Everything That's Wrong With European VCs


Photo: Photo: procsilas (Flickr)

Europe does have a thriving startup scene, improving every day. But it’s also undeniable that it’s nowhere near the level of the United States in terms of capital, talent or ambition.A great column in The Telegraph by angel investor Richard Titus intelligently points out the few key things that European VCs need to improve on.

Here’s the key points:

  • Lack of entrepreneurial focus. Top Silicon Valley VCs understand, and most European VCs don’t, that the raw material from which startups are made is entrepreneurs. In the US VCs valorize the entrepreneur not just to invest in them but as a source of information and dealflow.
  • Overemphasis on profits. Most of the huge tech companies, particularly on the consumer web, got that way by disregarding profits early on in favour of growth. Titus remembers VCs on the boards of companies he’d invested in actually telling them to “dial down the growth” to make some profits. If you’re a startup and growing like gangbusters, that’s ridiculous. You should hang on to that growth and do everything to feed it.
  • Lack of M&A expertise. A somewhat dirty semi-secret of the venture business is that a big part of the returns is not driven by the big winners but by the middling outcomes. Once it becomes obvious that a startup can’t achieve a billion dollar outcome, a big skill of the VC is to find a way to, in VC speak, “park the asset” — meaning find a buyer at a good price. The problem is that the big tech companies with the cash to buy those assets are almost all in Silicon Valley, and European VCs don’t seem to have relationships there.
  • Not enough follow-ons. There’s lots of money in Europe for sexy early stage investing, and relatively safe late-stage investing, but not enough for those crucial follow-on rounds that help startups kick up the growth. European VCs are smaller and less numerous than their American counterparts, so they find it harder to do follow-on rounds, and European startups’ growth remains stunted.
  • Not enough operating experience. The vast majority of European VCs are bankers or former bankers. There are plenty of bankers in VC in the US as well, but the proportion of partners with operating experience is much higher. What’s more, the “Entrepreneur-in-Residence” role is virtually unknown in Europe, but these guys can really help portfolio startups.

Also shocking: the column relays the well-known story of Lastminute.com co-founder Marta Lane Cox, of whom VCs asked, “So what happens when you get pregnant?”

This is all sadly, sadly true. But things are getting better, however. In the past few years, entrepreneur-driven venture firms like the Skype founders’ Atomico Ventures and founder-friendly superangel funds in France have changed the game.

But the VC industry in Europe does, overall, remain well behind the game.

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