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In Search Of European Unicorns

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Editor’s note: Fred Destin moved to London to join Accel Partners in September 2014 after 10 years at Atlas Venture in Boston. 

When you look at the returns of a typical VC fund, they may appear somewhat evenly distributed. For instance, 25 percent of the portfolio may be worth zero, 25 percent may return one times the cash invested, 25 percent may yield a reasonable three times multiple, and what happens to the remaining 25 percent will determine whether you’re a top-tier venture capitalist.

Since fund returns are usually discussed in these terms, an important point may be missed: the profiles of the most successful funds are incredibly skewed by the best outcomes, with the top two or three deals making all the difference. Imagine what a difference not investing in Facebook’s Series A would have made to our fund?

Every single one of your investments should have the potential to be a huge winner.

Here is the all-important corollary: because the probability of achieving a multiple in excess of 10 times the money invested on a sufficient amount of cash is very low, every single one of your investments should have the potential to be a huge winner. This is fundamentally why, to everyone else’s amusement, VCs obsess so much about finding those fabled unicorns, the Facebooks of the world, who can return funds multiple times over and earn venture capitalists a much-coveted seat on the Midas List.

We at Accel, who run half-billion dollar funds, are, of course, entirely subject to Obsessive Unicorn Disorder. The No. 1 reason why we say no to entrepreneurs is “we’d like to see a bit more traction.” What we really mean, though, is “we’d like you to grow a horn.”

Unicorn obsession gets worse in a world where raising $500 million seems a weekly event (because, you know, “software is eating the world”), where valuations skyrocket (yes, Slack, we’re looking at you) and where everyone has great stories about the ones that got away. In industry parlance, a number see their mental health now further compromised by Unicorn-Induced Fear of Missing Out, or UI-FOMO.

The good news is this: unicorns can be nurtured, even from the hinterlands of European venture. They come in different shapes and sizes:

The Local Champion

The good news is that local markets in Europe can usually support tech-enabled businesses, and in particular consumer businesses, that can scale to a value of $1 billion and beyond. Examples of this are numerous and include recent real-estate stalwart Zoopla, which I was fortunate enough to be involved with from seed to IPO, and which got itself into the Unicorn club on a purely UK-centric strategy.

The Rollout Champion

For the past 17 years or so, the Samwer brothers have been educating Europe and the world about the value of taking simple, quickly profitable businesses and rolling them out across multiple regions with speed and intent. Today, with mobile front-ends, cloud back-ends, and fully automated management infrastructure, companies are able to launch across many countries at a very high speed with a strong, technology and analytics-enabled central infrastructure and light local teams. For Accel, the prime example is certainly BlaBlaCar, whose car-sharing model is offering a credible alternative to trains and buses for inter-city travel, and is now rolled out in over 27 countries.

The U.S. Contender

For most of our companies in enterprise or infrastructure, the battleground is still the U.S. We push our software entrepreneurs to be present and aggressive in the US market from the earliest of stages. America is where the toughest competition lies, and competition makes you stronger. America is where most of the acquirers are, and you have to bring the fight to them to get bought. When we backed Qliktech, taking the company to the U.S. was the No. 1 agenda item for my partner, Bruce Golden. Building presence, reference clients and a repeatable sales machine to win significant market share in the US is how you create real value in this world. It’s the thesis that underlies our recent investment in Xero, too.

The Global Champion

Our favourite kind of European unicorn is also the rarest. It can only be spotted in the remotest regions, like Finland, where sun-deprived creative teams of the highest calibre, like those at Supercell, devise and design addictive gameplay and memorable characters for the rest of the world to enjoy. Unicorns like Supercell or Spotify give us all the greatest joy, for they are truly home-grown successes that take on the world from their European base.

Entrepreneurs wake up with their hair on fire because they want to solve a problem, or bring a new invention to the world, not because they want to build a billion-dollar company.

Next steps: the giants of tomorrow?

Building unicorns is all well and good, but what Europe needs right now is the next technology giant. Where is the new Alcatel, the new Nokia? We’re hoping some of our companies end up building sustainable, independent tech leaders of tomorrow. Perhaps WorldRemit can topple Western Union?  Perhaps Avito can be the “other Craigslist”? Now that we have demonstrated that we can nurture billion-dollar companies, we need to create solid industry giants who can be the leaders and acquirers of tomorrow, right here in Europe.

Staying focused, staying humble

In the meantime, I need to go back to the grind. Very few unicorns look like unicorns until late into their journey. Most of them look like 2 percent teams with T-shirts that read “Milliseconds Matter.” Entrepreneurs wake up with their hair on fire because they want to solve a problem, or bring a new invention to the world, not because they want to build a billion-dollar company. It’s our job as investors to enable these great entrepreneurs, and to help them build the confidence that they can, in fact, be the next Steve Jobs. Or Mark Benioff. Or, someday soon, Ilkka Paananen.

I guess we’re not looking for giants. We’re really looking for the tallest leprechauns with the capacity to grow a horn. Or something.

Featured Image: Bryce Durbin