The State of European Venture Capital

The State of European Venture Capital

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The State of European Venture Capital

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    The Entrepreneurial Landscape Has Matured

    Today’s Europe is not short of so-called unicorns—private companies valued at $1 billion or more. As of August 2015, 13 of 129 global unicorns, or 10 percent, were based in Europe. Their ranks include well-known global names such as Shazam and Spotify. Moreover, Europe boasts established venture hubs such as London, Paris, Berlin, and Stockholm, where capable entrepreneurs with solid track records are building on their repeated successes and sharing their experience and expertise with their counterparts and colleagues. Some regions have developed sector-specific ecosystems, such as Cambridge’s medical-technology cluster for biotech.

    Looking at the current deal flow, we can also see an ongoing positive trend: the number of companies receiving seed investments grew by 19 percent from 2011 through 2014. Many of these companies can be expected to require additional capital, thereby offering interesting investment opportunities as they grow.

    There is, then, no current or anticipated shortage of European entrepreneurs and ventures. But if they want to compete with U.S. companies, they will need a lot of capital to grow, especially in later development stages.

    To date, European entrepreneurs have been able to attract capital at every funding stage. But some entrepreneurs are already turning their backs on European funds, many of which are too small to support startups as they grow through later stages. This accelerates the shrinkage of European private capital and drives European entrepreneurs to seek funding in the U.S., where VC investors stand ready to write large checks—fast. This trend is amplified by the regional agnosticism of today’s entrepreneurs. They are willing to launch their ventures wherever the environment is most welcoming. Much—and a growing share—of their capital originated in the U.S. in recent years, accounting for 25 percent of total capital raised in 2014, with a slightly higher focus on expansion (27 percent in 2014) and late-stage funding (26 percent), compared with seed and early-stage funding, which accounted for 17 and 22 percent of total capital raised, respectively.

    Moreover, when U.S. investors are involved, European startups can raise two to five times more money. That multiple increases with each successive funding stage.