations and because of that the amount of VCs is low so there's less competition between them. I feel like its a perpetual downward motion where good ambitious startups and VCs relocate to other places (US) because of more favorable outcomes. This trend is hard to turn around and I'd argue that Europe does not need A large VC market as it culturally does not fit the region. I'd say if you're a EU startup you are not meant to grow fast and take gambles. Bootstrapping is the way to go.
pea 13y ago
We have been based and fundraised in SV and LDN and my experiences are the following: Hiring: * Engineers in the UK are amazing, and you can hire from mainland Europe, which is also very good. * Retention rates are higher. * Salaries are lower. * Most decent start-up-orientated talent is at the under-25 level. Finding good PMs with big vision is harder, and if you do, encouraging them to leave for a start-up is less heard of. In a sense, you have to 'grow your own'. * Engineers traditionally have come from more corporate / tech-consulting backgrounds than start-up ones; this has both its pluses and its minuses. * Engineers in mainland Europe, and to a lesser extent London, will have more experience with older technology (C++, java) than newer technologies. That said, there are great developers for clojure/scala/python/ruby, but -- again -- they tend to be at a more junior level. Fundraising: * The good people in London are really good, but there are a lot less of them. * Seed rounds are not significantly harder (due to SEIS and lots of hnws.) Crunch, I believe, comes at A, B, where there are only a handful of options (Index, Accel, Balderton, Wellington). This is when people look across the pond. Ironically, London is full of PE and massive funds (property, hedge funds, etc.) I assume some of this money will divert to tech in the future. * For seed rounds, you may have some discount price-wise, but, then again, it is a lot cheaper to run a company in the UK. I don't believe this discount is that high or particularly relevant. * Investors are more inclined to want revenue, and focus on minimizing downside instead of maximizing upside; IMO it is harder to fund very big, disruptive ideas vs. smaller, cash-generative ones. There are outliers who are exceptions to this. * Things seem to be changing. Lots of 'US-style' firms are springing up, but mostly at the seed level. * There is a tradition of doing seed as equity rounds instead of convertible debt. This is a massive headache, but people aren't used to debt like in SV. * Most VCs have been bankers / consultants instead of entrepreneurs.

51 points by adunk 13y ago

kops 13y ago

I wonder what european VCs make of the fact that the VCs from US are talking about european startup scene as a virgin land, ready to be conquered. So far I see only 3 parties in this discussion 1) US startups 2) European startups 3) American VCs. Would be nice to hear the views of the 4th party conspicuously missing from the discussion.

toyg 13y ago
European VCs are few and far between. Despite working in the largest market on Earth, the overall level of investment is half what you'll find in the States (if that). Some of that is due to cultural issues, some to economic ones (wealth is much, much more distributed here, making the average investment smaller and the average investor more conservative and wary). I suspect EuroVCs would be absolutely ecstatic if "them Yanks" were to bring lots of cash to the table while, at the same time, relying on "local knowledge" to direct that cash.
- kops 13y ago
  > making the average investment smaller and the average investor more conservative and wary X Million dollars are worth the same regardless of the owner (US vs EU). On the other hand a smaller average investment size should make the deals so much more lucrative and a turf worth defending. Edit : on second thoughts it may have more to do with the cultural issues(as you pointed it out) combined with the regulatory boundaries e.g. amazon.de can't deliver half the things to Switzerland.
  - deleted 13y ago
    [deleted]
  - toyg 13y ago
    > On the other hand a smaller average investment size should make the deals so much more lucrative No. Small investments -> less startups -> less deals -> less profit. Also small investments -> small growth -> small deals -> small profit.
- draugadrotten 13y ago
  Tax laws in Europe sucks for VCs compared to silicon valley or anywhere in the US. As I understand it, a silicon valley VC can balance wins/losses over many years, perhaps even indefinitely. In most of Europe, the balance can only be made year 1, then the loss is a permanent loss and a win the next year will be taxed fully. This means any sane VC will base her operation in another tax zone. Hence the problem with billions of euros in "tax havens" controlled by European "foundations". (EU is chipping away at that problem now but it will take many more decades to resolve.)
  - pea 13y ago
    UK has incredible tax regulations for investing in startups. Through SEIS you can write off 105% of losses and pay essentially no tax on profits.

s_dev 13y ago

I've often thought about why it's easier to get investment in the US compared to Ireland(EU). I suspect the culprit reasons are: US VCs are backed with more money and also less risk averse. Developers are cheaper here. There probably is an opportunity for US investors to come to Europe to fill this role.

tinbad 13y ago
My experience raising money in Europe are the very low valuations you get from EU VCs. I've only raised for one company and probably talked to a dozen EU VCs and eventually got 2 term sheets where the highest valuation was a third from the deal we eventually got. This tells me that the amount of good/promising startups is low, hence VCs can invest at lower valuations and because of that the amount of VCs is low so there's less competition between them. I feel like its a perpetual downward motion where good ambitious startups and VCs relocate to other places (US) because of more favorable outcomes. This trend is hard to turn around and I'd argue that Europe does not need A large VC market as it culturally does not fit the region. I'd say if you're a EU startup you are not meant to grow fast and take gambles. Bootstrapping is the way to go.

pea 13y ago

We have been based and fundraised in SV and LDN and my experiences are the following: Hiring: * Engineers in the UK are amazing, and you can hire from mainland Europe, which is also very good. * Retention rates are higher. * Salaries are lower. * Most decent start-up-orientated talent is at the under-25 level. Finding good PMs with big vision is harder, and if you do, encouraging them to leave for a start-up is less heard of. In a sense, you have to 'grow your own'. * Engineers traditionally have come from more corporate / tech-consulting backgrounds than start-up ones; this has both its pluses and its minuses. * Engineers in mainland Europe, and to a lesser extent London, will have more experience with older technology (C++, java) than newer technologies. That said, there are great developers for clojure/scala/python/ruby, but -- again -- they tend to be at a more junior level. Fundraising: * The good people in London are really good, but there are a lot less of them. * Seed rounds are not significantly harder (due to SEIS and lots of hnws.) Crunch, I believe, comes at A, B, where there are only a handful of options (Index, Accel, Balderton, Wellington). This is when people look across the pond. Ironically, London is full of PE and massive funds (property, hedge funds, etc.) I assume some of this money will divert to tech in the future. * For seed rounds, you may have some discount price-wise, but, then again, it is a lot cheaper to run a company in the UK. I don't believe this discount is that high or particularly relevant. * Investors are more inclined to want revenue, and focus on minimizing downside instead of maximizing upside; IMO it is harder to fund very big, disruptive ideas vs. smaller, cash-generative ones. There are outliers who are exceptions to this. * Things seem to be changing. Lots of 'US-style' firms are springing up, but mostly at the seed level. * There is a tradition of doing seed as equity rounds instead of convertible debt. This is a massive headache, but people aren't used to debt like in SV. * Most VCs have been bankers / consultants instead of entrepreneurs.