Why It’s Time for American VCs to Fund Startups in Europe

I have been in the venture capital business for more than a decade and I remember the old, golden rule that VCs should only invest in firms that are a one-hour drive away from their offices.

This makes total sense when it comes to being close to the founders, understanding their local market and helping them with advice and introductions.

However, now that we live in a world of Skype, video calls and cheap air travel, does this rule still hold true? Shouldn’t it be our only rule to find the best possible startups to invest and help them grow in large markets?

I live by that new rule as I invest in the best European startups and then help them conquer the huge US market where they can grow and exit.

Over the last few weeks I went on a listening tour across Europe to understand the mood on the ground by VCs, angels and of course, entrepreneurs.

It was enlightening to hear about the ingenuity, creativity and determination of startups in Berlin, London, Munich and Barcelona. Here is what I learned:

1. Going global is what your customers need.
As Josef Brunner said to us in Munich: “Your customers are global, so you should be global too from day one.’ Josef knows what he is talking about as his Munich startup, Joulex, was acquired by Cisco for $100M and he got $11M in a Series-A for his Berlin startup from Silicon Valley powerhouse—Kleiner, Perkins, Caufield and Byers.

2. Level the playing field in terms of funding.
Christian Bogatu, a serial entrepreneur in California and Berlin, made a great point when he said ‘chances are high that there is right now a similar startup to yours in Silicon Valley that raised $10M more than you did and will beat you to market if you are not thinking global.’

3. Think bigger.
There was broad consensus that US investors tend to write bigger checks and push the entrepreneur to think bigger in terms of vision. A typical conversation with a German VC will try to negotiate a lower valuation and lower investment while a US investor will ask: “What milestones could you achieve quicker with $10M more? How are you going to create a billion-dollar company?”

4. Accessing US investors isn’t easy for European startups.
Unfortunately, most German founders I spoke with said finding American investors to invest in their startups can be seen as a hurdle. My advice for all budding entrepreneurs in Europe is to look for US VCs who have investments in Europe already. Funds like Connecticut Innovations, who have a competition to attract startups from around the world, is a strong sign of the fund’s willingness to invest overseas. Our $5M VentureClash (www.ventureclash.com) challenge is designed with European startups in mind so that they do not have to worry about their legal entity form (Inc, GmbH, SA, Ltd) or if they have any US customers already.

5. It’s all about the mindset.
As a VC put it last week to the audience: “German startups are in a conundrum as their local market of 100m people is big enough to warrant a local solution, often stopping them from becoming a truly global company.” Compare this to Israeli startups that need to be global on day one.” International VCs can help global entrepreneurs with mindset, as well as with the local knowledge and network to successfully launch into foreign markets.

I hope you all sail with your startup ships to the US soon and if you do, US VCs will be ready to invest in you.

Matt McCooe
CEO of Connecticut Innovations