Here in Europe we’ve been fascinated by what has become known as AngelGate. But after talking all day to many contacts today across the tech scene in Europe, I’ve reluctantly come to the conclusion that I’m not about to blow the lid on anything similar in Europe. Leave aside the arguments about what happened at Bin 38, and taking on the hypothetical situation that “Super Angels” (and there are handful) might be colluding in Europe, I’m afraid there is no evidence for this (at least that I can find). Here’s why.
There is clearly enough competition over deals in the US to lead some people to feel the need to organise a dinner to work all this out (as I say, leaving aside all the accusations about why and for what purpose). In Europe, the situation is this: investors do not have to compete often enough to bother “fixing” the market in their favour. If there are any investors in a typical mid-to-large European city, they still number too few to create a situation where there is real heat around startup deals. That is a terrible thing for European entrepreneurs, but it’s a situation many have come to accept. There are only a handful of truly on-the-ground Pan-European VCs (Balderton, DFJ Espirit, Accel, Wellington, Index) and a handful of mid-sized (Eden, Advent etc) firms spread widely across the rest of Europe. Among the most active in seed are firms including Index, The Accelerator Group, Whitebearyard and Kima Venture. There are a handful of so-called Super Angels like PRO Founders, Rocket Internet, Team Europe and maybe Atomico, investors in Europe are, how shall I put it… sparsely spread.
Would they ever collude to dampen down competition? This is a problem we’d possibly even like to have.
As one source who has been both angel and entrepreneur said to me, “I don’t get a sense of people competing for deals.”
Another said jokingly: “I’m not sure that our angel community is that organised – one of the issues in EU is difficulty in finding angel groups in the first place.”
Furthermore, well known US VC Fred Wilson notes that the US remains hotly competitive:
“The reality of today’s VC market is that it is hypercompetitive. And most venture firms are still managing funds of sufficient sizes that they can’t or won’t agree to syndicate deals with more than one other firm. Anf often they don’t even want to syndicate with anyone.”
If that is the reality in the US, then it is a huge stretch to assume that something like that is happening in Europe where competition for deals is significantly lower. So low that almost every week I hear from entrepreneurs telling me stories of how far they had to travel to find funding (in one case, Quebec. Yes, in Canada). Perhasp these are the bad ‘wantrepreneurs’ with the bad ideas. But I don’t find really good ones finding it excessively easy either. In fact, the only really way to make it easier, is to have been an associate at a VC firm for a year or so first, then leverage your contacts in a startup. I know at least three startups like that and all got funded.
Of course the situation has changed. Four or five years ago the VC funds in Europe were larger, and Atlas Venture had an operation in London as well (now largely gone though Fred Destin does happily visit us now and again from his new Boston home). Anyone could have looked at any deal.
But even then, as they do now, these firms, and the angels, operate in different segments of the market, since there are so few of them and the market is quite big, though fragmented, across Europe.
Perhaps the only time might you might get more horse-trading over startups is after Seedcamp Week in London recently, which has created – much to the chagrin of its early stage competitors – a media and mentor juggernaut. But collusion? Price fixing? There appears to be no evidence of this at all.
Here’s another source who wanted to stay off record: “I think if we have an AngelGate [in Europe] it wouldn’t be good, but it would be a good problem to have. Right now we just need more [investor] guys in Europe.”
Because of this fragmentation, investors are simply not having to work particularly hard to get deals in, so they don’t need to bother with collusion in the first place. As one entrepreneur put it to me: “It’s like trying to get a bunch of overfed lions off their arses.”
With not enough healthy competition they can afford to take their time over deals. That may in fact result in better decision making over investments in Europe. But it starves other parts of the eco-system of oxygen, namely the bidding tension required by entrepreneurs. That in turn leads to broken valuations for startups and, now and again, a brain drain to the U.S. as startups flee towards investors who will sneeze a cheque.
Now, while I could find literally noone who had any evidence of collusion amongst investors in Europe, there are what you might call “co-investment circuits” emerging.
The biggest of these, at least in heat if nothing else, is as I said Seedcamp Week in London, the culmination of the Seedcamp programme’s roaming of Europe for startups. This brings together Angels and VCs from across Europe in a hot-house environment. Despite the terms – 8-10% of your company for 50,000 Euros, thank you very much – the entrepreneurs I talk to who have been through the process appear to love it, if for nothing then the ridiculously high quality network it plugs you into.
Those startups that don’t like the Seedcamp model in terms of the high stake probably don’t need it. Some investors that don’t like to coinvest with Seedcamp occasionally carp from the sidelines, in the sort of downbeat Euro way that we’ve come to expect, although some may have a point.
There remains a question in the air about whether syndicates are established and winners of competitions are flagged privately between players, before they are announced which is a hard to pin down issue and something that could well routinely happen across any startup competition across Europe.
But where there is Seedcamp on one hand, one must recognise that oranges are not the only fruit. In Europe other startups programmes have emerged like the very interesting HackFwd, The Difference Engine, StartupBootcamp and others.
But the reality is that Seedcamp have played a very smart game and completely outwitted many competitors. As one observer put it to me: “Everyone hates Chelsea for signing the best players.”
So what we have in Europe is not so much collusion, but Kingmakers and Gatekeepers.
In fact, the more you look at it, Europe resembles not capitalism, but feudalism: City states (London, Berlin, Paris etc), Kings (VCs), Barons (Angels, super or not), Knights (Entrepreneurs) and Surfs (engineers).
And whereas feudal kings got restless and were rewarded with new lands and booty by raiding into foreign territory, today’s modern European VC appear (apart from a small minority) happy to sit in their castles.
Collusion? Conspiracies? If only they were so active!
In fact, this is probably why people like Dave McClure, Fred Wilson and other US investors get such a big welcome in Europe when they visit. They have an international reputation, don’t stand on ceremony, show massive enthusiasm and want to go as fast as the European entrepreneurs that get it.
One of the underlying problems is this: If a VC fund is big enough to have a decent management fee paid by their LPs (2% of smaller funds may not be enough to pay a full team/staff/overheads), then a VC can afford to avoid that tedious business of having to deal with entrepreneurs and live off the management fees.
There have simply not been enough profits or decent returns made in last few decades of EU VCs to bring in any decent “carry” on deals (other than maybe Index, Accel and Balderton). Not enough VCs are being made to make money from performance. Instead they are making cash from fees, and not delivering return for investors. No wonder so many VCs found it hard to raise new funds from LPs last year, huh.
Lastly, to quote a tweet from Hamburg-based VC Paul Jozefak: “Catching up on #angelgate! Gosh darn, why does EU always have to trail the Valley on everything! We don’t get anything half as entertaining”
UPDATE: Robin Klein disagrees with me. For my part I guess I am just reflecting what the entrepreneurs I’ve spoken to have told me, but of course it’s not possible to speak to everyone. Sure the best companies get invested, but I think my point still stands: Europe is not a market where entrepreneurs can field multiple terms sheets in the way they can in the US, and although there is investor competition, there is not enough, and certainly not enough to get to a point where investors may need to band together to fix the market. But we’re all grown ups and I daresay there are plenty of quiet dinners where people compare a few informal notes…