European startups who attract the attention of U.S. investors not only raise more money but also have the potential to grow faster than those backed by European firms, The Wall Street Journal reported last week.
Despite the tech boom, European startups still struggle to raise the same levels of funding from European investors as startups in the U.S. are able to secure from American investors. While many point to the complex digital landscape in Europe, which makes cross-border trade and growth difficult, a deeply rooted aversion among Europeans to make the types of risky investments U.S. venture capitalists pursue may also be a factor.
WSJ cited data from Dow Jones VentureSource, which said that in 2013 European startups seeking to raise a second round of funding found an average of $8 million from potential U.S. investors. In comparison, startups that received interest from European investors were only able to raise a median amount of $3 million.
Even for startups in the early stages of raising money, the trend was still evident.
“If you’re based in San Francisco, you can fill up your whole portfolio in a 40-minute car ride. In Europe we have to take planes from one country to another,” Neil Rimer, a Geneva-based managing partner at Index Ventures, told WSJ.
But a rise in the number of viable European startups presents increased opportunities for U.S.
In 2014, the Dow Jones VentureSource found European-backed startups raised $9.2 billion dollars, up from $6.3 billion in 2010, with 40 percent of the money raised by the companies who had at least one American investor, WSJ said.
Ciarán O’Leary, a partner at Berlin-based venture capital fund Earlybird, told WSJ that U.S. investors are now tapping into the increased number and quality of startups Europe has to offer, while avoiding the potential for enormous losses surrounding the sky-high valuations of late in Silicon Valley.
“The deal terms are not as crazy as in the U.S.,” said O’Leary. “In the U.S., investing at a later stage has become a price war.”