Europe’s VCs – Missing Out Or Cashing In?

For American venture capitalists, particularly those headquartered in Silicon Valley, 2014 was a go big, or go home kind of year. And they didn’t go home very often, betting pretty big on some yet to be seen big bets across all of the FinTech space. Last week, the PYMNTS’ Investment Tracker took a look at “ubernomics” and the massive amounts of capital that are dropped (shoveled?) into start-ups, and jacking up valuations enormously in the process.

Uber’s latest $1.2 billion raise on a $41 billion valuation sort of wins the 2014 “staggering sum award,” but it’s not as if other start-ups went starving. Instacart’ will raise $100 million on a $2 billion valuation, Stripe brought in $70 million during its last fundraising endeavor with a valuation north of $3 billion. The list goes on, but only serves to re-iterate a single point – American VC’s like their investments portions – supersized.

Across the pond, the story is quite different. European investors are more restrained. While warehouses and lofts across East London and Berlin are being converted to house the next generation of continental tech firms, the reality is that startups in those two cities (two of Europe’s fastest growing innovation hubs) can’t compete with their American counterparts in New York and Silicon Valley when it comes to fundraising.

“It’s pretty simple I believe,” said Paul Jozefak, Managing Director for Hamburg-based LiquidLabs Gmb. “Most EU funds are significantly smaller or have been so in the past when compared to US funds. Further, it’s much harder to raise a fund in Europe and hence, investors tend to be far more cautious with their funds.”

Jozefak also noted that Europe is light on middle series (A and B round) investors, which puts increased pressure on innovators to generate revenue of their own to fund their growth. It also supports the environment of conservatism, and potentially, runs the risk, Jozefak says, that VC’s often simply make the mistake of shooting too low.

“As many set out to grow local superstars, avoiding the global opportunity, you have under-financed businesses to start with,” he noted.

And perhaps it is unfair to compare Europe to Silicon Valley, which dominates the field when it comes to venture money – tech companies alone in 2014 secured $22 billion in investments dollars, doubling the year before’s take.

However, even taken against one of the other strong US tech centers, New York, Europe still seems to be trailing. As is the case in Berlin and London, New York based start-ups rely on ties to existing industries, such as fashion and financial services sectors, reports The New York Times. However, while firms raising funds in NY brought in $4.5 billion in 2014 (up 44 percent from 2013 according to CB Insights), London tech start-ups only took in about $1.4 billion. In Berlin, start-ups collectively raised $1.1 billion this year.

It’s hard to say that any sum of money north of 1 billion is a disappointing sum, and in fact London’s take this year is approximately twice what it was in 2013. And, in Berlin the funding increase is more striking, VC investment is up 140 percent.

Both European hubs actually saw some encouragingly large investments. Online lending marketplace, Funding Circle, raised $65 million this year, while online fashion hub FarFetch secured $66 million in new funding. In Berlin, eCommerce retailer Zalando and Rocket Internet both saw multi-billion dollar valuations.

However, as VC’s the world over are increasingly swinging for the fences trying to find the next “Facebook,” and investments and values are hitting the stratosphere, it does beg the question: Are European VC’s potentially pricing themselves out of the ground floor of the next wave of big opportunities, or are they keeping money in their own pockets and out of a bubble right before it burst?