What is the future for tech VCs in Europe?

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At TechCrunch we’re usually at least as interested in the financial environment for funding startups as we are in the startups themselves. And we know it’s something of keen interest to any new internet or mobile company. So it is worth indulging for a moment to discuss what might be happening at the moment inside Europe’s venture scene.

I am prompted to raise this issue now because recently I attended two major Europeans events designed to bring together startups and investors: Plugg in Brussels and The Next Web in Amsterdam. Similarly, late last year there was Le Web 3 and Web 2 Expo Berlin. At each of these events it was quite clear that many of the same VCs were turning up, looking to meet with startups and ‘kick the tyres’ at the demo pitches. And of course, they also hang out with eachother to swap notes on the startups doing the rounds.

What is becoming clear is that there is a new generation of younger VCs in the business who actually “get” what is going on online. A typical age for them might be early to mid 30s, which means they have grown up with the Web. At the same time as they are hitting their career prime, the older guard in the VC houses are (if they are smart) giving these guys their head, at least to some extent. Now, I’m sure I’m about to miss people out here, but here are the kinds of people I’ve been running into in London and continental Europe, in no particular order:

Olivier Schuepbach, Wellington Partners
Sean Seton-Rogers, Balderton Capital
Paul Fisher, Advent Ventures
Nic Brisbourne, DFJ Espirit
Reshma Sohoni, Seedcamp
Saul Klein, TAG / Seedcamp
Andreas Schlenker, Partech International
Paul Jozefak, Neuhaus Partners
Fred Destin, Atlas Venture
Sonali De Rycker, newly arrived at Accel Partners
Greg Marsh, Index Ventures
Max Niederhofer, Atlas Venture

Now, at the same time as this new generation of VC is picking up the pace in Europe, the kind of startup investing environment more common in Silicon Valley is gaining traction on this side of the pond. Few have failed to notice how Index took a more ‘Silicon Valley’ approach with MySQL, Skype, and LastFm and it’s worked. Balderton, as the former offshoot of benchmark’s UK office has done similar, as are others.

This Silicon Valley approach is more aggressive and aimed at creating big companies with global scale. That means everything is becoming more competitive. As one Germany-based VC tells me, “The really good VC’s as well as the really good start-ups know what is at stake. 10 years ago (discounting the bubble years) Europe was ecstatic about exits in the 100 million range. Here a couple percentage points weren’t that big a deal. Now though where we’re seeing the opportunity for mega-exits be it Skype, MySQL, even Last.FM, a couple percentage points make a big difference. Hence everyone is becoming more adversarial. It’s inevitable and not necessarily ‘wrong’.”

Secondly, Europe’s VC scene is getting more mature, though many argue we’re still in the “adolescent” phase. Until very recently you saw VC’s disappear once they left a fund or a fund shut down. You also maybe saw an investment manager here and there laterally shift from one fund to another. However, rarely did you see partners in Europe from top-tier VC firms shift from one fund to another as Sonali De Rycker recently has.

We could well start to see more of this as partners in VC houses in Europe get to the point of having a “real” track record as opposed to simply being former entrepreneurs or investment bankers who then became VCs. In Silicon Valley partners move around all the time, as the industry is a lot older and many partners have done nothing else but be VCs. In Europe it’s rare for partners to shift like this and De Rycker’s move could be the shape of things to come.

Thirdly, some are arguing that we are seeing the rise of the “super angels“. These are often former entrepreneurs who’ve had a big exit from their startup and now consider themselves to be potential investors. Some are good at this, some are, to be blunt, crap. But the shrewder ones are guys like the Samwer brothers (European Founders Fund) or the ex-Skype crew at Atomico.

The theory is that these ‘super angels’ are going to come to the aid of startups who need seed capital just as it gets harder to kick seed out of the bigger VC houses.

But the alternative view is that super angels are a “blip”. That they are following the “spray & pray” strategy of investing in what’s hot at the moment, haven’t done it for long (3-4 years) and they are post-bubble anamolies who won’t last forever. Persoanally I’m all in favour of more, smart investors in the market, especially ex-entrepreneuers. The trouble is, the cynic in me wonders if they have staying power. If in the near-term they start experiencing some heavy losses you could see them bailing out of the market one after another.

Indeed, some of them are now said to be “running on fumes” and locking down deals with startups using restrictive terms, which some might say indicates how much fear is driving their investment strategy. You see, it’s a bit like a gambler at the blackjack table in Vegas. They’ve played a lot of bad hands, and are now trying to pump money into new hands in the hope of recovering the inevitable mid-term losses.

In other words, although it looks like Europe’s super angels are coming to rescue of startups that need seed capital, the reality may be that they are trying to back as many horses as fast as possible to offset the looming losses.

Lastly, I also see another trend. Startups who have drawn a blank with European VCs seem increasingly attracted by the idea of upping sticks and re-establishing themselves in Silicon Valley. I have now come across three UK startups considering this in the last month. It’s ironic that I write this just as I too am about to accompany 20 startups on a trade mission to the region, in an effort to bring some of that rich Silicon Valley vibe back home. Now, the question is, are the startups moving because they feel misunderstood in Europe? Or is it because they they think the money will be easier to raise over there? Maybe their startup is just are not very good, and they haven’t realised it yet? Hard to say, and there is no simple answer. It depends on the companies and individuals involved. And Silicon Valley has always had a lure anyway, that’s just to be expected.

So what are we to make of all these trends? We can assume that the whole startup investing environment is going to get tougher and more competitive as the VCs mature and the startups themselves raise the bar in quality. It’s also now an international market, with some entrepreneurs threatening to move if they don’t get the attention of Euro VCs. But whatever happens, most of these trends are not “bad” ones – they are just how things seem to be shaping up, at least from my perspective.

What do you think?

  • http://www.carsonified.com Ryan Carson

    Hey Mike,

    Not sure why you’re not including FOWA London in your list …


  • http://blog.newscred.com shafqat

    I just spent some time this afternoon with a couple guys from Index Ventures. They absolutely ‘get’ the web and are examples of the younger, more tuned in VCs that you speak of. I think a big change that is happening in this space is that VCs are adding much more value than just funding. In fact, the monetary value is beginning to get overshadowed by the non-monetary benefits of VC funding like networking, opening doors, advice, etc. In fact, entrepreneurs I talk to are more excited about that then simply raising capital, which in turns helps explain the success of programs like SeedCamp.

    Great post Mike – lots to think about!

  • http://jenslapinski.wordpress.com Jens

    What would be extremely useful for me as an entrepreneur would be to have a list of VC funds (not firms, important difference) with their vintage dates/years and amounts and the location of the offices.

    I agree that more VCs ‘get it’, as you put it. But what would be even more interesting and useful would be a list of people who actually have the money to follow through. To be a bit controversial: A few of the firms that you list have had the first close of their most recent fund quite a while back. How shall I put it: What good is to start-ups when the VCs ‘get it’, but can’t actually do anything about it, because they have no fresh money to invest?

    Maybe this would be a way in which CrunchBase could actually make some money… just a thought.

  • http://www.freddestin.com Fred Destin

    shafqat, look out for my email :-)))
    great post mike.

    look at eric archambeau moving to wellington, roy merritt to amadeus, roberto bonanzinga joining balderton, fergal mullen of hcp moving to europe. the deckchairs are getting reshuffled at a number of funds as people get ready for the next wave of maturity in european venture.

  • http://www.broadstuff.com alan p

    I’m quite keen to see if a Y Combinator model can appear in the UK, and other European countries as well. I think the emerging “seed company” market dynamic lends itself to that approach.

  • http://paulfwalsh.com Paul Walsh

    Just posted this on my own blog.

    It’s one thing for an investor to ‘get it’. It’s another to back it. I’ve heard so many entrepreneurs complain that although the VCs to whom they’ve pitched, ‘get it’, they all expect to see ‘traction’. It’s easier to invest when a company already has traction, where’s the risk in that. We need to see more early-stage investors willing to take educated/calculated risks.

    I’d consider a move to the Valley, not because I don’t feel European investors get what I’m doing. I’d consider a move because there’s an entire ecosystem in one cluster in San Francisco. I’d also consider it because to be quite frank, the numbers add up. There’s a bigger (local) customer based in the US

    That said, I’ll find out for myself, exactly what The Valley is like. As I’ve posted recently, I’m heading over with The Web Mission to help with connecting/networking/introductions.

  • http://paulfwalsh.com Paul Walsh

    Reading back, it wasn’t my intention to come across as negative. I’m talking to angels and VCs about different projects. So I can’t exactly shout my mouth off until they’ve told me that I’m an ejit, and/or, my propositions are crap :)

  • http://www.ClearMyMail.com Dan Field

    Interesting post, Mike.

    We launched slowly in 2006 with our own private funds, mainly because I couldn’t see anyone who would take the risk on an unproven business plan, well not at a reasonable level. We did receive offers which were for a crazy fully controlling stakes and with so many ties it just wasn’t worth it.

    I didn’t approach any VC’s when we launched because I didn’t think we were ready for that level of investment, I was probably right. After 2 years I am just starting to investigate this area so will be interesting to see how we get on now we do have proven the business model and have traction (Paying customers in over 30 countries, numerous industry awards).

    The VC’s certainly seem friendlier and more willing to look at ideas today. What seems to be happening is that Europe is being seen more as one area when it comes to startups, rather than separate countries. This is great and will give startups the strength to compete with US counter-parts.

    But maybe we expect too much, isn’t it better to build first and then look for funding? And with today’s technology you can build a working system fairly cheaply… does Europe need more seed & angel funds rather than more full on VC money?

    Seedcamp looks like a great initiative and we could do with more like that to help get the ideas rolling.

    Look forward to hearing any responses to your post from the VC’s themselves.

  • Mike Butcher

    Paul – Thanks for your comment. Perhaps you could put a link from your blog to this post, seeing as you quote this post?

  • http://fav.or.it/ nick halstead

    Great post Mike, it covers most of my thoughts on the current market place. The VC community from my perspective is a pretty close-knit family and becomes easier when you already have foot in the door. The argument between europe/valley – we are using both, but bottom line VC’s want to be close – forget looking at valley VC’s that do not have some form of prescense in the uk/london.

    I also feel that europe is waking up to the fact that it is not just about revenue – during the course of thenextweb I had plenty of opportunity to get a better feel for the european VC’s and I was pleased with the vibes I was getting.

    But nothing changes for me that if you have a good product, a great team and proven execution of a plan will pretty much guarantee you investment.

    sent from: fav.or.it [FID255191]

  • http://blog.lookery.com Scott Rafer

    You skipped Roberto Bonanzinga at Balderton, whose probably got the most operational internet experience of the bunch.

  • http://blog.lookery.com Scott Rafer

    Oops, except for Saul. Ditto on both their contacts out here in NoCal.

  • http://paulfwalsh.com Paul Walsh

    Sorry Mike, link included – completely missed it.

  • http://www.passpack.com Tara Kelly

    Re: The trade mission for 20 UK startups to the Valley. It’s a great idea. I participated in a an Italian mission headed up by the US ambassador to Italy.

    We got access to places which would have otherwise been out of reach for those not already part of the network there.

    Ambassador Spogli is also responsible for a program for Italian Angels:

    So the exposure was two-fold. I was meeting people in the Valley, and really getting to know local investors and other startups as well.

    Hope it’s as fruitful for the 20 UK startups.

    Good luck to all!

  • http://www.veedow.com Fabio

    Nice post Mike. One of those where you can’t wait to read comments too!

    @Jens – I totally agree that it would be very nice to have a quick and easy way to know the maturity of VC’s funds and the invested percentage. That would help picking the best firms to pitch and eventually would save all some time too.

    @Paul Walsh – I feel the same about funding companies with traction. It’s definitely an important/safer rule but it would be nice to see more people (not only angels) taking the risk to invest *also* to help creating traction. It’s not about throwing millions out of the window to buy users/customers (I wonder if it’s that pre-bubble behaviour that scares investors??) because there are a million things small start ups can do with decent funding and introductions/advice in order to build traction effectively. That’s what I think is real early stage financing, an idea with potential, strong principles, passion, strong team (whatever that means, from my *biased* first-time-entrepreneur’s point of view not only serial entrepreneurs with proven track record) and the right market time. If that will happen consistently Europe could scare the hell out of ‘we-are-the-best-and-only’ Valley VCs.

    Good luck to the Missioners. Show them what you got.

  • http://www.manojranaweera.com Manoj Ranaweera

    Great post Mike. Couple of points:

    1. http://www.edocr.com is one of the 20 startups off to SF next week. The company is now 1 year old, and until we got selected for Webmission08, we delayed the need to raise external investment. We built the product with less than £500 capital (due to in-house resources) and already have companies such as HSBC, Sun Microsystems, Ariba, Accountis, etc using our services. We are hoping to convert these users to customers with the Beta version being built right now. The key reason for not thinking about VC funding before are: I knew we could build without external funding and secondly did not think any VC would be interested in investing without substence.

    2. One of the VCs you mentioned have already been to http://www.nwstartup20.co.uk and glad to report two of the others mentioned would soon attend forthcoming Northern StartUp 2.0 events in Manchester. My interest is to bring the startup community in Manchester and find ways to attract non-local funding to serve their needs. Lot more need to be done. And involvement of Regional Development Agencies are key if we are to achieve some traction.

    I am certainly looking forward to the visit across the pond and hope to capture the experience through http://www.manojranaweera.com

    Catch you later

  • http://www.veedow.com Fabio

    Manoj, was that a pitch or what? Sorry for the bluntness…

  • Mike Butcher

    Trackback has failed to pick up a great related post by David Langer:

    The European Ecosystem is Entering Puberty

  • Adrian

    You can also raise funds in Israel for web ventures:

    Practically speaking, you’d be flying back to EU to build the venture, but wouldn’t this be the same as the US without a VISA, but at least closer. $2 billion now available to invest: http://weeit.com/2C4

  • Mike Butcher

    And here’s a contribution from Paul Jozefak

  • http://phuser.com George Black

    Good post Mike. I also highly recommend Paul Fisher for clear thinking and really knowing what is going on.

    The talk he gave at PitchCamp at the end of last year was great. I was impressed by VC who really tries to get you to think about not needing a VC!

    You can see the video of the presentation here:


    And download the powerpoint here:


  • http://www.ki-work.com Michael Wolff

    web savvy european vc’s, this is brilliant.

    how about web savvy angels that come in just prior to Series 1 funding? who are the european equivalents of people like, say, Dave McLure?

    see http://www.linkedin.com/in/davemcclure

    someone that can provide functional value, such as e-marketing, and provide a valuable link into the appropriate vc’s following proof of concept.

  • Mike Butcher
  • http://www.unitedagents.co.uk/interactive Adam Martin

    In my various guises I find myself talking with a lot of European web studios and it’s clear a lot of these teams have some great ideas, but are entrenched in a client dependent working environment which prevents them having the finances to create ‘that application we’ve been talking about’. The level of investment is low, the risk is high, but we’re talking £100,000, less even. What these people need are encouragement, they need to be asked about ideas, it’s about seeking out the talent.

    It’s about putting likeminded would be Sergey’s and Brin’s and Janus’ and Niklas’ in contact with one another and recognising where talented individuals can come together to create something truly worth investing in.

    We can’t compete with the Valley, so we should try and take a different approach, invest less, earlier and actively create teams rather than passively wait for them to come to you.

  • http://www.jranger.com Julian Ranger

    Interesting post which I can relate to as both an angel investor investing in start-ups, and also as an entrepreneur building new businesses for which I am looking to raise funding for – perhaps if more people could see things from both sides it would be better all round. Trying to really understand a business proposition and filter out the good ones from the mass is not easy for angels & VCs – likewise trying to encapsulate all your good ideas and plans into a quick pitch is far from easy too. We certainly need more people prepared to put in the funding from £250K-£750K to get businesses moving, but more than anything else we need to get the funders and the businesses mixing more – this is the area where one overcomes the filtering and the pitch problems.

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