European Startup ecosystem — where VCs will look out for targets

Recently new statistics were published about the European startup ecosystems. Who received which amount of funding and which city will take the lead from which current leader. As we all know, statistics are generally influenced by the authors intention to prove a point. However statistics are always a look into the past and miss the current flow of events and trends to predict the future. While statistics are used to prove a point from a scientific and logical perspective — trends are based on feelings, discussions and unscientific interpretations. While statistics are hard to challenge without a competing statistic — all other arguments can easily challenged by “I don’t think so..”

So here is my list of current views and trends — all not backed by statistics and findings based on solid facts. But as a venture capitalist that is what we do: we watch trends and talk to people and mostly decide based on our gut feeling. Due Diligence is there to find challenges and arguments against an investment — not in favor of it.

Berlin versus London

Many statistics show that there were more funds raised in Berlin than London over the last quarter, half year etc. What the statistics are not showing in detail is the impact of Rocket Internet and its subsidiaries. What if Rocket would not be based in Berlin? What if Oliver would not be in the mood of endless fundraising. What if the companies would not need to raise new funds continuously for a quarter or two? What if one of the main companies would move head quarter to another city? The lead role of Berlin in fundraising depends significantly on Rocket Internet and Oliver’s activities.

So be happy and enjoy the party as long as it lasts. Please also do not forget how much Oliver contributed to the city starting in 2006. Without Rocket Internet Berlin would have not developed as much as it has in the past few years — just see the ex-Rocket employees driving the founders scene and new companies. Just Outfittery as one example with many more to be named. We all look forward to Soundcloud at its funding future. I am confident they will achieve the fundraising they need — it would be a disaster if not. It would prove that there is a successful startup scene on that level besides Rocket Internet. If not — Berlin would develop into a one trick pony show. Compared to London this is the main difference to Berlin. London has never and will never be a one trick pony show. It has a valid scene of founders and new business ideas. On top it has the capability to attract founders from other countries to move to London.

Current Hot Spots

While the discussion is mainly on Berlin and London — we tend to forget where the real hot spots are at the moment. Stockholm, Helsinki, Tallinn, Paris. Looking at the biggest fundings, strongest growing business, exceptional founders — all those are being found in the Nordics more often — Spotify, Truecaller, Klarna, Transferwise just to name a few. Gaming is big in Finland so this draws attention to the region by nature. Paris has been a long sleeping dragon, which recently started to wake up. Still the environment is challenging from a social politic perspective.

I left out Tel Aviv because it is strong but the reasons differ from those of the other ecosystems. By the nature of Israel and its surrounding markets the dependencies from external funding and the creation of new startups based out of military organizations is a singularity for this region. It is not easy to draw conclusions for other regions. Looking at events I have seen downturn in Noah (London) due to Noah (Berlin) — many Germans used to go to London in the past years and some will not attend waiting for Berlin next year. The discussion on Websummit went viral and had a lot of discussion about the organizers. But looking at the movers and shakers leading the pack, Slush and Garage are picking up interests from investors and founders. It will be interesting to see if there is a shift event on the event side of the business happening. As said: statistics will tell you how many attended last years event — trends and discussions with your peer group will tell you who will travel to which event in the coming months.

Future places to be

Early trends I see from those indications, which are not based on statistics, pinpoint to cities which maybe not in the reports of today’s number crunching experts. It is just the locations my fellow investors and geeks are telling me when been asked. Those are coming up:

  • Lisbon is by far the strongest place to be as an investor, as a journalist and as a responsible person for innovation in corporate Europe. While it is an impressive city with history everywhere on your fingertips — none would have expected it. It was a low cost production hub for advertising and e-commerce four years ago. A challenge for near shoring to the eastern European countries. But the entrepreneurs learned fast. Instead of building the dreams of others they living and building their dreams today. In case you haven’t been there — hop on one of the planes and spend some days in the sun and relaxing atmosphere. Finally a place where a lot of positive things fall together in one piece. No wonder first European investment by Salesforce Ventures was placed in Lisbon.
  • Barcelona following close. Similar surroundings, atmosphere, economic environment and university background as Lisbon. It just took them longer and for some reason their brothers and sisters in mind from the Atlantic coast overtook them in terms of speed and development. We all know the place from Mobile World Congress and several startup hubs, investors and accelerators. But there is more to be build. Speed is important because it is linked to traction — and that is what we value in our industry.
  • Vilnius follow at a lower level. The small kid in the shadow Tallinn and Riga. A bit neglected by our industry but slowly building up momentum. There is a lot of public and corporate money flowing into the city. The new startup campus with a lot of support from the Nordics — e.g. TeliaSonera and Microsoft — will push entrepreneurial spirit in this city. We need to keep an eye on this young developing ecosystems. But never underestimate the Baltic’s — Estonian Mafia has lectured us a lesson the hard way in the early 2009s.
  • Due to the Euro crisis and political turmoil the push for Athens has scaled down a bit. We need to see if the local ecosystem can recover from the set back. However being under the impression of the financial crisis for that long the entrepreneurs have adapted the crisis situation and made their way through it.

How to measure trends to get statistics?

While thinking about this trends I came up with sources to analyze this trends and where I drew my conclusions from — besides talking and meeting with fellows from the startups scene. When meeting over lunch we discuss where to go next. When traveling we will ping each other to see if we will be at the same event/location for a quick update on portfolio and joined deal flow. But apart from this personal talks I am thinking about a more technical solution. One would be to see speaker lists on events — however those are most often sponsored occasions. Some indications I get from foursquare where I am connected with my fellows. So I see where they have checked in lately — not meaning the stalking kind of viewing obviously. Another spot is facebook when people publish their check-ins or selfies in front of certain locations.

So maybe Mattermark has another pool of big data to tab into when evaluating startup ecosystems in the future: the facebook, foursquare and Instagram streams of VC investors and journalists. I would like to see what this evaluation will come up with as results.

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