#AngelGate in Europe? We should be so lucky

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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…

  • http://fairsoftware.net Alain Raynaud

    Or one could argue that Europe is already beyond collusion. If colluders succeed, that kills competition. Which is how Europe feels, to a point. It’s a small world and everyone knows everyone. Do VC firms really compete for deals, or do they just pick up the phone?

    Actually, I have some data points on how European VCs compete for “hot” companies [can’t share quite yet].

  • http://the-accelerator.blogspot.com/ robin klein

    Hey Mike,
    You are way off on this one. The best deals are absolutely fought over and valuations rise rapidly. The same is true in the valley. Not all start-ups get multiple term sheets, the best ones do. We have a thriving, growing and active funding landscape here – from angels, to super angels and some large VCs. There will always be more start-ups than the eco-system can support. The best businesses always emerge and always get funded. I think we need to give the euro-whinge a bit of a break.

    • http://qwer.ly Max Niederhofer

      “I think we need to give the euro-whinge a bit of a break.”


      • meekashe

        If these angels wouldn’t support the bloom-energy startup, then it will be one of the biggest mistake of their lives.

      • http://twitter.com/mikebutcher Mike Butcher

        Hey, we’re allowed one whinge a month, OK Max?

      • http://Qwer.ly Max Niederhofer

        Agreed. Once a month!

    • Roberto


      I have to disagree on one point: “The best businesses always emerge and always get funded.”

      I have seen a lot of highly sucessfull businesses here in Europe that did not get any funding. They bootstrapped and made their way.

      And I saw some awful ones and some lame copycats that collected term sheets from everyone.

      I hope we can agree that funding in general is a quality parameter for a startup. But by far not the only one.

    • azeem

      Hey Robin

      The sheer disparity in the amount of funding (both VC and super angel) between the West Coast and Europe means that there prime facie must be less competition for investors here.

      That isn’t too say that edge case deals aren’t fought over but it’s really a question of how far down the ‘tail’ is there competition.

      You are lucky enough to see everything — and certainly see the best deals — but my intuition would be that competition for deals further down the tail (i.e. good companies, even great ones, but perhaps not the greatest) must be lower in Europe than in the US.

      It’s the simple economics at play. There is much more money in the US; and even though there are more deals –there will end up being more competition.

      Equally — over the past few years, I have heard frequently from US investors looking at Europe this refrain ‘I like Europe good companies, and fewer investors to compete with.’

      The Tag/Seedcamp/Index axis is a real exception. You guys are knocking it out of the park. Year after year. Index doesn’t just compete in the European stage, it also competes on the global stage with the best. TAG’s ability to identify and win great entrepreneurs is phenomenal. Seedcamp was brilliant this year (and gets better and better).

      If I boiled down’s Mike observation it was this: West Coast seems to have angelgate going on. We don’t have it in the UK because basically there needs to be more capital and more investors competing for there to be any value in collusion. That isn’t an unreasonable position, is it?


  • http://www.estinventor.com Leo Siemann

    If anyone is looking to invest into the latest software & IT projects I recommend Estonia and event Garage48. The next one should happen in Helsinki though as they have grown and attracted Scandinavian interest : ) Estinventor.com

  • Greg


    There’s a “quiet dinner” happening this evening: it’s called “Investor AllStars” (http://www.investorallstars.com/IAS2010/) …

    I recall your disdain at the event last year. Are you going this year?


    • http://twitter.com/mikebutcher Mike Butcher

      No, I’m going to hang out with entrepreneurs in Poland.

  • random

    “Here in Europe we’ve been fascinated by what has become known as AngelGate.”

    You mean Arrington’s rehash of hearsay which comes with no proof whatsoever and aired in public to flex his muscle and make himself look like a shadowy tech kingmaker? That AngelGate? “This one guy who I won’t name told me…” is evidence of nothing more than Arrington’s desperation to seem important and in the know.

  • http://www.pentechvc.com sandy mckinnon

    How can you possibly take offence at an article that compares VCs to kings ;-) That’s the best thing I think I have been called in years.

    Seriously, though at the coalface from our end – it is as Robin says – there is competition over the best deals – and the quality of stuff is getting better – largely due to the feedback loops getting quicker and energy and momentum from stuff like Seedcamp and Techcrunch/hub, etc etc…

    Now back to finding those best deals….

    The other VCs I know don’t collude – trust and reputation need to be earned, and maintained…

  • http://rythie.com Richard Cunningham

    There is Jason Calacanis’s Open Angel forum in London next month and the deadline for submissions is tomorrow (24th) details at: http://openangelforum.com/2010/08/31/london-october-6th/

    It’s already helped Backupify raise $5.5m:

  • http://the-accelerator.blogspot.com/ robin klein

    Azeem may be right that I am seeing things from a particular perspective. However, my understanding of economics of collusion is that it occurs when there is insufficient competition – eg amongst oligopolies. The fact that there is not even a hint of collusion in Europe must mean that there is more than sufficient competition here. Or perhaps as Sandy says, reputation is an investors biggest asset!
    I am slightly amused by the idolising of the valley. They do lots of stuff better than we do and one of these is their ability to hype, promote. The hundreds (thousands?) of companies that don’t get funded there (despite the pavements being paved with VC gold) – or fail – get very little airtime.

  • azeem

    Hey Robin

    Your right. More firms means less collusion.

    However, we could view the US market as quite heavily segmented, where the ‘super angels’ (the dozen or so) provide a particular product which is in demand, which others (e.g. VCs or normal angels) don’t provide.

    The product is the super-angel experience, network, terms, speed, rocket fuel. Even though the US market has lots of funding there are a sufficiently small number of parties providing the SA product that collusion could be possible resulting in higher prices for buyers of that product (the enterepeneurs).

    In the US there is a substitute which is traditional VC on different terms.

    In Europe, we could view the market as much smaller so the issue is not one of collusion but lack of competition (a different issue). Even if the outcome (‘higher prices for buyers than under a regime of perfect competition, i.e. numerous suppliers) , the motivations are different — i.e. in Europe it is just a side-affect of their being relatively fewer suppliers.

    This isn’t to say that nay of this is happening just to say that we could find a framework to explain how it might come about.

    On the Valley — I agree. There is also a very different flavour to the companies being built out there. I think we have tons of advantages here — not least being close to commercial centres that are outside the tech echo chamber. ANd we are close to 20 large national capitals and not far from New York. It’s a great place to do business for many reasons.

  • random

    Collusion is only a problem for lazy entrepreneurs, the type that is NOT willing to go the distance to get funding. Literally as in “going abroad”, or figuratively as in “being creative about alternative funding/growth”. The type therefore who will be caught in a regional colluders web IF there is one.

    But simple logic tells me those are probably the types you don’t want to invest in, in the first place…

  • http://www.seedcamp.com Reshma

    Robin and Azeem – Working with both entrepreneurs and VCs across Europe, I would say both of you are right. The best do manage to get funding and at attractive terms in Europe. And there is some fierce competition. But there are a lot of good ones that don’t whereas it’s easier in the US for good and the best to raise funding with more ease.

    Taking a break from Seedcamp with family, I’ve missed much of Angelgate. But I’ve been saying for over 2 years now… people want to invest with others they believe approach investing and entrepreneurs in the same way. So, it’s natural that groups of investors will work together more and more if the past experience has been positive.

  • http://www.deutsche-startups.de/2010/09/24/lesenswert-groupon-dailydeal-onlineshops-deutsche-gruenderlandschaft-angelgate/ Lesenswert: Groupon, DailyDeal, Onlineshops, deutsche Gründerlandschaft, AngelGate :: deutsche-startups.de

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  • http://kakigarden.com/angelgate Kakigarden

    Adolf finds out Bin 38 AngelGate

    Adolf says very bad things about Europe too.


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  • http://www.nanodome.com/ Nick Pelling

    Most UK angels I’ve met over the last 12 months seem unable/unwilling to “valuate” (as US bloggers like to say) startups at all, preferring instead to wait for other more gung-ho angels to do due diligence, before then coming in late.

    This brick wall of angel passivity has led to a situation with virtually no dealflow, and little or no effective competition – for if only one angel in a hundred now has the balls to lead a round, all but the most exceptional UK entrepreneurs would probably need to spend 18+ months to rustle up 2 or 3 competing bids.

    Collusion in the UK? Confusion, more like. :-(

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    […] Alors ok, c’était marrant, la photo du parrain m’a fait loler. Mais comment peut-on raisonnablement croire que ces gens méritent une telle importance ? Les Super-Angels, parrains qui contrôlent l’entrepreneuriat web ? “How AngelGate Affects You…Yes, You“, mais Marshall tu es tombé sur la tête ? Mais la palme nous vient de Mike: “Kings (VCs), Barons (Angels, super or not), Knights (Entrepreneurs) and Surfs (engineers)“… […]

  • sam_w

    Mike – it’s serf, not surf.

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    […] Robin Klein disagrees with me. For my part I guess I am just reflecting what the entrepreneurs I’ve spoken to have told me, […]

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