Previously, we reviewed the March 2016 event that brought together academics and practitioners to discuss the state of the European venture capital market. We continue that review here…
Reflecting a cautious approach to Europe, Magnus Goodlad, Chief of Staff to Lord Rothschild, believes there is ‘a sort of macro risk that people committing to European ventures are being asked to take’. Limited partners (LPs) are deterred by the lack of well-developed ecosystems such as the ones in Israel and the U.S. and also believe it is more difficult to attain “unicorn” level in Europe – a private company valued at US $1 billion or more.
Saul Klein, a well-known serial entrepreneur, is more optimistic. He thinks it’s important to invest through cycles. Europe has had bad years but since 2011, there have been many successes such as Skype, Element 14 (a community for engineers), Criteo (the ad outfit), and Spotify. He thinks the best years for European VC are ahead and that success will breed success.
Klein was part of the original executive team at Skype and co-founded Lovefilm, which is a type of U.K. Netflix. He also founded The Accelerator Group (TAG) in 1999, Seedcamp in 2007, and later became a partner at Index Ventures. Klein and his father, Robin, have recently raised £45 million and launched LocalGlobe, a new seed fund.
Byron Deeter of BVP is hopeful too, although expressing caveats, “…the breadth of exits is starting to increase but the depth doesn’t feel like it’s here yet… when you look at scale of outcomes… the new word in the valley is decacorn… the multiples with ten billion dollar outcomes. It now takes a Facebook or a Baidu in China or an Uber in the private markets to rattle industries. Then entire collections of funds and hundreds or potentially thousands of entrepreneurs make life-changing economics off some of these companies. That’s the ripple effect that really creates an ecosystem and I think that’s one of the material things that’s still been lacking in Europe. Europe doesn’t yet have the scale to really send those kinds of shock waves around the world.”
Professor Axelson brushes off most of the complaints against European VC but admits that exit opportunities in Europe are decidedly less than in America. Europe’s entrepreneurs are just as willing to take risks as their American counterparts are. And as European VCs do more deals, their success rate is converging to the U.S. rate. Deal experience has proven to be a good predictor of success.
The point was made that about half of VC deals now have an element of venture debt in them. The pioneer in this field has been Silicon Valley Bank, which in 2004, obtained a charter to operate in Europe. It is very likely that, in the future, more European deals will incorporate venture debt
Since the discussion’s audience included students, the inevitable question was asked, “How do I break into venture capital?” Byron Deeter explained how he did it. “I started as the most junior professional doing cold calling and got exposure to the industry for a couple of years … then went out and started a business because I wanted to get that experience both as an entrepreneur, but also to understand both sides of the equation… but there’s no one answer. The more visible you are to people that you want to work with, the more likely you are to have all sorts of options.”
The consensus was that if you want to work in VC, you must have the entrepreneurial spirit. You must demonstrate your ability to overcome obstacles.
Don’t wait for an open door. If you want to work in VC, break the wall down to get in. As Felda Hardymon puts it, “anybody will talk to you if you come through the wall rather than the door”.
A podcast and video of the discussion is available here.
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