Chaos is a Ladder: The State of Venture Capital in Europe
The State of VC in Europe
The final session of this year’s Startup Camp in Berlin was sparsely attended — an unfortunate waste of a superb panel due to the fact that it was Friday afternoon — so I’ll give you a little insight on what I learned from it.
The Game of Thrones-themed panel featured speakers Dr. Tanja Emmerling from HTGF, the most active seed fund in Germany, Chiara Sommer, who is setting up Intel’s VC arm in Berlin, Dominic Wilhelm, part of the European investment team at San Francisco-based e.ventures, and Jens Düing, Partner at London’s Frog Capital.
Europe favors early investment
In 2017, venture capital in Europe broke all kinds of records with a total 19.4bn EUR invested, up 36% from the previous year. This marks a concerted effort to catch up to the US, with more growth-stage investors looking at Europe than ever before.
An area that still has a lot of room to grow are later-stage rounds beyond Series B. But there’s hope! E.ventures’s Dominic Wilhelm says Spotify’s IPO is giving investors reassurance that great things do come out of Europe. One success means more are possible.
Not all CVCs are alike
Corporate Venture Capital funds are popping up everywhere and are more active than ever before — but not every CVC is the same. You have to question the role of the corporate in the fund. Newcomers tend to have a more strategic angle with their core business, which ultimately hurts the investors and investments, says Chiara Sommer of Intel Capital.
Macron’s AI initiatives intended to create traction in the French ecosystem
Moderator Tanja Kufner brought up Emmanuel Macron’s recent 1.5bn EUR pledge to boost AI initiatives in France, challenging the effect of governments pumping cash into an ecosystem. Naturally, these kinds of initiatives and subsidies will depend on where the money goes and how politics will play a role, but Chiara Sommer says there are two things to consider:
- Great economies can also have downturns — the first thing that gets cut is always going to be innovation
- Even big ecosystems rely on government subsidies — more government support is great, but it depends a lot on how you structure it.
Germany still has a lot of work to do when it comes to ecosystem building and it’s always important to give young founders great support, but in France, companies just don’t have the traction. There are simply too many French funds, and Wilhelm says they cannot invest there in good conscience.
Brexit means more talent in the EU
It’s chaos: the main challenge is that the EU Investment Fund doesnt know what the post-Brexit structure will be, and the funds are just speculating at this point.
Frog Capital’s Düing posits that the UK will ultimately suffer on talent. Less talent is moving from the EU to London, and not only that, but the cost of a UK education for EU citizens will go from about 9,000 (for UK/EU passport holders) to around 30,000 EUR (for anyone outside the UK). This means an upcoming shortage in the UK and a likely surplus in the EU, so it’s the safer bet at this point.
Berlin: the ultimate [crypto] hub
There are still a lot of undiscovered niches in Berlin, so it’s the place to be for international investors looking to enter the German ecosystem, according to Dr. Tanja Emmerling of HTGF. Sommer adds that there are great companies in Munich, Hamburg, and beyond, and you definitely shouldn’t ignore other places, but you lack the ecosystem of Berlin, where late Seed/Series A tickets range from 2–5 million EUR.
Wilhelm noted that Berlin is the uncontested crypto hub, so there really is no need for VCs in order for startups in that space to get funding. For AI, the UK ecosystem is definitely more interesting.
What Europe’s top VCs look for in a founder
For scaleups, the most important elements are product/market fit and the teams, according to Düing. The biggest downfall for rapidly growing companies is hiring among their friends. Düing’s secret sauce is for founders to first be self-aware about any gaps in the company skillset, and then to hire based on CVs and cultural fit — not the other way around.
Emmerling advises to proactively seek founders with the most experience, not the biggest ego. Find people who drive the company forward and know how to deal with terrible situations. Sommer favors being approached by founders through referrals from her existing portfolio. This automatically generates a higher trust level between the company and the VC.
Another way to build trust with an investor is doing due diligence on the company. Have they delivered on promises they’ve made in the past?
Of course, getting good investment deals will always depend on the market. And right now, Berlin — and Europe as a whole — is ripe for the picking.
