Европейская сцена венчурного капитала сокращает разрыв с США, несмотря на глобальное замедление инвестиций
Technology and Public Support from EU Drive Growth
European Commissioner Carlos Moedas / EMMANUEL DUNAND/AFP via Getty Images
AFP via Getty Images
Long considered a sleepy backwater of entrepreneurial activity, Europe’s venture capital scene is, in fact, booming, even with the global slowdown in investment.
“We’ve narrowed the gap with the US,” said Thomas Kristensen at Swiss-based LGT Capital Partners, citing aggressive funding and a shift in mentality among European founders.
The Continent’s digital start-up ecosystem has grown twice as fast as the US in the past 7 years, according to Goldman Sachs, thanks in part to public support from EU countries.
While there are still challenges, including a lack of support for spinouts from universities as well as red tape and tax burdens on unvested shares, Kristensen says there is plenty of money available for good deals.
One of the key differences in Europe is the prevalence of operator and founder backgrounds among venture-capital investors who are raising funds and seeking partners in the industry. These VCs are often guided by their experience operating and founding companies – a VC with firsthand knowledge of machine learning applications, for example, is more likely to invest in that area where they understand its value and potential for growth.
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The European tradition of research and development, combined with the presence of operator-turned-VCs, positions Europe to become a more significant player in the global venture capital market going forward, Kristensen says.
The main problem has been the so-called Series B gap, a lack of growth and late-stage funding.
There are several reasons why Europe has been slow in developing a strong VC landscape, including starting late in the game, lack of government support, few late-stage investors and a lack of the pension-fund investments that have flooded the US VC market with cash.
The Covid-19 pandemic exacerbated the problem, with only 16 European companies among the top 100 in terms of market capitalization growth from 2019 to 2021, compared to 58 from the United States.
The main problem has been the so-called Series B gap, a lack of growth and late-stage funding. This gap limits the number of high-growth, late-stage companies and gives VCs little incentive to raise late-stage investment funds.
European investors are generally more conservative, focused on revenue and short-term returns rather than growth. As a result, European startups have historically been forced to rely instead on risk-averse banks. In 2016, venture capital investment in the EU was just 6.5 billion euros compared to the 40 billion euros invested in the US.
That began to change in 2018, when the European Union launched a plan to double venture investment with a “fund of funds” aimed at narrowing the gap with the US and China. As a result of this and other initiatives, the growth rate of venture capital investment in Europe is now actually higher than in the US.
“Over the last decade, there has been an education of the investor class, leading to more aggressive funding and bigger successes,” Kristensen said.
Companies like Stockholm’s Spotify, Amsterdam’s Adyen, and Berlin’s Hello Fresh, with market caps of $20B, €43B and €7B respectively, have proved that Europe is home to great technical talent and research hubs. Smaller companies have the potential to follow in their footsteps in the next decade.
“A lot of European founders and capital allocators had less risk appetite in the past and that held back companies,” said LGT Capital’s Kristensen. “But, over the last decade, there has been an education of the investor class, leading to more aggressive funding and bigger successes.” Kristensen said there has also been a shift in mentality among European founders, many of whom now have more ambition to build world-class companies and compete with their American peers.
US investors have begun to pay attention and, as a result, a lot of later stage capital has come from California’s Silicon Valley. In 2021, for example, US VC giant Sequoia Capital led a $900 million Series C round in Trade Republic, whose mobile app allows people buy and sell shares commission-free. The funding valued the Berlin startup at $5.3 billion.
Increased competition between traditional financial institutions and disruptors, meanwhile, has allowed other late-stage companies in the region to attract more capital.
Leibert said governance and taxation issues need to be resolved by individual European countries to unleash the full potential of European startups.
The DACH region, consisting of Germany, Austria, and Switzerland, has emerged as a prominent VC ecosystem. Germany, in particular, is rapidly catching up to the more established US market. Regional venture capitalists and tech ecosystems are forming around German universities. Some of the best companies have emerged in small local hubs like Cologne, Solingen, Frankfurt, Darmstadt, and Heidelberg.
Europe has a long-standing tradition of research and development, as seen with companies such as Fraunhofer in Germany, who invented groundbreaking technology like MP3. However, it has been slower in monetizing its research compared to American companies.
The rise in global interest rates has pushed down the value of stocks and dampened the number and size of checks written by VCs. Because VCs are expecting lower returns, start-ups are getting lower prices for their equity.
Despite the recent economic challenges, European exit value reached its third-largest total on record in 2022. While the exit market slowed down in the second half of the year, late-stage companies may still opt to exit in 2023, according to Florian Leibert, cofounder and general partner at Germany’s 468 Capital. But with lower public market valuations and reduced appetite for listings, startups could seek corporate acquirers instead of testing public markets.
Leibert said governance and taxation issues need to be resolved by individual European countries to unleash the full potential of European startups.
Leibert, born and raised in Germany, is an example of the quality of operating and deep technical talent that European venture capital can now attract. After moving to San Francisco, he was among the first 100 hires at Twitter, led the original engineering team when AirBnb launched and then founded and was CEO of one of the highest-flying enterprise software companies in Silicon Valley 10 years ago when he was only 30, raising $100 million in funding from Microsoft.
He brings a global network of entrepreneurs, world-class technical connections, deep relationships with leading venture capital firms to partner on deals and experience successfully scaling startups globally. That in turn attracts the best investment opportunities for his firm, Europe’s largest early-stage venture capital company. Aspiring company founders with the best startup ideas and technologies who want to work with him and his fellow 486 Capital partners.
And now European venture funds are raising more money than ever. While European VC investments in their portfolio companies declined last year amid the global investment retrenchment, it was still significantly higher than in previous years, with $90 billion invested in 2022, close to double the $46 billion in 2020. In 2021 and 2022, European venture capitalists raised record amounts of cash, with $150 billion and $160 billion raised respectively. Europe weathered the downturn better than other regions, with more focus on early-stage investments.
From the bustling streets of Germany to the rolling hills of Europe, the digital start-up ecosystem is flourishing, and with continued government support, the venture capital industry in Europe shows no signs of slowing down. The Continent is becoming a major player in the global venture capital market alongside the US and China.
