Should I Stay Or Should I Go?

So if European Venture Capital is a bit f***ed in Europe, because:

  • there is too little choice/competition
  • many can’t raise a further fund
  • most don’t have hands on experience of product, the industry or running a team let alone their own start-up; most have a finance background
  • U.S. VC’s understand start-ups, product and vision in a way U.K./European VC’s do not
  • Performance of the European tech VC sector has been abominable

…should you even bother?

Should you not up sticks to the yellow brick road of The Valley and San Francisco, or stay in Europe with the losers? Some people who’ve already left for the west coast would say follow up-sticks and follow them there.

London or San Francisco: Something I’m Asked Every Week

The conundrum of supporting your home ecosystem or heading for the promised land, is also evident from the start-ups I advise. On nearly every occasion, during the first or second mentoring meeting the question arises:

 “Do you think we should go to the U.S?”.

For many consumer orientated start-ups the answer is: “Yes, go”.

However it depends on the start-up and be under no illusion: The Valley is no answer for a crappy product, poor team or flawed vision.

To all, I say that in Europe:

  • valuations will be lower
  • exit opportunities possibly fewer
  • then there is size of home market of the U.S., it’s vast (Europe is fragmented)
  • in Europe there is a lack of concentration of early adopters and “ambassadors” for your crazy new consumer service, compared to the west coast
  • American users in general are more ready to try new things & promote new services than European users
  • lack of product expertise with European/UK staff
  • potentially a lack of entrepreneurial spirit amongst start-up employees
  • lower appreciation / valuing of the share options you dish out
  • a social (and industry) stigma against failure
  • all the VC problems discussed above (for many consumer facing start-ups, without a revenue stream today, VC funding is highly unlikely indeed in Europe)
  • you’ll likely be under-capitalised and be expected to do more, with less (not always a bad thing, but not a good way to compete with US competitors)
  • at best the under-current of strategy and discussion (and at worse the entire focus) of your investors will always be on revenue before user numbers and product

There are up sides though working in Europe though:

  • cheaper engineering labour in Europe (even in London; would you believe it, it’s true!)
  • being closer to customers if you’re B2B
  • you can be a be a bigger fish in a smaller pond
  • potentially you can also start here in stealth mode being “under the radar” to get going if you have an original idea
  • target markets Silicon Valley does not (e.g. Yelp took YEARS to move outside of the US, losing out to Qype and others)
  • being OUTSIDE the bubble can sometimes help – the valley can be a distraction with it’s geekfest parties and all-consuming check-in-latest-buzz-word shenanigans
  • arguably easier (and cheaper) to set up a UK Ltd Company and do the paperwork for your first year’s trading than in the USA with a Delaware corporation
  • generous government grants – most pretty easy to get and many match like for like funding on angel rounds
  • a focus on revenue (yes, this can be a good thing too)

In addition, there is a growing list of incubators and start-up programs in the UK and Europe. Seedcamp remains prevelent and there are new VC’s like Hoxton Ventures and angels such as Stefan Glaenzer who promise pubicly to operate more intelligently, in a more informed, fairer manner which supports the entrepreneur and their vision.

The next 12 months will certainly be interesting – and despite the frustrations I’m optimistic about the future for Silicon Roundabout in London.

The real challenge for Europe is improving the support VC’s give start-ups and the way they approach deals. The second is getting rid of the social stigma of failure or conversely, wanting to earn zillions of pounds or euros!

In short, we (Europe and the UK) need to learn to scale start-ups.

That all said, having spent nudging 30% of my time there the last 3 years, when I do another start-up, it will probably be from the Valley.

Don’t feel bad though, most of America’s TV is our fault. At least we’re good at exporting something.

*** STOP PRESS ***

A VC recently posted on the ICE List suggesting that the lack of revolutionary investment in high-risk ideas has been the pressure from LP’s on VC’s to be conservative.

This pressure -she argues- has in the past caused a lack of risk taking on visionary projects. i.e. those longs shots ahead of the curve (Twitters, Facebooks).  I’m not sure if there is a real case for that as a reason.

These types of projects, as an entrepreneur repeatedly too early to market and who has failed to get VC’s to even understand where the market is headed, is a topic close to my heart.

Perhaps of course for those ventures it was my sales pitch, but -naturally- I would argue many VCs simply don’t understand enough about the market they invest in to understand a 5 or 10 year horizon, nor will put their proverbial balls on the line to risk investing in such a roll of the dice.

I would suggest these grand consumer projects (and certainly those which offer up no revenue until great mass is achieved) have never been embraced -let alone liked- by European VC’s. I see no past evidence of the inverse being true and I also can’t see how that is ever going to change.
I’ve become sadly resolved that we’d be better to work on improving the way EU VC invests in those sectors which already attract funding today; i.e. SaaS, enterprise, B2B and maybe consumer which has an immediate biz model & revenue stream (although these are still usually under-capitalised compared to US counterparts with whom they compete).
There is plenty of work to do around valuations, terms, knowledge and conduct; while being realistic about the appetite to build a next gen Twitter. I simply don’t think any EU VCs are hungry to do that.
I think that we (Europe) can give up on having the next Facebook, or more exactly, the thing which looks nothing like Facebook because it’s some AR LBS NFC MOSOSO which changes again the way the masses communicate, share, live work or play
…but I’d love someone to prove me wrong.

2 thoughts on “Should I Stay Or Should I Go?

  1. The Myth Of Silicon Valley | Urban Horizon

  2. London vs Silicon Valley…..on the VC trail « Carl Costa

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