Craziness: the REAL difference between US and European VCs?

Feb 3, 2012
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I woke up Monday morning to a bit of a shock. Usually after my alarm goes off, I quickly scroll through email, Twitter, Facebook and the likes to make sure there is nothing urgent to respond to. But on Monday, I had made the mistake of taking a quick peek at Instagram…only to see this:

Yikes. In case you missed it, the photo is from the Instagram account of TechCrunch writer Alexia Tsotsis of VC Shervin Pishevar’s new haircut – which features the names of some of his portfolio companies: Uber, Fab, Warby Parker…

You can see above how the (rather ridiculous) idea thrilled his portfolio companies – like Uber CEO Travis Kalanick…

…and worried/frightened/confused other investors, like Lowercase Capital’s Chris Sacca. (I’m kidding by the way, Sacca’s comments on Twitter, etc. show that he was very supportive of Pishevar’s new ‘do.)

Not your average term sheet.

Clearly, this is not your average term sheet. And never in my life have I heard of any European investors going to such great outrageous lengths to show that they really endorse their investments. Maybe it’s cultural. In Europe (and especially France), people are far more critical of advertisements and try to keep a very healthy distance from becoming a walking billboard. For example, the image below is a familiar phenomenon that takes place in the Paris metro, where people write all over advertisements saying more or less how disgusting capitalism is.

European investors are just “closet endorsers.”

The European startup community has all kinds of criticisms for the local VCs. They call them risk averse, they call them inexperienced former-finance guys, they call them followers of their US counterparts. Sure, whatever. But I would call them “closet endorsers.”

In the same way that Pishevar practically carved the names of his portfolio companies into his head, I suggested on Twitter a while ago that local VCs wear shirts at conferences with the logos of their portfolio companies. And the idea got very mixed reactions. I’m not talking about someone like Kima Ventures (who would need to update their shirt every 2 weeks to incorporate their new investments), but guys typically investing in 5-10 or so new companies per year. I mean, it can’t be any less ridiculous than shaving their logos into your head, can it?

For entrepreneurs, “crazy” is a compliment.

This whole situation made me wonder if the European tech crowd has a strange relationship with being perceived, well, crazy. Could it be that the same “craziness” used to imagine ridiculous gadgets and platforms is also breeding the early-adopter culture across the Atlantic? Rather than treating even ridiculous idea with skepticism and criticism, what if Europe really got into it?

This is part of what I loved about the Pirate Summit that I attended in Germany a while ago. The event wasn’t held in your typical, swanky conference hall – but in an outdoor artist colony near the red-light district (this made the cab driver question my actual profession when I told him I was going to a “conference”). At the summit, the organizers and speakers would “Arrghh” about the place – making complete fools of themselves. But this made it far easier for everyone to relax and actually open up about topics they would usually shy away from.

I do realize that I’m making some gross generalizations. After all, I wouldn’t be surprised to find some European investors – like Morten Lund – with tattoos of this portfolio companies (or something to the same effect). So Europe is definitely not void of the of extremism seen in the US.

Term sheets: beyond the weirdness.

Beyond culture, Europe’s VC industry is younger than that of the US – which for Elaia Partners’ Marie Ekeland also explains the differences in investment strategy. For example, one of the points she raised during the Paris Failcon in September 2011 (also outlined in this study) concerns staging investments. While some find that European investors are not as good when it comes to staging and defining and evaluating concrete milestones before refinancing, Marie actually finds that the staging investment model may be too rigid for early stage startups that often tend to practice agile lean startup principles.

But the term sheet differences Marie notes go far beyond staging. She finds that where European investors often ignore going public, US investors tend to actually emphasize IPOs as an exit strategy. In addition, US companies tend to be more generous with stock options and more severe with liquidation preferences. Obviously there are tons of “technical” differences that are influenced by the local regulatory environments.

Portfolio Appreciation Day.

Obviously there are tons of “technical” differences that are influenced by the local regulatory environments. But investment is about more than just money and not all money is created equal. Which is why I invite all European investors to hold a Porfolio Appreciation Day and do something crazy to show how much their investments mean to them (I’ll be interested to see how Kima pull this off).

For inspiration, here’s First Round Capital’s holiday video from 2010, making fun of the Old Spice commercials that swept the internet…

…and their pop debut.