Has Venture Capital in Europe finally arrived?

This is the question I hear the most having moved from Toronto to London 18 months ago to start Columbia Lake Partners. CLP provides growth loans to venture-backed companies in Europe, mostly those that have raised a Series A or Series B equity round. This gives us a good vantage point from which to observe a few of the trends in Europe.

On 21 March, CLP will sponsor a discussion on this topic at the London School of Economics (LSE). It’s an event you won’t want to miss - registration details here.

The evening will feature successful investors from Europe and the United States, including:

·      Byron Deeter, Bessemer Venture Partners  

·      Saul Klein, LocalGlobe and formerly of Index Ventures

·      Magnus Goodlad, Rothschild Family Offices (a limited partner who provides the capital for venture funds).

Felda Hardymon of Bessemer Venture Partners will moderate the discussion starting with a presentation by Professor Ulf Axelson of the LSE. Professor Axelson will present his paper citing new evidence on the success drivers of venture capital deals, contrasting results in Europe and the U.S. He will discuss the myth that Europe underperforms with respect to IPOs and has a stigma of failure. He will also address the differences in performance, which are explained in part by the United States benefiting from a deeper pool of serial entrepreneurs and more experienced VCs.

At CLP we have found that the tide is turning on these latter points. Evidence points to successful role model companies, increased talent to scale new companies and a new generation of European venture funds with significant capital to help fund startups to scale. With these ingredients in place we believe European technology companies are in a strong position to succeed in the years to come.

Europe is building large, role model companies.

The success of companies such as France’s Criteo, Denmark’s Zendesk or Zoopla and Monitise in the UK, which together employ over 4,000 people and are growing quickly, demonstrate that European companies do not have to sell before reaching scale. These success stories also show potential founders that it is possible to build a large company in these countries.

As a Canadian I know the importance of growing strong, native companies. In the 1970s our country had too many “branch plants” – American companies with offices in Canada but decision making from south of the border. These companies were good for employment but lacked the impact of native leaders like Magna, Barrick Gold or Newbridge Networks.

These leaders created employment both in-house and for a network of suppliers and service providers. The companies, in turn, were equipped to help other manufacturing, mining and technology companies thrive. Newbridge, founded by Welsh-Canadian Sir Terry Matthews, was a particular success that produced multiple spin-off software and hardware companies and venture capital funds.

Europe is building the critical management roles needed to scale companies.

As a company rapidly scales it has to quickly hire – and develop – a team that can successfully grow the business. Silicon Valley has long had a deep bench of talent. If you need a VP of Sales with experience growing ARR from $5 to $50 million you can find that person.

The good news for Europe is that these roles are getting easier to fill. Our portfolio companies Clavis Insight, Falcon Social and Showpad have all grown quickly with talent from Ireland, Denmark and Belgium respectively.

As role model companies grow through their stages of development, some staff will leave for smaller companies and take the lessons of successful growth with them. With that knowledge the next iteration of a company has a smoother path to success.

Take Berlin’s Rocket Internet for example. In eight years Rocket has grown to 30,000 employees across its network of companies. With that speed of growth, Rocket gave a large group of managers great responsibility early in their careers. A number of those managers have moved on with Berlin’s start up scene benefiting from their experience.

Funding is available and increasingly coming from a new generation of VCs.

Another sign of the current success – and signpost of future success - is the creation of a new breed of venture capital funds in Europe. The partners in these new funds are a combination of investors from US-style venture firms and company founders.

As the venture landscape in Europe matures, funds are beginning to specialize. This specialization from the likes of Point Nine (SaaS), Notion Capital (enterprise software) and Felix (the creative class) will lead to a better understanding of the challenges faced by the companies they fund and, in return, better outcomes.

And there are large funds. Six of the largest (Index, Accel, Atomico, Balderton, Index, Lakestar and Northzone) have raised a combined $2.5B since 2013. These larger firms have the firepower to help fund companies to scale. This capital removes a key barrier European companies had faced in the past.

Building companies is not easy anywhere. In Europe, the presence of role model companies, a growing talent pool and new generation of VCs with significant capital all help to improve the odds of success.