Europe Pushing hard for North American GPs

The Siren Song of the Eurozone (2018-2021)

In 2018, the European startup scene roared like a lion, attracting a swarm of North American VCs (venture capitalists) hungry for a bite of the action. Spotify’s triumphant IPO that year served as a golden siren call, luring investors across the Atlantic with visions of outsized returns. Fueled by fear of missing out (FOMO), VC firms of all stripes, from industry titans like Omer’s and Lightspeed to rising stars like Bessemer Venture Partners, set up shop in Europe, eager to claim their stake in the land of opportunity. (Source: The Information, 2023)

The Murky Waters of Reality (2022-2023)

However, the promised land wasn’t paved with gold, but rather a complex labyrinth. The European market, a tapestry woven from diverse languages, regulations, and unique startup ecosystems, proved a formidable challenge for North American VCs accustomed to the familiar terrain of the US. This intricate landscape, as highlighted in a 2024 Sifted article, hampered their efforts, making navigation difficult.
Further complicating matters was the rise of a formidable local competitor: the European VC scene. As a 2023 Pitchbook report reveals, European VCs had matured significantly, becoming more active and aggressive investors, especially in the crucial early-stage funding rounds where competition is fierce and potential returns are highest. This homegrown expertise, as emphasized by Sten Tamkivi, a partner at the Estonian VC firm Plural in a 2023 TechCrunch interview, gave European VCs a distinct advantage. With a deeper understanding of the nuances of their respective markets, they were better equipped to navigate the complex landscape.

The competitive landscape was further intensified by the unique dynamics of the European startup scene. Unlike the US, where early-stage startups often looked to established players across the Atlantic for funding, European startups were increasingly turning to local VCs for initial investment. This trend, highlighted by Tamkivi in the TechCrunch interview, underscored the growing maturity and self-sufficiency of the European ecosystem. European startups were increasingly confident in their local knowledge and expertise, seeking partners who could provide guidance tailored to the specific needs of their regional markets.
These factors combined to create a turbulent environment for North American VCs. Some, like Coatue and Omer’s, opted to retreat entirely, while others, like General Catalyst, recognized the need to adapt. In October 2023, they announced a strategic merger with La Famiglia, a Berlin-based seed-stage investor, aiming to gain a foothold in the competitive early-stage European scene. (Source: TechCrunch, 2023)


A Glimmer of Hope (2024-present)

Despite the challenges, compelling reasons continue to draw North American VCs to Europe. Unlike the US, where regulations in hot sectors like AI and crypto remain ambiguous, Europe offers a more predictable environment with clearer regulatory frameworks. This clarity, as highlighted by David York, founder of Top Tier Partners, a fund-of-funds, in a 2024 interview, makes Europe a more attractive proposition for VCs seeking stability and a defined roadmap for their investments. Furthermore, the growing uncertainty in established markets like China has shifted investor focus towards Europe. This trend is evident in the increasing interest from US Limited Partners (LPs) – the investors who provide capital to VC firms – in European-focused funds. Plural, the Estonian VC firm, serves as a prime example. Their recent successful fundraising included significant investments from US endowments, reflecting the growing confidence of American LPs in the European market. (Source: Top Tier Partners, 2024). The story of North American VCs in Europe unfolds like a captivating transatlantic tale, one of initial excitement, followed by a sobering realization of the complexities involved. While some have chosen to exit the scene, others are adapting their strategies, forging partnerships with local players, and cultivating a deeper understanding of the diverse European landscape. As the European ecosystem continues to mature and attract global capital, success for North American VCs will likely hinge on their ability to navigate these complexities and build strong relationships with local stakeholders. This saga serves as a valuable case study for the ever-evolving dynamics of the global venture capital landscape, highlighting the importance of cultural sensitivity, market understanding, and adaptability in navigating the intricacies of different ecosystems – lessons that hold valuable insights not just for North American VCs venturing abroad, but for any investor seeking to establish a presence in unfamiliar territory.

Resources which are used for in-depth detail

The Information ,2023: This article provides an overview of the initial excitement surrounding the European startup scene and the influx of North American VCs. It uses the term “Gold Rush” to describe this period.

PitchBook, 2023: This report highlights the growing maturity and activity of European VCs, particularly in the early-stage funding rounds.

TechCrunch, 2023: This interview with Sten Tamkivi, a partner at Plural, sheds light on the unique dynamics of the European startup scene, where companies are increasingly turning to local VCs for initial investment. It also mentions the strategic merger of General Catalyst with La Famiglia.

Sifted, 2024: This article emphasizes the complexities of the European market for North American VCs due to diverse languages, regulations, and ecosystems.

Top Tier Partners, 2024: This interview with David York discusses the advantages of the European market for VCs, including clearer regulations and growing interest from US LPs. It also cites the example of Plural’s successful fundraising with significant investment from US endowments.

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