To Win Big, EU Firms Must First Win US, Says Hoxton Ventures Partner

For firms operating in Europe, expanding internationally often means launching operations in other close countries in the region.

However, according to Hussein Kanji, partner at U.K.-based venture capital (VC) firm Hoxton Ventures, that is not a winning strategy.

For example, Kanji said a company starting in the small Swedish country with a population of 6 million would struggle to become “the next $50 billion company” out of Sweden alone — which is why he advises European startups to target the U.S. after winning their domestic market, before going back to expand their European footprint.

“You really want to get to Google scale or Facebook scale if you want to win big, [and] there is no reason for you not to go to the U.S.,” Kanji told PYMNTS in an interview. “From Sweden, you should be figuring out how to make the U.S. work, win the U.S. and then come back to go to the U.K. or Germany.”

This advice might sound counterintuitive, he added, but he said it lowers the risk of allowing a U.S. competitor with a large margin market to emerge on the scene, making it more expensive and difficult for the European firm to compete effectively in the market.

Even though the risk of failure goes up significantly by going to the U.S., adopting this formula could yield far bigger financial returns: “If you win, you win so much bigger than if you go into the U.K. or to France or Germany from one of the smaller countries in Europe,” Kanji argued.

To illustrate his point, he compared British online food delivery company Deliveroo, a global company with worldwide operations, and U.S. food delivery giant DoorDash, both of which launched a month apart in early 2013. Today, the latter’s market capitalization is 10 times bigger than Deliveroo’s, enough proof to support the argument that having a U.S. approach is the way to go.

“We’re playing to win at a scale that’s similar to all the U.S. venture funds, and we just think our formula for winning the U.S. as early as possible delivers better returns for everybody around the table,” he said.

Europe Beats China

Europe’s ability to produce successful global technology companies would have been unthinkable 20 or 30 years ago, but Kanji said the global penetration of companies like Swedish music streaming giant Spotify has shown otherwise.

Last year, the region attracted more capital than China, with $116 billion invested — making it a premier space for tech startups that are grabbing the attention of top-tier American VC firms like Sequoia Capital, Bessemer or Lightspeed that have set up shop in London to expand their investments in the region.

The future looks even brighter as more high-growth tech startups continue to spring up in the region.

“The good news is that success tends to breed success in our industry so once you have a few of these examples working, you get people who’ve left those companies and go and join other companies, and the flywheel starts going,” Kanji said.

Read more: Hoxton Debuts $215M Fund for European Startups

As a long-time believer in the European technology market since its launch eight years ago, Hoxton Ventures is poised to reap huge returns moving forward. The company’s first fund has already delivered high returns in the region, with three U.K. firms in its portfolio — Deliveroo, Darktrace and Babylon Health — now valued at over $1 billion after each company went public last year.

To further boost their investments, the London-based VC firm recently announced that it had closed a $215 million fund, Hoxton III, to help Europe’s new startups scale up, targeting seed-stage companies building new market categories and looking to expand to the U.S. market.

Healthtech 2.0 Firms

The pandemic has triggered a boom in the use of technology and innovation in healthcare provision, making the HealthTech sector an increasingly attractive industry for investors looking to inject capital into high-growth firms.

For example, New York Stock Exchange-listed Babylon Health generated about $320 million in revenue last year — up from about $180 million the year prior — with its revenue expected to hit $1 billion this year, Kanji remarked.

See also: Global HealthTech Sector Continues to Grab Investor Interest In 2022

“I’m giving these numbers because that tells you about the scale and the size of the opportunity. [Babylon] started in the U.K. and almost all their businesses are in the U.S.,” he said, adding that the mental health sector is emerging as another promising area for growth.

Today, Kanji said the VC firm is looking for the next-generation of telemedicine-type services, which will primarily come out of Europe.

This is because unlike the U.S., large patient datasets used for training artificial intelligence (AI) engines are much more developed across Europe, due to the nature of the insurance and public health models. As such, it is much cheaper to build that data in Europe than in the U.S.

“[That’s] why I think some of these next-generation AI companies that merge health and telemedicine together are going to increasingly come out of Europe, and to us, that’s a big new market,” he said.

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