A venture capital firm is launching a new $400 million fund with a view to invest in early-stage European tech start-ups to help them compete on the global stage against competitors in the US and China.
Balderton Capital said that its new fund is focused on start-ups at the Series-A stage, when they have broken out of the Angel-funding scale and are looking for their first significant round of funding. The London-based firm said it would make around 12 investments each year from the new fund.
The fund comes at a pivotal time for European startups, with major EU economies slowing and Brexit casting a major shadow over any business being built in the UK. The EU is supposed to offer companies a market size that could compete with that of the US or China, but the language and cultural barriers mean many firms often struggle to make the jump out of their home country to become a continental-scale business, and with Brexit likely to remove one of the bloc’s largest national markets, the next few years are likely to be a bumpy ride.
Nonetheless, investment appears to be picking up in Europe, with rival VC firm Atomico saying last year that Europe was home to twice as many initial public offerings (IPOs) as the US and European firms were outpacing their US rivals in growth and profitability. And with Europe creating billion-dollar-valued unicorns at a rate 15 times higher than a decade ago, a number of US-based venture capital firms either have or are looking to create EU-focused funds.
Part of the attractiveness of European startups is that they are undervalued compared to their US counterparts, but also that hiring and living costs tend to be significantly lower in EU cities compared to Silicon Valley, where housing has become such a major issue even tech sector employees are being priced out the housing market and left to live in motor homes. Many European capitals do suffer from relatively high housing costs, but compared to Silicon Valley even London is a bargain.
It is not just soaring housing and hiring costs that is making US and Chinese firms less attractive to investors. The WeWork fiasco has highlighted a series of unprofitable IPOs in the US, causing US VCs to focus more on profitability than growth. And the US-China trade wars have started to have an impact across a variety of sectors, and alongside top Chinese firms being accused of spying, China too is seeing investment a little harder to come by than in recent years.
Meanwhile, in Europe, fintech in particular is seeing dramatic growth, with so-called “challenger banks” taking on the large established high street chains and rapidly poaching their customers, especially younger customers which is where the future profits will be found. In the UK in particular, the general public turned to one of five high street banks for all their financial needs for years, but new finance solutions and fintech firms are decoupling the industry, which had become too large and bloated after decades of consolidation.
Beyond fintech, both the media and mobile sectors have also developed rapidly in recent years with companies like Spotify and Vodafone launching from UK bases to become some of the most dominant players in the world. As the global economic indicators tighten, could now be the time for a European startup boom?
Photograph by QuinceMedia