New Study Underscores the 5 biggest problems for Venture Capital in Europe

Nov 12, 2014
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We’ve heard it all before – “There’s not enough local money,” “Corporates don’t interact with startups,” “we need to think more Europe, less London v. Berlin v. Stockholm v. Paris v. …;” however, a recent study commissioned by the European Union was delivered by France Digitale called “Boosting Digital Startup Financing in Europe” has found that some of these problems are bigger than we thought.

The study saw 44 interviews across Europe with Venture Capitalists about the state of VC in Europe – here are their findings.

We need more Exit Opportunities

95% of interviewed Venture Capitals said that a lack of Exit Opportunities was the biggest challenege facing European Startups ( & VCs) today. Whether it be IPO, Acquisition, or a PE Buyout, it seems that exits are the exception, rather than the rule in Europe. IPO’s by Zalando, Criteo & King.com are rare, as are acquisitions like Skype, La Fourchette, Neolane & MySQL. One of the biggest issues is that IPO’s and acquisitions, like those mentioned, are almost always “to the benefit of a US player as there are almost no European [buyers]… conditions for tech IPOs…. are not favorable.”

In short, “The industry needs large European tech companies that can compete with US players.”

Distribution of VC across Europe is unbalanced

In Southern Europe (Portugal, Italy), a lack of early & seed stage kills companies early. In France, it’s the late stage that kills. The report found that “only 4 to 6 VC firms are able to fund [late stage] deals.” On the one hand, it’s normal that later stage investment come from foreign investors (your company should be international by then, and strategic investment can help enter certain markets); however, it is very rarely the case that foreign companies take European investment to enter Europe.

The European Single Market is still just a Dream

Conversations of London vs. Paris vs. Stockholm vs. Berlin has more or less died down; however, communication between these hubs on a level similar to how NYC, Boston and San Francisco communicate is still lacking.

Unification of Best Practices for Startup Legal Renovations

Every country in Europe is fighting a different battle – in Spain, stock options are taxed too high, for example – and, in general, the Venture Capital asset class is regarded negatively across Europe, which breeds dependency on public funding. A common Venture Capital legal & fiscal standardization across Europe is a lofty goal, but is necessary if countries hope to create pan-European opportunities.

European Corporations are still facing “Not Invented Here” (NIH) syndrome

Acquisitions in Europe by European companies are staggeringly low, and, when they happen, are often more about maintaining market share than about integrating technology into the company. The report found that corporations today use accelerator models more as a public relations tool than as a real opportunity to attract new innovations.

Working on this report as well as participating in the Web Investors Forum is allowing us to go beyond our usual borders and reach out to the rest of the continent in order to contribute at an International level. In doing so, we hope to help create a more compelling an dynamic environment for investors and entrepreneurs to thrive in, something which begins by looking at the situations from a European perspective. The venture capital ecosystem in Europe is still quite young but full of promise nonetheless.

 

Thanks to pan-european initiatives such as Startup Europe and Digital Agenda as well as the support of Neelie Kroes, Vice Président of the European Commission, I am confident that we can move things forward, apply our recommendations to create a truly European ecosystem and ensure that Europe becomes the place where the next Internet powerhouse emerges from.”  T-aro Ugen, author of the report and VP Venture Capital at France Digitale.

The report goes on to outline proposals for changes on the European level that could help resolve these issues – whether or not these proposals will be taken into account, or how long execution on such proposals will take, is unclear. Nonetheless, recognition of such issues on a European Commission level is the first step to enacting change – previous fights for SMEs by the EC have been relatively successful, due in large part to Neelie Kroes.