As US investors clamour to be early backers of Europe’s first $100bn start-up, a clear vote of confidence in Europe’s growing investment scene has been sounded, writes Elaine Burke.
A lack of early-stage investment can be detrimental to indigenous business, as noted by Draper Esprit venture partner Brian Caulfield in the Irish Times last week. Analysing the wealth of Irish start-up funding amid a dearth of support for early-stage companies, Caulfield wrote: “We are quietly losing many indigenous, innovative companies, some of which have the potential to play a pivotal role in our economic recovery.”
Caulfield sees Ireland’s “home-grown, high-growth technology businesses” as “our insurance policy against dwindling FDI”, and cited their valuable contributions to research and development as well as employment.
“Today’s five-person company working from a small co-working space could be the next Irish tech giant. But first, we need to make sure that the seeds are planted rather than eaten in lean times. Not all will germinate or thrive, but those that do can make a huge contribution to Ireland’s recovery.”
With Stripe’s valuation potentially rising to as much as $100bn, it signals that Ireland has had the potential seeds if not the environment to support high-scale start-up growth. And across Europe, the search is on to find and nurture what will become the region’s first $100bn start-up.
‘European technology is reaching escape velocity’
– BRENT HOBERMAN
With the opening of a London office, world-renowned venture capital firm Sequoia is now among the searchers. Rooted deep in Silicon Valley, Sequoia counts Apple, Google, YouTube, Dropbox, WhatsApp, Airbnb, TikTok and Stripe among its long list of successful early bets.
Sequoia’s first major investment in Europe was fintech start-up Klarna, now one of the region’s most successful start-ups. Since then, Sequoia has supported well-known entities such as travel-tech start-up Skyscanner and 6Wunderkinder (the company that was behind Wunderlist) to its portfolio, along with European up-and-comers such as Ireland’s own Evervault.
While Sweden’s Klarna is up there among the greatest European start-up success stories, it’s well-known that Europe’s first unicorns were much slower off the mark than those coming out of the US and Asia. CB Insights’ list of more than 500 unicorns around the world is dominated by Chinese and American start-ups, while Europe’s representation is dominated by the UK.
Decacorns – companies valued at more than $10bn – are even fewer in Europe and as expectation builds for the region to produce its first $100bn start-up, competing investors are swooping in to identify these rare seeds as early as possible.
Speaking to TechCrunch last month, Sequoia partner Matt Miller said that, increasingly, the best investments in such hot-ticket areas as process automation and AI semiconductors are found in Europe. He put this down to a talent shift from steady roles in finance and consulting to the exciting world of start-ups and innovation.
“Europe has always been this place where there’s been incredible talent coming out of the computer science programmes … Now that those young people are interested in start-ups and technology careers, that’s fuelling a lot of great ideas and a lot of great talent,” said Miller.
As well as Sequoia, Europe’s investment scene is about to see a significant arrival in Firstminute Capital’s London-based fund, which is launching next year with an initial round of $111m. Founded by Lastminute.com co-founder Brent Hoberman, Firstminute’s list of backers includes former Google CEO Eric Schmidt. While this fund is looking to support start-ups in the US as well as Europe in 2021, Hoberman sounded his vote of confidence in the European market.
“European technology is reaching escape velocity, and it’s fantastic to enable so many global serial entrepreneurs to give their experience to the next generation,” he said in a statement.
This fund also marks RIT Capital Partners’ first backing of a European VC firm. RIT has previously invested in US funds at Sequoia, Benchmark, Thrive and Iconiq, and Firstminute has secured the investment trust as its anchor investor, the Financial Times reports.
‘Europe has always been this place where there’s been incredible talent’
– MATT MILLER
All of this could mark the beginning of a new chapter in European start-up investment and, per Caulfield’s earlier suggestion, ensure the region’s post-Covid economic recovery. 2019 was a banner year for investment in European start-ups but overall European venture funding fell 17pc year-on-year in the first nine months of 2020, according to Crunchbase data.
What Europe doesn’t need is a repeat of Google Ventures’ move into the continent with a dedicated operation, which was launched in 2014 and ditched after a year and a half in operation. To avoid such a misstep, Sequoia has actively learned from the Google Ventures experience and plans to start small, grow gradually and ensure close transatlantic cooperation.
Luciana Lixandru, Sequoia’s first partner in Europe, made her plans explicit to Sifted. Undeterred by any coronavirus impacts, she’s aiming to get in as early as possible with emerging start-ups and focus on more Series A rounds. In particular, Sequoia is looking for ambitious founders who are thinking globally and especially of US expansion. Consumer start-ups are lower down the list, with B2B start-ups in areas such as enterprise software, productivity and fintech taking prized position in the line of focus.
Lixandru also believes that Europe’s tech ecosystem is getting more competitive, which will no doubt be even more heightened with the arrival of these new funds. With Sequoia reportedly eyeing a 10-year lease in London, fledgling companies in Europe better get ready to fight for a slice of this incoming opportunity. This next decade could be a gold rush.
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