(Editor’s note: Dispatches Europe tracks the tech scene and venture capital trends in Europe because so many of our highly skilled internationals are engineers, physicists and developers who are creating the new new thing. This post, part of our Tuesday Tech series, is the second of two tracking risk capital in Europe. You can see Pt. 1 here. We’re also working on a list of European VCs. Finally, you can see our handy guide to investment jargon here.)
While Europe created 36 percent of global startups launched between 2009 and 2019, it only accounted for 14 percent of the unicorns – startups with $1 billion-plus valuations, according to a recent McKinsey report. “Historically, Europe’s ecosystem has been less effective than that of the U.S. at turning startups into late-stage successes,” the report states.
The reason? Early-stage capital, or lack of it. Europe’s rich – the people who could invest in startups – tend to invest here in real estate because real estate is far less risky than finding the next Apple. American investors, by comparison, are far less risk-averse and flock to successful venture capital firms in hopes of a 100x return.
Consequently, Americans need more “deal flow” – worthy startups in which to invest. As we’ve pointed out so many times before, this is a peculiar period of market distortion in that there’s more capital sloshing around the globe than talent to invest it in. Which is why Europe is suddenly on the radar of American and Chinese venture capitalists.
They’re coming to Europe where talent is plentiful and valuations low.
One big difference between the US. and Europe is that the public sector here is involved in trying to make Europe more competitive. European Commission officials have stated they’ll invest about 4 billion euros into startups between 2021 and 2027, according to Sifted. Which sounds like a lot of money but really isn’t. But it’s better than a poke in the eye with a sharp stick.
This capital will be invested through the European Innovation Council equity fund and the Horizon 2020 framework. Which is all good and fine, but the truth is, for Europe’s startups to match their American cousins, there’s only one place to get sufficient capital … venture capital firms in the private sector.
Firstminute Capital
We’re leading off with this three-year-old, London-based fund because Firstminute Capital is interesting for several reasons, including it’s an early-stage investor, of which Europe has way too few. But what’s really cool is that its founders/GPs are all from billion-dollar companies, including European unicorns, as are its limited partners. And by the way, we’ve never, ever seen any VC firm reveal its LPs.
Founders include:
Joe Lonsdale from Palantir; Robert Gentz from Zalando/Rocket Internet; lkka Paananen from Supercell; Pete Flint from Trulia and Barry Smith from Skyscanner.
Firstminute just raised an $111 million fund (no idea why the odd amount.)
Of note is the fact that its LPs now number 70 founders of billion-dollar businesses as investors, and that Firstminute is being so open. VCs typically do not reveal much information about LPs. Hoberman has clearly also leveraged his position as founder of the Founders Forum group, which runs events and activities for European tech founders.
The reference is to British entrepreneur Brent Hoberman. So, basically what you have going on is a virtuous circle of capital flowing from successful companies to startups, and the VCs end up controlling the startup events as well for a first-look at talent. Which makes us uncomfortable, but what can you do?
Institutional investors include Tencent and Atomico.
The firm invests in everything from robotics to games.
Tell them about your fabulous idea here and maybe they’ll send you a check.
Andreessen Horowitz
Known universally as “a16z,” the number of letters between the first letter and the last. (We don’t think this stuff up; we just report.) Andreessen Horowitz is Marc Andreessen, the creator of the modern browser, and Ben Horowitz, a veteran of groundbreaking Silicon Graphics, as well as co-founder of Loudcloud with Andreessen. And a whole bunch of smart people.
In other words, this firm defines the Silicon Valley VC 2.0 … thinkers and doers. In fact, a16z is no longer a venture capital firm but an “investment advisor,” showing the best deals to its elite LPs.
This firm has $16 billion under management, including two new funds with a total of $4.5 billion to deploy. Not a huge amount in 2020 compared to Sequoia’s $1.4 trillion with a “t” in capital under management. But their pedigree and influence make a16z the firm everyone watches. To understand just how successful they’ve been, see their exits here.
While they’ve invested here in Europe (Skype), they don’t have a dedicated office. So you have to go to them. But where Sequoia goes (see below), can a16z be far behind?
The a16z playbook includes seminal works such as “Why Silicon Valley Can’t Find Europe,” and “Software is Eating the World.” So, if you want to know what the future holds, get hooked up with these guys.
You can send them your biz plan here.
Sequoia
This is a BFD. For 40 years, Sequoia Fund, one of the original Sand Hill Road VCs, has been one of Silicon Valley’s most successful venture capital firms since Don Valentine placed a bet on an incredibly non-conformist entrepreneur named Nolan Bushnell. The company was Atari and the rest is history.
Since then, Sequoia has invested in Apple, Google, Dropbox, Airbnb, Zoom and Stripe. The VC just opened in London, its first office in Europe. This is a big deal because for decades, Sequoia’s motto was, “If we can’t ride a bicycle to it, we won’t invest.”
Still, the truth is, Sequoia has been playing in Europe for awhile with investments in Klarna and other startups and before the pandemic, its general partners were meeting with dozens of startup teams on any one trip, according to Forbes. Roxanne Varga, the American director for Xavier Niel’s Station F in Paris, is listed as a Sequoia scout. Which makes perfect sense … Varga sees France’s best startups at the giant French incubator.
They’re looking for more enterprise software startups and fewer Uber and Lyfts.
Sequoia’s flagship fund has about $8 billion to deploy.
Atomico
With almost 3 billion euros under management, Atomico is really Europe’s first big-time, home-grown venture firm, the brainchild of Skype co-founder Niklas Zennström.
Based in London, Atomico closed its fifth fund totaling 820 million euros back in January. They’re looking for companies that need A rounds and B rounds. Be sure to watch the video above to understand Atomico’s focus.
Atomico very much falls into the increasingly popular vein of innovation for good. TechCruch quotes Zennström as saying, “We’re guided by a simple belief: profit and purpose are mutually reinforcing, not mutually exclusive.”
The funds are invested heavily in AI and machine-learning startups working in several sectors including healthcare and construction. You can see the full investment portfolio here.
Here’s how to start the process of meeting their general partners.
Seedcamp
We all can’t start with a16z and Sequoia. But Europe has a fairly successful seed fund many founders don’t know about.
Seedcamp, based in London, just raised a 90 million euro Fund V, it’s fifth since it was founded in 2007. Unlike most of Europe’s VCs, Seedcamp has an impressive record of exits including Revolut, TransferWise and Pointy, acquired by Google early in 2020.
You can read more about Seedcamp here on EU-Startups.
You can hit them up for an investment here.
Co-CEO of Dispatches Europe. A former military reporter, I'm a serial expat who has lived in France, Turkey, Germany and the Netherlands.
