20 years in a competitive and flourishing environment
The period from April 2000 to the end of 2003 — just after the dot.com exuberance and burst — has often been called the “Nuclear Startup Winter”. This metaphorical winter happened to be the first three years of our company.
In our second “20 years btov Partners” post, we shared some context on the first investment of the btov Circle of Investors in XING in 2004. In those days, a young company with comparable KPIs would receive first term sheets within 30 minutes over a Club Mate — no pitch deck required. With XING, Lars Hinrichs initiated Europe’s Web 2.0 wave and with his success he enabled an important part of today’s VC ecosystem in Europe.
So what has happened to the European VC ecosystem since btov’s foundation in 2000?
1. Total financing volume — a steady increase since 2008
In the period 2010–19, European financing volume (seed) has grown at a CAGR of 29%, while Series A financing volume has increased at a CAGR of 20%.
In the same period, btov’s Assets under Management have increased from around EUR 40m to EUR 510m.
2. The number of new VCs across Europe — an unsteady increase followed by a so far steady decrease
Half of Europe’s active VC funds have been founded between 2010 and 2020.
After a long-lasting surge in VC incorporations (with a few exceptions including 2008 due to an extremely weak Q4 #lehman), the number of new VC foundations has been declining since 2017. Despite venture capital increasing in relevance as an asset class, LPs tend to have more options (in light of established funds increasing in size over time), leading to higher LP funding requirements especially with respect to GP track record, making it more difficult for first-time funds to succeed in fundraising.
3. VC activity in the DACH region — some have survived, others have been replaced
Looking at the VC landscape in 2000, only a few presently relevant brands stick out. Next to btov (back then, an online matching platform) you would stumble across names such as Earlybird, HV (back then under the corporate roof of Holtzbrinck), Acton, Target Partners, BV Capital (now e.ventures) and Wellington Partners. Besides, most investors were either public funding instruments or had a pure Life Science focus such as TVM Capital.
Below you can find a list of DACH’s most active investors in early stage rounds in European Companies (2019):
While we should not attach too much weight to such activity rankings (it’s all about quality and not quantity, right?), it is still interesting to see that there is a correlation between founding year and today’s activity, comparing the above extract with the entire VC ecosystem.
4. VC hubs across the DACH region — Berlin only reached the top in 2011
As late as 2011, Berlin surpassed Munich as the hub with the most active VCs. Since then, Berlin has extended its lead position as the #1 VC hub in the DACH region.
btov has feet on the ground in the top 3 VC hubs in the DACH region. While the VC business is becoming more and more international and great companies are increasingly started outside of the major technology hubs, the value of local networks can’t be underestimated.
5. Seed is the new Series A — round sizes increase over time, however, not at the cost of dilution
Between 2010 and 2020, the size of the average Seed financing round tripled, growing from roughly USD 550k to USD 1.6m. Unfortunately, data coverage in the 2000s is sparse — our own data however tells us that Seed rounds were roughly at a similar size between 2000 and 2010. Also, Series A financing rounds increased by 70%, from USD 5m to USD 8.5m on average. At the same time, early stage financing round dilutions used to exceed today’s usual dilution standard of 20–25%, in some cases quite significantly.
The higher implied valuation uplift for Seed financing rounds can be explained by an overall decreasing follow-on funding risk for Seed companies in light of more Series A financing available.
Top tier early stage funds with an original focus on Series A+ focus more and more on (pre-) seed. To some extent, at least in the digital tech space, they resemble large football clubs placing ever-increasing importance on youth talent scouting networks, trying to pre-empt young talent (Pre-Seed/Seed startups) with an extraordinary willingness to pay, driving up transfer sums (corresponding to round sizes and valuations in VC terminology).
6. Cap table internationalisation continues — even at pre-Series A stage
While in 2010, only 11% of all early-stage transactions had international (non-European) participation, in 2020, this proportion increased to 25%.
The increased attraction of foreign capital can largely be explained by European startups’ higher capital efficiency and lower entry valuations, compared to their US counterparts.
btov has always invested more globally than you may think — 18.5% of btov Fund I’s investments were in fact located outside of Europe.
However, we only opportunistically invest outside of our European comfort zone i.e. through our trusted network and associated btov discovery weeks out of which investments such as OrCam, Flytrex (both Israel), Vitta (Brazil) and Happify (US) emerged.
Going forward, we will further systematise our network-led investment strategy through the ongoing Europeanisation of btov’s super angel network. We have already expanded our originally DACH-focused angel investor network group to Southern Europe (through Luis Cabiedes), BeNeLux (through Toon Coppens), CEE as well as the Nordics. Stay tuned. There is more to come.
7. On top of mandatory financial performance, there is an increasing importance of VC’s non-financial differentiation
We are contemporary witnesses of a shift away from PE-like financial (mostly revolving around valuations) towards non-financial differentiation. In our industry, non-financial differentiation stands for:
- “Smart money”, composed of domain and operational expertise, one’s network and integrity
- Communicating these characteristics with the public, and converting them into a differentiated brand (this only really started in with the formation of Point Nine and Project A, at least in Germany)
These days, founders are to a greater extent pricing in this signalling effect of certain investors.
In light of our long-lasting hesitation to share content as well as our past rather mediocre web presence, it is fair to say that branding hasn’t been btov’s strength — hence why we took the liberty to renew our web appearance (check out our new website here and our most recent blog posts here).
8. Sourcing channels remain largely the same, with two exceptions
Sourcing remains largely network-driven. This is confirmed by the latest trend towards network-driven funds (check out our recent post on supporting entrepreneurs by connecting Brains to Ventures hinting to the evolution of btov’s angel network). At btov, >50% of investments originate from the btov Private Investor Network, including the likes of DeepL, Raisin, SumUp, foodspring and Seven Senders. This very much underlines the essence of network-driven sourcing. However, as indicated above, there are two exceptions:
Exception 1: Students are becoming an integral part of our ecosystem. Founder recruiting occurs earlier and earlier with an increasing presence at universities. Many funds are closely tied to top tier business schools or technical universities. Examples include GFC and Cherry with WHU or btov with HSG and ETH. The same applies to VC relationships with student-run conferences e.g. Atomico with Slush and btov with START Global, among many others. The emergence of student-run pre-seed funds such as First Momentum Ventures, Creator Fund or Wave Ventures confirms this argument.
Exception 2: Last but not least, tech-enabled sourcing is on the rise. Thanks to a multitude of relevant info sources, ranging from LinkedIn to App Store Analytics to the commercial register, VCs increasingly extend their sourcing arm beyond their inherently limited network. Prominent examples include e.ventures (Thedailygieselmann — reminds me of my first VC internship 2013), EQT Ventures (Motherbrain), Inreach Ventures or Correlation VC.
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It is only a matter of time when emerging tech giants such as Adyen, Zalando or Spotify close in on SAP as the long-standing most valuable tech company with European roots. As the graph below suggests, the candidate list for the next SAPs is long and yet continues to dramatically increase in size.
We as the European startup ecosystem have collectively signed up to extend this list.
To all fellow tech investors but especially to you founders, we are eternally grateful for what you have contributed to this promising ecosystem over the last 20 years. We are very much looking forward to and proud to play our part in further shaping this ecosystem, the backbone of our future.
