Why I Moved From San Francisco To Europe To Invest In Tech by Forbes – Entrepreneurs

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Growth of European Unicorns

Data from Invest Europe

When I told people I was moving from San Francisco to Europe to pursue a career in tech, my enthusiasm was met with confused looks. And then they asked if I was stockpiling food for Brexit or avoiding France due to the yellow jackets.

What doesn’t get nearly as much news coverage is the accelerating growth of the tech industry in Europe. Venture capital deals in the top four hubs of Europe—London, Berlin, Paris and Stockholm—have increased by 22% per year for the past five years. Over 50 venture-backed unicorns have been created in Europe in the past decade, compared with just 3 between 2000 and 2010. The largest IPO in 2018, Spotify, is based in Sweden.

Despite the strong growth statistics, I initially couldn’t help but be skeptical. But being on the ground in Europe these past two years has allowed me to understand the palpable enthusiasm for tech and the enormous opportunity ahead. There are massive tech conferences in cities across Europe almost every week, with thousands of attendees and sessions ranging autonomous vehicles to enterprise sales to blockchain.

I have been awed by the talented entrepreneurs I have met. When a chic Parisian founder pitches you her digitally native shoe brand, the US competitors suddenly don’t look quite so differentiated. When two hedge fund managers in London, the financial capital of the world, pitch you their new fintech app, you start to realize the Bay Area isn’t the best place to build every business.

What opened my eyes to the opportunity was meeting incredible entrepreneurs and discovering businesses that could be #BuiltBetterinEurope due to their location here, rather than in the United States. And with technological advances making it easier than ever to start a business anywhere, innovation is becoming increasingly distributed. My decision to live in Europe is about much more than croissants and free healthcare. It’s about the huge and quickly growing opportunity in tech.

The fundamentals are in place: talent, big companies, market size and regulation

Before moving to Europe I had heard of Oxford and Cambridge, but one of my surprises since moving here is how many other top research institutions exist throughout Europe. Imperial College in London, WHU-Otto Beisheim School of Management in Germany, and KTH Royal Institute of Technology in Sweden (where the CEO of Spotify and the founders of SoundCloud studied) are just a few examples of universities producing top talent. In fact, there are more engineers in Europe than there are in the US.

And it isn’t only the universities. American tech companies like Amazon, Facebook and Google have established large offices in Europe in the past decade, which has helped to further incubate talent. Amazon alone has 50,000 permanent employees in Europe.

“In the past, this technical talent was locked into traditional IT companies across Europe,” said Pär-Jörgen Pärson, General Partner at Northzone and early investor in Spotify. “In the past few years, they have started to enter the startup ecosystem, which is creating fertile soil for innovation in Europe.”

Technical salaries are generally 30 to 50% lower in Europe than in San Francisco, which allows venture capital dollars to go further. But the opportunity in Europe is much bigger than just price arbitrage; Europe constitutes the world’s single largest market and is home to 500 million people. Europe also has a relatively wealthy population with an increasing adoption of technology.

And with relatively stable governments, many European countries have put regulations in place to encourage and accelerate the tech industry, including visa sponsorship, tax schemes to promote angel investing and tax breaks for technical talent. In the UK, startup-friendly EIS and SEIS tax schemes give investors 30 to 50% tax relief on angel investments, which has created a nation of angel investors. Since living in London, I’ve met them not only at pitch nights, but at the park, on the tube and at school drop offs – behind football, investing in startups feels like the national pastime.

Late stage venture funding is helping optimize outcomes

While ten years ago, the startup industry was almost nonexistent in Europe, today, it is quickly becoming one of the engines of growth. There are currently over 100 startup accelerators in Europe and an increasing number of Series A and B funds for follow-on as companies grow, which encourages them to stay put rather than abiding by the old practice of moving to the US to raise capital.

VC talent in Europe is maturing as well. Half of the VC funds in Europe have been around for more than 12 years, and many have been through the ups and downs of multiple economic cycles. There is also an increase in the number of corporate VC firms, which provide valuable contracts and potential exit routes. Almost a third of corporate VCs in Europe have been established since 2010.

“A decade ago, we were sitting on good companies that couldn’t optimize outcomes because there wasn’t late stage capital. They would go for premature exits, and this was a recurring issue for a long time due to the lack of capital,” said Pärson. “This is no longer an issue in Europe. Now we have a complete capital stack from angels to early stage funds to later stage venture.”

Exits are catching up with the US

Europe has seen an acceleration in the number of exits and IPOs, including Zoopla, Spotify, Farfetch and Funding Circle. While there used to be many early sales of European tech companies, more and more startups are now sticking it out to build huge businesses. In 2018, Europe nearly matched the US in terms of exits of VC-backed companies— the US had $136B in exits, while Europe had $107B, including the $29B exit for Spotify from Sweden. The UK alone had $40B in exits in 2018.

These successes are not just creating dry powder for angel investing; they’re also creating more interest in tech and experienced talent in Europe. Most importantly though, is the accelerating drive of European entrepreneurs.

“There is increasing ambition to change the world and go big in Europe,” said Simon Cook, CEO of Draper Esprit. “Five to ten years ago, companies would aspire to reaching 20 million in revenue. Now, these founders are aspiring to build huge global businesses.”

This and programs like Entrepreneur First, which is the world’s first investor in talent, are helping create a cultural shift towards more risk-taking and startups. Entrepreneurship is finally becoming a coveted path out of top universities like INSEAD and Oxford.

Europe has become the leader in exciting sectors within tech

Of course, the most compelling parts of the European tech scene aren’t where it’s catching up or copying America. For some startups, being built in Europe can give them an inherent advantage. The local market expertise and cultural nuances can actually allow for unique insights, and have helped Europe become a worldwide leader in certain areas, for example e-commerce in Berlin, gaming in Stockholm and consumer products in Paris.

There are sectors that are heavily regulated in the US, but the regulations are actually more conducive to building startups in Europe. Plaid founder Zach Perret said on The Twenty Minute VC “Getting a banking license is very difficult in the US but much more doable in the UK,” which is helping spur the creation of many digital-only “neobanks” like Monzo and Revolut, both valued at over $1B. The launch of open banking in the UK in January 2018 has helped continue to drive innovation in London, and many now view it as the leading fintech hub in the world.

Digital health is another example where, although there are challenges selling into public health systems, it can also be an advantage for European startups once they can prove value in one country. In contrast, the US payer landscape is fragmented and regulations differ state to state. Swedish telemedicine startup Kry, which raised $92M from investors including Index and Accel, became an integral part of the public healthcare system in Sweden and is quickly expanding to other countries in Europe. “Healthcare is broken and how money is being spent is changing dramatically,” said Reshma Sohoni, Co-founder and Managing Partner at Seedcamp, an early stage fund that has invested in over 285 startups throughout Europe. “We’re investing heavily in personalized health and see artificial intelligence and machine learning beginning to have a huge impact in this space.”

There are world class deep tech startups spinning out of research centers and universities like Imperial College and Cambridge, and industrial production startups emerging from the heartland of Europe. “We believe Europe is uniquely positioned to build deep tech companies due to the quality of research and talent coming out of top universities and the corporates to sell into,” said Alice Bentinck, cofounder of London-based startup incubator Entrepreneur First. “Many large corporates have headquarters in London, Frankfurt and Paris and are increasingly interested in working with startups.” UI Path, a robotic process automation company founded in Romania, has grown from $8M ARR to over $200M in only 2 years, reaching a $7B valuation in earlier this year.

The future looks bright for European tech

With the fundamentals in place, a fully developed capital stack and Europe beginning to see exits, the continent is poised for accelerating growth in tech. Investment in Europe from American venture capital firms has increased by three-fold over the past 5 years. Rather than looking to China, many investors are looking to Europe as the next up-and-coming frontier of technological innovation.

“Accel has had an office in Europe for the past decade, but our interest in European tech has really accelerated in the past three years,” said Miles Clements, a Partner at Accel who is based in San Francisco. “With the rise of distributed teams, people can now build tech companies anywhere and Bay Area VCs are more open to traveling to find the best companies. Europe has become a hotbed for tech and we think this trend will continue.”

What startups have been or could be #BuiltBetterinEurope? Share them in the comments or on Twitter at @Maren_Bannon.

June 12, 2019 at 12:39PM
https://www.forbes.com/sites/marenbannon/2019/06/12/why-i-moved-from-san-francisco-to-europe-to-invest-in-tech/
Forbes – Entrepreneurs
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