The potential impact of Google Ventures on the European ecosystem

Crunching some data on Google Ventures in the US to assess its potential impact in Europe.

This post was co-written with Stephen Piron, founder of Bright*Sun, who helped ask the right questions and crunch the data to try and get to some of the answers.

After weeks of rumors and speculation, Google announced yesterday that it would be setting up a European outpost of Google Ventures in London with an initial allocation of $100 million to deploy across the region.

The European tech ecosystem lit up on the news and the barrage of articles pushed the news to the top of TechMeme. This was clearly big news for a number of reasons:

First, as Bill Maris states in the blog post, Google Ventures setting up in Europe is a validation that the European ecosystem has matured and that there are “Google-worthy” companies being built in the region.

Second, Google has assembled a rock-star team of European angel investors and former VCs — individuals that are known and respected by the rest of the community — to kickstart its efforts.

Third, as this interview with Maris helps outline, Google Ventures has managed to bring “Googliness” and innovation to the US VC ecosystem (along with $1.5B under management since it was established in 2009). The question on everyone’s mind: will Google Ventures have the same kind of impact in Europe?

Stephen and I were discussing the news and seeking to assess the impact GVE (Google Ventures Europe) could have. Being data geeks, we went to look at the numbers.

Has cash, moves fast

First, we looked at the ramp-up of Google Ventures in the US since its inception in 2009 in terms of deals and average deal-size. GV came out of the gates with a $100M per year kitty to go deploy (that was increased to $200M in 2011 and then to $300M at the end of 2012…again per year).

It sounds like the $100M allocated to GVE will be for a finite investment period rather than evergreen, but regardless; it is still $100M of new capital coming into the region from a single fairly deep-pocketed Limited Partner.

The GVE team already has the deal flow and very deep connections to the startup and investor ecosystem in Europe, so we should expect them to come out of the gate quickly, just as GV did in the US. It will also be interesting to see whether the fund evolves into an evergreen fund in the future and how, as with the US, $100k evolves into $300k.

Comes in early, stays in for the long run

Crunching data by stage and tracking follow-on investments, Bright*Sun looked at the stages at which Google Ventures US invested. In general, they took early stakes and then doubled down in future rounds. As the data below outlines, over 50% of GV’s initial investments were under $1M and it actively followed on at all deal-size levels.

If GVE follows a similar pattern in Europe, the greatest initial impact could be at the early stage, where there is still a gap between local, smaller seed funds and larger funds who tend to invest post-Series A. This could also mean more cash available for globally ambitious companies who need US-style funding to go head to head with US-based competitors.

Google Ventures is friendly to all

After recent talks of “Piggy Rounds” in which a VC firms keep first and future rounds exclusively to themselves, GV seems to be the opposite, having invested alongside other US VCs 90% of the time.

The concentration of its co-investors is also quite spread out but with the strongest affinity for First Round and KPCB:

This is great news for the European ecosystem, which already enjoys a healthy amount of syndication of opportunities across all stages. With GV’s model from the US and GVE’s London-based partners existing connections we believe you will actively see them investing alongside others at all stages.

As per their model in the US, GVE will bring not only capital but also access to designers, engineers and perhaps some data and AI chops through access to the Deepmind team The US-style model of in-house resources available to startups will also benefit GVE’s co-investors as, one would assume, these talented advisors will help companies scale faster, build better products and tell their message more succinctly.

All the analysis above is, of course, backwards looking and assumes the GVE will borrow the model and learnings from GV in the US. The reality is that the focus and culture of GVE will be determined by its on-the-ground General Partners. Tom and Peter have been prolific angels with a roster of bets on early-stage startups across the region. Avid, having been an Associate at Accel, has deep operational experience in e-commerce after setting up Bottica and Eze has truly been a force of nature after setting up Google Campus and making it the hub for startups and startup events in London.

Nothing but upside

It’s clear that the net outcome of the arrival of GVE is massively positive for the European startup ecosystem… and for other VC firms as well. As Ciaran O’Leary from Earlybird recently posted, the best thing that’s happening to European VC is the increased competition. More supply of capital, especially high quality capital, will mean more and better companies being funded with more firepower to compete in the global arena and more opportunities for co-investment across complimentary partners. This combined with the operational support GVE should help Europe continue to gain momentum in creating world-class companies.

Looking at the data should only add to the excitement about this announcement. Not only does it signal a validation of the opportunity in Europe, it should, if it mirrors the Google Ventures experience in the US, have an impact quite quickly in terms of deals and co-investments with other VC funds and, hopefully, exits.