How To Win the European Venture Capital Game
A parallel universe of cheap capital and demanding founders
The European VC sector is characterised by cheap and abundant capital and very sophisticated founders with high expectations and demands. The industry is very competitive and it is critical, to succeed, to have a rigorous strategy based on added value and differentiation.
Competition primarily comes from the fact that European Tech companies are successfully continuing to attract capital despite the challenges of Covid-19.
Across different stages of investing, in 2020 I have seen several big rounds of investments including, for example, Cazoo which raised £240 million at a valuation of over £2bn.
Growing Sectors and promising companies
I believe this trend will continue in the next few years as it looks that the increased pace of digitalisation that occurred during the pandemic will remain in the post-covid world. In particular, I believe that companies focusing on the future of work, user experienced enhanced by AI and machine learning and heath technology will gain momentum and attract capital.
In regards to the Future of Work, one very interesting company is InChorus (UK-based) which focuses on reducing the incidents of bias and harassment in organisations. They have created a platform where employees can informally and anonymously log incidents of harassment or bias. The data is then collected by the organisation and can be used to improve corporate culture. The founders state that:
Our vision is to create a truly inclusive future in the workplace — one which sustains diversity and where individuals can prosper free from the daily fear of bias and harassment. We believe this benefits both employees and organisations — in promoting employee wellbeing and productivity; assisting with the attraction and retention of talent; and reducing costs involved in employee tribunals.
I feel that another sector that will grow at pace over the next few years is the gaming sector. The industry has entered a new era with cloud gaming. This technology allows gamers to play their favourite video games across their mobiles, laptops, and TV screens instantaneously, without the need to download games. Instead of running on the console, the games run on data centers. The service allows consumers to live stream games the same way they stream videos on YouTube or Netflix.
Further, the Covid-19 pandemic has forced people to stay at home encouraging the use of digital activities including live streaming and gaming. As a result, Europe’s video game startups have seen their sales increasing exponentially. Now they have the opportunity to convince these new customers to stick around post-pandemic.
Among the European videogames startups, I believe that MAG Interactive (Swedish company) and Playrix (Dutch company) are currently best positioned for growth as they have so far demonstrated good strategic planning as well as execution skills.
How to succeed?
In such a competitive sector, successful funds are the ones that can create meaningful relationships with the funders based on empathy and trust.
VC is a very cliché industry. Everyone sounds the same, say the same things. Capital is abundant and you really need to have a good story. You really need to be able to explain why you exist and why you add value.
Also, key problems of current VCs are that they have limited empathy, limited awareness, they want to sit on boards without really adding anything. Be honest and explain why you are different.
You want to create situational trust. You understand the company is a mess and you are not going to judge. You are only going there to find a solution and be very honest.
It's a tough job, but someone has to do it!