The state of European venture

Europe's venture ecosystem is growing rapidly as capital deployment scales and exits mount, and a playbook is emerging for European founders looking to follow in the success of companies like Adyen, Spotify, Klarna, and DeepMind.

To learn more, we teamed up with Sandhill Markets to host a panel conversation with:

Key points from the conversation:

Transcript below.

Adam: Super excited for another great panel here with help from our friends at Sacra. If you've heard me say it before, I'll continue to do it. It's sacra.com. If you haven't checked it out before, if you're investing in private markets, which if you're tuned into this or if you're building private markets too, I think that there's understated how relevant this is on both the operator and the investor side.

It's worth checking out. They do a lot of great work. It's niche, but if you're in this world, it's super relevant. But so for today and the group we've got together, we're going to talk about the state of the European venture market with 3 different panelists. The part that we're so excited about and you'll see this in their bios, is the different approaches and the different parts of the market they all operate in and work in.

David Peterson at Angular, seed stage investor on fund 2. Akhil Chainwala at Kinnevik, growth stage investor and their history there, then I'm excited for him to break that down a little bit. And then Thomas Kristensen at LGT Capital Partners, really more on the LP side. They'll all give better intros than this, but that covers the full spread of early stage, late stage and LPs, I think will give us a really cool perspective on what European Venture has looked like, what it's going to look like in the future, where things are now.

David Peterson: Yeah, sure. So, as you said, my background, I've been an early stage guy for my whole career. Always working on go-to-market at a lot of different startups, bootstrap to companies of my own as well.

Most recently, I was an early employee at Airtable and Head of Growth there. I was there from pre-revenue to around $115-120 million ARR. As part of that, I actually moved from San Francisco to London to work on European expansion for Airtable. We had a significant portion of our revenue coming from Europe and we really had no strategy, it was just kind of happening to us. We're like, okay, now's the time to do it.

So I was sent over there as one of the people from the original US team to go help start things. That's how I ended up in London and that's how I got exposed to the European startup ecosystem overall. A big part of our strategy at Airtable was to ingratiate ourselves with the startup ecosystems wherever we were playing, because getting early stage, dynamic aspirational companies to use Airtable wall-to-wall really early on seeded Airtable within ecosystems.

So I met a lot of the VCs across Europe and got really embedded in the startups from the first day that I moved there. Then as you mentioned, I ended up leaving Airtable after four and a half years or so, and joined Angular Ventures. Angular, we're a first check, super early stage fund. My partner Gil and I are a partner-only firm, just the two of us as investors. We invest exclusively in B2B, across Europe and Israel.

One thing I'll add is you mentioned we had a fund 1 and fund 2. We actually raised a third fund last year, it's unannounced still but we have a lot of fresh capital to invest, which we're really excited about. I can talk more about why I was excited about European Venture later on.

Adam: Yeah, I'm excited. I think we can kick off. We'll circle back on it when we're through the intros, but definitely super interested to hear about the choice that was needed there. Akhil, are you game to give us a little intro?

Akhil Chainwala: Absolutely. Hi everyone, Akhil here from Kinnevik. Founded over 80 years back in 1936. Unlike many investors, we are a publicly listed entity. So we invest off our balance sheet. That gives us permanent capital and a very long-term horizon. We typically invest between $25 million to $100 million into an initial investment in a company. The average is around $50 million in a Series C or later.

We have about $5 billion on our balance sheet. We invest about $500 million a year. And that's split roughly 50/50 across the US and Europe. So we've actually got a pretty good vantage point, and we're agnostic - we don't have sectoral or regional theses. We're just looking for the best use of that capital. I spend most of my time around software and marketplaces. Our portfolio is roughly one-third in healthcare and life sciences, one-third in software, and one-third in climate and consumer. So that's a quick overview of who we are.

Adam: Got it. I'm interested in the vantage point of the split. I think I'm really interested in anything Thomas, and I didn't suspect this from the LP side, but I don't think you only invest in Europe, is that correct?

Thomas Kristensen, Partner at LGT Capital Partners:

That is correct. We're not the world's biggest venture investor with a $100 billion portfolio. Yeah. So LGT Capital Partners, we started out 26 years ago. We're owned by the Princely family of Liechtenstein, who's also our largest investor.

So we remain privately owned. In addition to their capital, we manage capital on behalf of around 700 institutional investors globally. Of the roughly $100 billion, call it $70 billion is in private markets. And within private markets, what we do in venture and growth is about 10%. So I'm co-managing our venture and growth portfolios. The way we invest is severalfold.

So we invest into funds, and we really spend the entire spectrum from first-time emerging managers like Angular when they first start out with their first fund and all the way to some of the larger brand name firms that, I guess, most people will have heard about. In addition to backing managers, we also try to act as co-investors with some of these managers. So we'll co-invest into companies alongside our GPs starting at B rounds or so. We typically say we need to see $5 million in revenue for us to be a good investor. We don't do that alone, so we always lean on existing GP relationships for that.

So we don't go out and lead rounds. We don't participate if we don't have, I was about to say smart money, around the table that we know. In addition to that, we'll do secondary transactions. So we'll acquire stakes in companies or funds on a secondary basis that can be from early investors. It can also be from employees or it can be from LPs that are invested in funds and seeking full or partial liquidity.

So it's a very broad span of investment options that we have, and we invest across Europe, the US, Israel, and the Asia Pacific Region. And I said from very early stage seed, pre-seed managers through quite late stage companies.

Adam: Great. Yeah. No. Awesome. And I think that, again, you know, the spectrum was really interesting because, again, David, very, very European focused.

Akhil Chainwala: Fifty-fifty. And then and then Thomas a little broader. So to bring it back to what David had said and to focus it in on Europe a little bit. So, David, you mentioned and you had, I think the classic or, you know, what's the word for it? The pipeline of, you know, the early stage manager that would be but the part where the story kinda shifts is then when you move to London. Right?

Like, the being former head of growth at Airbnb and then, you know, starting a fund based in San Francisco is a pretty like, you know, I've heard that story a few times. It's the Europe decision that kind of stands out as like the, what happened there? Can you tell us a little bit more? I think it's a great kickoff point of kind of the decision to focus on Europe.

David Peterson, Partner at Angular Ventures:

Yeah. I mean, I think that, for me, there was this really look like when you live in San Francisco? I forget, Adam, are you in San Francisco?

Adam: No. No. I'm Florida from New York, but I've spent

David Peterson: Okay. Okay. No, I just forgot. So if you've lived in San Francisco, you know, you stay there for a few years and you feel like you're kind of in the center of the world. Right? There's like this there's this dynamic there where it feels like everything that matters in tech is happening there. Every company that matters is started there. Right? You start to really drink the San Francisco Kool-Aid when you're there.

And I think for me, moving to London was really useful because I, like, got out of that bubble. And all of a sudden, you know, you just kinda realize like, oh, there's all these companies that really actually matter that aren't that weren't started in San Francisco. You know, and and this, by the way, was something that I feel like I was, I was intimately aware of as a head of as the head of growth at Airtable because we were very carefully tracking monday.com because they were just so good at growth and we were like trying to figure out what they were doing. And monday.com was an Israeli company. So from the very beginning, I was like, I was already trying to I wasn't as stuck in that bubble as I think a lot of people are.

Right. I was looking at trying to understand companies, you know, outside of it. But anyway, moving to London made it like abundantly clear to me, right, that there's a lot of interesting stuff being built everywhere. Right? And ultimately that was kind of like the bet on Europe and Israel, right?

It's that you know, technological innovation has democratized, right? That's happening everywhere. And but I still firmly believe and this is from my own personal experience that the best market to capture the value of that innovation is still the US. Where, like, I can tell you, from a growth point of view, from a go-to-market point of view, it was infinitely easier to grow in the US than it was to grow across Europe. Right?

It was just harder to grow across Europe across the different countries, across different regions, dealing with different regulations, dealing with different languages, right? Like you have to do that and there's a huge huge upside if you can pull it off, or it's a great it's a great thing for businesses to do, but it's way easier for us to to grow in the early days in the US. So there was this, you know, thesis that was kind of, you know, evolving in my mind, which is you know, there's a bunch of companies here that are building really interesting technology, right? The the technologists are everywhere. The question is can, you know, they figure can they go to market in the US first?

Right? If they can figure out how to go to market there, you know, then you can and you can help them do that then maybe there's start maybe there's something maybe there's an angle, right? Yeah. You know, and and look like, to your point, Adam, there are like, a thousand early employees of X who then started their own funds in San Francisco. Right?

That is not an interesting pitch in San Francisco, you know, but in, you know, across Europe that that's a little bit more interesting. Also because the, you know, the network of some of these businesses right, is still very much stuck in San Francisco and New York. So giving, you know, being able to bring that network, like pull it across the Atlantic and and open it up to like a select few companies, you know, maybe there's an opportunity there.

Adam: Yeah, super interesting. Akhil and Thomas to zoom out a little bit from, you know, the decision that David made and to think a little bit more about, like, the history of venture in Europe, you know, over the course of, like, let's the last decade, let's say, not from the beginning, Akhil, which but from, you know, the last decade, do you see, like, shifts there? And and some of the stuff that David started, like, do you from, you know, let's call it, let's say, you know, pre-zero interest rate policy to now, are there any kind of trends that that you've noticed or or that make you that you think can characterize, like, the last decade of of VC in Europe?

Akhil Chainwala: That's a broad question. Let me touch on two themes, Adam, that I think you would you plan to come to later so I can go into as much detail or as little detail as you'd like, but I think the themes are around, what types of companies you build and whether you're going after copycat models or more unique models, And the second is about, which regions you look to cover. So I think those are the two threads to look at as you look at the axis of time. So pre- pre-zero interest rate policy, I think capital was cheap. There were a lot of low gross margin capital-intense business models that were built.

I think you tend to see a little bit more of that in Europe in consumer-facing models. And if you also think about the complexity of building across 20 different countries each with their own regulations, languages, consumer patterns, etcetera, that lends itself to greater capital requirements. So I think we saw more of that, and we also saw more of this behavior saying "X, Y, Zed product worked in US, why surely it should work here as well." And obviously, going back 15 years, the canonical example of that is Rocket Internet and the Samwer brothers who sort of built up a factory around that, but I think that mindset sustained even after they stopped incubating companies. So there was this sense of "let's let's look to the Valley for inspiration and let's try to have a time advantage effectively in building in Europe." And I think if I now look, post both those factors, have evolved somewhat where I think investors are being more discerning about two things.

One, saying "I'm not just going to assume the copycat model is gonna work" and because "X, Y, Zed company had a $10 billion outcome in the US, I can extrapolate that into a $6 billion outcome in Europe." So I think there is more first principles thinking coming about there. Again, I can double click into what that means, perhaps when we come to that. And the second thing we're seeing is less of behavior of assuming that five-country winners being priced for regional or continental success.

Where, again, I think investors are being more discerning of saying, "If you have product market fit traction in one country, perhaps you need to establish at least a second country before we provide capital valuation assuming regional or Europe-wide success." So I think those are the two trends I would call out.

Adam: Yeah. Super, super interesting. And I and we'll definitely circle back on that that kind of copycat to unique transition and like and and I think it touches on what David's doing. We're we're like the shipping ideas out of Europe into the US, which is, you know, David's rather than, you know, seeing ideas in the US and shipping them into Europe, in the transition there. Thomas, anything in terms of the, yeah, and Akhil was, pointing out some good themes.

Does that resonate as well? Anything else from from what you've seen?

Thomas Kristensen: Yeah. I think those are broadly observations that that I'd agree with. I think if if you kind of take a level up on the LP perspective and look back at Europe 10, 15 years ago, it was a barren land. That seems too harsh, but, there was not a lot of very experienced venture investors here. There were a few firms, and I think what was was clear was that you had a few idols emerging, companies that have done really well and that could serve as inspiration for others. I think the the rocket internet, more consumer focused trend certainly emerged out of there, but I think also a lot of more technical talent, began to have entrepreneurial ambitions, which meant that there was increasingly fertile ground for early stage investors to actually invest locally and find good quality talent and ideas. So if if I look back to call it 2010 to 2012, we saw a few dedicated managers emerge for more specialized areas within Europe.

Many, you had enough density of quality, if you like, that you could actually raise a dedicated seed fund, say, focused on software in Europe. Before that, I think that would have been tricky. That just wasn't enough high quality. And I think from there, the market has expanded a bit like concentric circles in water. We've had tons of great companies started. We've had some good exits. There's a lot more coming.

We've also had a lot of really good failures, which means we've got a lot of people who've learned a lot and are starting again based on those learnings. And so if if you kind of pull that forward to today, I think you've got a very large population of engineers and entrepreneurs who have ambitions who've got enough role models to look up to, but who also possess or have some scars on their back that made some of them maybe a little bit more frugal and a little bit more realistic as to what it really takes to build durable companies. So I think it kind of aside from the rest, that's a bit how we think about the market per se. And for us, it becomes about who do we partner with, who, to effectively be the most attractive partner for these founders. Yeah.

Adam: What are what are some of the names and ultimately the categories that they lead that come to mind there as like idols in the European venture market that you think are you know, breaking new ground? 

David: Yeah. I do think that there are I there's a few that come to mind, and then I'll let, you know, Akhil and Thomas add in thoughts too. You know, I think the very obvious ones are Klarna Monzo Revolut. Right. It's like the fintech revolution, you know, across the Nordics and the UK. And there's teams spinning out of those companies all the time, you know, working in that fintech space. The other really big theme from the past, let's say 12 months, is DeepMind.

Right? Like, DeepMind is in London. And there's a you know, there's a senior researcher from DeepMind leaving every week and, right, that person is inundated with LinkedIn messages everything else. Right? Like Yeah.

It's that is a real that's that's a theme right now for sure. And there's definitely others, but, those are the 2 that are top of mind for me.

Adam: Yeah. Interesting.

Akhil: So I think there's one Sorry. Go ahead, Thomas.

Thomas: No. I just wanted to say, I think sometimes Rocket Internet gets grief for the for fuel in the fire and see if if something catches on. I think what it, what it did do is it, it got a lot of very smart and talented people involved in in on in the entrepreneurial journey. And I think you have a lot of that more gonna call it generally commercial talent that today is partnering up with maybe some of the more technical talent. And I actually think it it can be really powerful combination.

So I think Yeah. Rocket internet. Yeah. I said maybe gets a lot of grief. I she think that in hindsight, whether you like the model or not, I think it did a tremendous amount of good for the ecosystem.

Adam: Yeah. Yeah. They they ultimately did like push it in the direct like in the direction that ultimately we're in now, which is a much I think generally, ultimately, I just as an aside, it feels like the European Venture ecosystem has grown a lot in the past decade. Like it, like, just from the from all the, you know, in the 15 years ago, the wrong internet and to all the stuff that we're talking about is all it gets still it continues to get grief generally. I think that the European ecosystem kind of gets, you know, shit for whether it's like the angels like I joke with founders sometimes.

I joke with the founder recently that the, like, the angel investors moving from the West Coast to East Coast to Europe, it gets harder and harder to raise money. Like, the valuation goes down. Like, it's something like a like an SF angel is like, yeah, sure. Like, whatever, you know, uncapped safe. We moved to New York.

It's, you know, like, a finance guy who's like, you know, wants you to put together a pro forma or something like that. And then you go over to London and they wanna buy like half your business for $25 and that's the that's like the joke kind of of of the but it's definitely with help from, you know, people at this on this panel with with people like David in the ecosystem. That's kind of going away. Like, generally. Like, it seems to be kind of growing up.

Akhil: I would actually counter that the other way around today. So I mean, at growth stage, I think there is.

Adam: Oh, yeah. Yeah.

Akhil: There is abundant supply of capital, and there's frankly, I don't wanna call it a scarcity because that'll be unfair, but there's there's certainly a lot of supply of capital, and quite often, certain sectors and companies that are particularly involved, it wouldn't be uncommon to see a higher valuation multiple in Europe than in the US.

Adam: What do you, yeah, what do you think plays into that? Because I wouldn't, yeah, I mean, I think on the Angel, and I wouldn't claim to know on the on the growth side, and I I won't guess, but what do you think plays into that kind of flipping of that dynamic on in the growth?

Akhil: Demand and supply. I think there's a lot of demand from investors, who have raised Europe specific funds or have seen big outcomes from certain European categories. And on the other hand, supply of the truly great companies that can be pan regional across Europe that had the commercial talent Thomas was talking about that had the technical talent David was talking about and bring all those factors together. There's there's a handful of them, probably more than a handful, but there's not hundreds of them. So I think that contributes to creating those outcomes.

Just on categories, and I do wanna focus on success stories because I don't want the audience to feel like we're dwelling on Europe from 10 or 15 years back. I think there are some patterns that emerge when you look at the success stories in Europe. And I call out 2 patterns. 1 is companies that have built market leading, global leading products. They've not built for Europe.

They've built for the world. And obviously, going back, well before my time venture, you had outcomes like Skype, but you've then had Spotify. You've had Elastic was originally set up in Europe. DeepMind, as David mentioned, there is a category of companies that have just out executed global peers. Perhaps you can put Adyen in that bucket as well.

And then there are companies that had a very unique perspective on Europe itself, and they didn't try to be xyz company for Europe, but they just built something they saw. They solved the problem they saw around them. So I wouldn't even say fintech. Yes. I know fintech is big in Europe, but if you look at the problems fintech is solving, a company like Wise, solved a problem around remittances, which it's a global problem.

Maybe you could put that in the global category as well, but it was very much sort of design for this market. Booking.com, sort of maybe the exit value shows up small because they sold out earlier, but it's the single biggest European venture outcome. If you look in in value creation, they built for an industry that is big in Europe. Similarly, when you look at fashion as a category, you obviously have LVMH and Omens and the sort of luxury layer, which has created a lot of value in the public markets, but in the private markets, you have companies like Zalando and Farfetch which, there was no US equivalent effectively. So I think a lot of these outcomes, and obviously, there are exceptions to the rule. You can say that Klarna looks like a fintech firm or something and that sort.

So I'm not saying this is the only playbook to follow, but I do think there's a couple of those patterns which are not sort of saying it's only fintech or it's only AI, but I think it's looking around sectors and business models where Either you have the confidence to conquer the world or you say I'm doing something which no one else is thought about.

Adam: There's 2 things that come to mind there that I think touch on, some stuff that I came into thinking about it with where in the venture ecosystem in Europe. I feel and this could be wrong, but there are very established, obviously, like, financial markets coming down from the banking side. When I think about the spectrum, like, of capital with, like, David on on one end, and, you know, IPOs on the, you know, like, a bank and M&A, well, a Lazard maybe for like a Thomas M&A on the other side. And very sophisticated, like, at the top level and and always and has been for a, you know, since the dawn of of banking coming down into growth seems, you know, as companies stay private for longer, company gets companies get a lot bigger that seems like Akhil touching on what you had just said, right, of like, there is, you know, there's sophisticated and large, you know, growth investors that seem to be coming down from that angle compared to on the seed side, which is more like net new and like when I think of seed investing, I think it feels much more like, you know, Silicon Valley, San Francisco.

And do you think that? So it lines up to me when you say that, you know, on the growth side, you could see that, you know, there's more activity or there's more capital available. But in the seed, part of the market. I think Thomas would have a good, you know, mention this kind of on the on the GP side. That feels like maybe where there's been the most, like, the most evolution over the course of the last decade rather than just a a transfer of skills necessary.

Like, where it's, like, it feels like in the growth stage stuff, you know, companies, things, staying private for much longer. The checks are are big. It looks more like banking to me than it looks like pure, like, seed stage investing. It's just like very different, like, skill sets. Does that sound like do you do you separate them in that way?

Do you think that, you know, the seed ecosystem is being pulled up by the growth ecosystem or do you think that they're growing in kind of separate pods? It just seems like separate practices to me. Kind of generally in in that one seed starting really new whereas in growth kind of almost being an expansion of the, again, very sophisticated and and established, you know, public market practices or more traditional finance. I know that's kind of all over the way the place question, but to keep it feeling more directed, like, David, and and Thomas on the seed stage investing side. Does that feel like an area that's grown a ton in the last decade?

Like Thomas, you mentioned that that used to be, you know Yeah. Barren land to use your words. And and it's gotten a lot. And it seems to me I've gotten a lot.

Thomas: Definitely a long way to go. No. I do think so at least from from the position of an LP, right, and so we're we're not in the weeds every day, but certainly there is at least a 20x plus evolution in terms of number of seed and pre-seed funds in Europe today versus 10 years ago. I think pre-seed didn't really exist back then. It was just seed.

Yeah. Yeah. So I think the evolution of capital sources has has certainly been quite meaningful. I think in the meantime, you've gotten more and more angels that are professional, meaning that they they've come out of venture ecosystems and understand that you don't buy 30 percent of a company for $20,000. I think that there's a more there's a more, call it US type philosophy behind the capital today than there used to be. Because we did see that a lot, right?

Someone will buy 20, 30% and then just drip in 50k every year, which was extremely counterproductive. So the ecosystem has changed a lot. I think what's changed in the last few years we've seen is that as capital was scarce or, sorry, opportunity set was scarcer on the later stage side while companies were focusing on profitability and not going back to market, it feels like the larger firms focused their efforts at the earlier stages, right? They they built up quite large fund sizes with with quite big teams. And if if you're doing nothing with the capital and the large end of the market, maybe you let some of your your team write smaller tickets at the earlier stage, which I, which I actually think made the seed stage investing area in Europe quite competitive for a few the last 2, 3 years, 2 years maybe.

David probably has some interesting anecdotes there. It feels like now later stage is opening up again because companies are coming back to market and actually raising capital. So focus is moving a little bit away from seed to maybe a, b, c round and later. So at least that that's how we think about it in terms of fund universe. It feels like there's a lot now, but fundraising has gotten a lot tougher.

I think LPs have raised the bar in terms of what they're they're willing to back. And so an environment where it's reasonably easy to raise a $22-250 million fund 3, 4 years ago. I think that's gotten a lot more difficult.

Adam: Yeah. Interesting. I mean, 20x whatever we want, we won't quote you on an official number. But that's the headline of the recording, from barren land to 20x.

David: Yeah. No, I look. I think that's totally right. And I think, Thomas, you're right about the dynamics at early stage over the past few years. I was just talking to a multi-stage, big multi-stage investor that invests across Europe and the globe, but this was the European office. And they basically said, for 2022 2023, we were basically risk off. We're not making any big risky investments. But we don't want our junior partners to get bored. So we let them make some seed investments, but we don't care, actually. That was basically the firm-wide strategy. We are risk off except junior partners investing whatever you want just so you don't get bored. And now they're coming back, as of a few months ago, they're back in the market. They're risk on. They're going for it. But that is, I think, largely the story of the past 2 years in Europe, and it's why seed didn't really feel like seed slowed down that much.

Adam: Interesting. Yeah. Where it got some help.

Thomas: Yeah. I, to me, there's 2 types of seeds broadly speaking in Europe today. There is someone who started a company, sold it to Google for $100 million, 5, 6 years ago, been sitting within Google, and was now starting a company again. So you've got someone who's a proven founder with a track record of building something at an exit and with VC relationships, kind of a multi-stage relationship. So call it a pedigree founder.

I think that type of founder is facing a completely different market today than the first-time founder with no prior VC relationships. The first category, I think, reasonably easy. Don't take this the wrong way. But you can raise $5 million on a $20 million valuation and it's not too much of a stretch, and we've obviously seen much bigger rounds. If you're the latter category, your first rodeo, I think it's a lot more difficult today, and you need to work a lot harder. And the valuations and capital you can raise are a different ballgame. So I think it's important to acknowledge there are 2 parallel worlds almost, and that's not unique to Europe. I think it's the same way.

David: Yeah, that's the point I was going to make.

Adam: And we'll actually, before I get into that, Akhil, I wanted to get your take on the growth side of things that David and Thomas both mentioned, where that period a couple years ago to now, when you think about activity in the market, risk on versus risk off and push into seed. Is that something that you all experienced? Do you agree with?

Akhil: No, I think we probably were off market in the sense we maintained a base deployment and we didn't change our strategy, but it's fair to say that anecdote David shared is probably what a lot of firms did. 2022-2023 was just firms being more focused on internal portfolio work and follow-ons, and capitalizing their own companies rather than expanding the portfolio. A couple of things I would say - one, to your opening point, I would say the shift in growth wasn't always this way in Europe. The catalyst for the change was actually during the pandemic. You had a lot more American firms opening up shop in London in particular, and you also had private equity firms opening up their growth arms here.

The second thing is, take the dynamic Thomas outlined of the haves and have-nots, compound that a couple of times over and you get to the growth premium that I was talking about in terms of the haves and the have-nots, and the haves just compound probably at a rate in Europe which is even higher than what you see in the US.

Adam: Yeah, really interesting. And it circles back on the thing that Thomas was saying of the parallel storylines. And that's the state of venture generally with the pedigree founder living in one environment from a fundraising perspective and a first-time founder living in another environment.

But it sounds like that's gotten a little better in Europe than it would have been previously. Because I think the pedigree founders always had a better time. The first-time founder in the US, like Y Combinator, comes to mind - the angel ecosystems that are going to put very risky bets into first-time founders, kids out of college, whatever. That pushes into that San Francisco type mindset. It sounds like that's becoming not totally off the table in Europe now, or does that not feel like something that 5, 10 years ago would be happening at all?

Just wouldn't happen at all. Whereas now, is that more available? Do you feel like there's a little bit of that San Francisco mindset of paying it forward? I'm giving a kid a check because someone gave me a check when I got started, and I don't even care what's happening with the business, the decision is going to get them going. That sounds new to the European ecosystem or was it always kind of also there just a little harder?

David: Yeah, I think, a few thoughts. One is, we invest that early. So there's a handful of investments in our fund that were basically a kid with an idea. And we're not the only ones - there are lots of firms who are investing that early.

The other thing I'll say is that YC is global. So there's a lot of European teams that are going to YC now. And YC is having a big impact on the ecosystem and will continue to. You see some of the largest rounds that are happening right now, like AI companies that are getting backed, are YC European-based companies getting big checks from tier 1 US funds.

I'd also call out, this is a little more unique to Europe - Entrepreneur First, which you can think of as YC's nerdy cousin. It's a little more academic, a little more European vibe. But I think it's done an amazing thing for the ecosystem. And there's a few others like Antler - really early stage firms that will put $50k to $250k in. That's it.

Akhil: Yeah, I would say also to your point, there are clusters emerging. I read somewhere recently, apparently the Revolut mafia or alumni from Revolut have spun off 67 startups that have collectively raised $500 million. And then you can see something similar coming out of Spotify and Klarna and Monzo and many of these companies. So you are beginning to see that ecosystem take shape.

Adam: There's 2 things that come to mind too before we get into a regional discussion. I just checked the Y Combinator numbers because they put out location data - and Europe actually only had 13 of the 250 companies in the latest batch. There's 168 America/Canada companies. There's only 13 from Europe, but there's 78 remote companies. And I thought that's actually something we haven't touched on that feels like it would spur the European ecosystem forward, considering David's commentary about technical talent being spread out - where you can live in Europe, work at a US-based remote company as a technical person. And then, you don't have to move to San Francisco anymore if you are that 10x engineer that happens to live in France or whatever. Have you all seen that? Does the move to remote, where we've oscillated between remote is the future to now it's kind of in-between, but that seems like a tailwind for the European ecosystem as well.

David: Yeah, I don't know how common this is - I feel like I only have an anecdote here so it's hard for me to speak too broadly. But I've certainly seen the playbook of we're building largely remote across Europe and taking advantage of technical talent wherever it may be, or taking advantage of tech talent visas and other stuff to make it easy to move to Portugal or wherever else. And then we're building the go-to-market arm in the US. So HQ, go-to-market HQ is in New York. We have R&D across Europe, and you end up getting R&D way cheaper as a result.

This is way much later stage, but a close friend of mine runs product at a public company based in the US. They are now getting rid of all their engineers in the US and just opening up R&D in Poland and a few other countries in Europe. Because half of their revenue is from Europe. So they're working with customers locally.

It's a super enterprise software company. So they're working with customers locally, doing implementations. It's actually useful to have engineers on the ground. And from a total comp point of view, it's like half compared to the US. So I think that's probably a broader theme we'll see.

Adam: And this kind of ties into your point about R&D across Europe. You mentioned Poland, but ultimately, I want to tie back to the regional conversation that oftentimes comes up - that Europe is technically the EU or whatever, but very different across countries, both culturally, language-wise, tech-wise in how they're using it, how often it gets used, things like that.

What are some high-level notes for people to understand how to think about Europe from a regional perspective? Where is it relevant and where isn't it relevant within the regionality of Europe? And what parts of it do you think are a bug versus a feature? I think Akhil mentioned earlier that companies built in Europe, because they have to face that regionality, are built global from the start because the market was never big enough just to be big in one region.

To paraphrase - regionality in Europe, how to think about it, what's relevant, what's overstated? Akhil, do you have thoughts on that since you mentioned it before?

Akhil: I think it is a feature at scale. Because the moat complexity can be a moat. If you have strung together a complex web of assets across disparate countries, languages, regulatory systems, and so on, that'll be hard to replicate in a single point solution. When you look at a company like Adyen, that's their secret sauce in a way.

I think where it's misunderstood is it is still underestimated, even by European founders. You have companies or products that achieve product-market fit in one region, and then the obvious next step is to launch in market 2 and 3. And it turns out there are always differences in consumer patterns, market structures, and so on. There have been very few companies that have successfully been able to sequentially enter multiple markets and achieve similar market share to their home market. There's 1 or 2 great success stories like Zalando, Vinted, Glovo, but those are the exceptions. Most of those examples came up before capital was abundant. If now there's 6 players across 12 geographies, each with capital to expand into those geographies, it makes it a lot messier.

Adam: Yeah, interesting. David, you're ultimately focused on companies going to market in the US. So you kind of skip that messiness, I guess? Or do you advise them to?

David: Look, there's wisdom in what Akhil said about the moat of complexity, I think that's true and underappreciated. But I basically say exactly what Akhil said to founders all the time - if your plan is we're gonna start in Germany, then expand to France and the Nordics, then the UK, then the US, I always say you're never gonna get to the US. Because there's gonna be some US competitor who grows faster, learns more, gets more revenue, customers, raises more money, comes into Europe and is just leagues ahead of you. They'll have already figured out more.

So that's why I always try to convince founders to go to the US as early as possible, because that's the big market. I think there are some ideas where focusing on Europe is an advantage, Akhil highlighted some examples, but most of the time going to the US early is a huge advantage.

Often founders don't go to the US because it's harder - it's easier to sell to people in your network. But you need to compete with the all-stars from the beginning rather than hoping you can gradually work your way up.

Adam: Yeah, interesting.

Akhil: One piece I'll add to what David said - if you are going to the US, having a founder or at least a leadership team member being based there, from our experience, has been crucial. We have probably 2 companies that have done this somewhat successfully, one in healthcare, one in software. In both cases, they had more than one co-founder and one relocated to New York. I think to do that successfully, you need to do it sooner rather than later. But you can't have just an American outpost of a European company.

Adam: Yeah, interesting. And that makes sense. Thomas, on the LP side, how do you think about investing into European VCs? From the perspective that, again in that concept of regionality, maybe you can get the best early-stage French companies by investing with a VC based in France. But then they're ultimately going to have to be pretty active across regions to get enough volume. What have you seen as best practice there?

Thomas: The lens we always try to apply, maybe wrongly, is - if you're an entrepreneur, who do you want to partner with? If you're not just looking for money, but a sparring partner, you're either looking for someone local you can talk to regularly, or someone deeply focused on your area who doesn't need much context to understand your business, even remotely.

So either you want the go-to seed investor in Paris, Berlin, Stockholm or someone like Angelist who is deep in a specific vertical and can compare your startup to similar initiatives across the region. Being just a local champion, I don't think that works well anymore, as the market has developed - firms like David's will travel throughout Europe biweekly and be present in local ecosystems.

The way we think about it is - if you're a founder, ask 10 people who the 3 top VCs are for your seed/pre-seed round. The firm we want to invest in is the one on that top 3 list for 8-9 out of 10 people in your network. That means they're known for something specific to that entrepreneur and bubble to the top of their priority list.

So broadly speaking, for seed/early stage in Europe, geographically focused funds are increasingly tricky. You can overlay US firms coming in and essentially dis-intermediating more local firms at later stages.

David: Yeah, the same evolution Thomas described happened in the US previously. Look at venture 20-30 years ago, there were the Boston, New York, SF funds. Now nobody talks about venture that way.

Adam: Yeah, absolutely.

David: It's because of the ecosystem's evolution overall, but also Zoom just accelerated it.

Adam: I'll never forget the headline I saw in TechCrunch during early COVID that Sequoia closed 3 term sheets over Zoom. That was a headline, that the ecosystem was shifting. That wasn't long ago.

David: Yeah. Now that's not news.

Adam: That's not news at all. It's just how firms are running. We're up on time and I don't want to hold everybody. I know it's a little later there, the day is winding down.

One thing to leave us with - I'd love to get quick takes on as you think about the future of the European ecosystem. I don't know if predictions is an easy sound bite for me to ask for. Hot takes is another, but any closing thoughts on, obviously, we can start with David because MTP probably feels the most cause he's bet the firm on it - where do you see the European ecosystem going and why are you bullish? In a condensed way, I guess.

David: Well, look, the easiest answer is there's 500 million people who live in Europe. There's bound to be some amazing technologists among those 500 million people, and they're going to build some amazing stuff and we want to invest in them. The thing that is really holding Europe back right now, in my opinion, is there's a lot of local regulation that makes investing in startups really, really hard. Maybe this is just top of mind because I just invested in a company in Belgium. And let me tell you, it's really, really hard. It's hard in a way that I think is bad for the ecosystem long-term because it's hard to provide stock options. It's hard to share the wealth. That's one of the beautiful things about the startup world in the US - there's tens of thousands of early startup employees benefiting and enjoying the upside. Where does a lot of that capital go that they made? To your point, they're paying it forward and investing in the next company.

That dynamic won't happen unless all employees are getting to benefit from it. So I think that's the big thing. If I could wave a magic wand, that's what I would change.

Adam: Akhil, from the growth perspective, does anything come to mind for the future of the European market?

Akhil: I would say the region has a lot of opportunities ahead. Talent clusters have always been a somewhat theoretical advantage, but AI will really bring technical talent to the fore. Remote work is another such case. There are also a number of reasons which have held it back in the past, including consumer spend patterns, regulations, etc. David will tell you about the time to notarize all those documents - it'll be another choiceful experience.

But I think as investors, as potential employees, I would encourage everyone to think from first principles. Europe will not look like other regions. That doesn't mean it'll be more or less successful. The parallel I would use is it's a common adage to say US equity markets have outperformed European equity markets, but there's increasing work which suggests if you look at it, the top 7 stocks are driving all the returns in the US. And it turns out there's a similar cluster of companies in Europe - they tend to be pharmaceutical and fashion companies, not clustered in any one geography.

Anyone who tried to go long Germany and short Spain or whatever would not have succeeded. You really need to think from first principles. I think the acronym they use is "granolas" for those top handful of stocks that have driven European performance. And I think it'll be something similar on the private side as well, where coming in and saying "I think the UK has a great fintech opportunity and great Russell group of universities, therefore I want to be in the UK" or "I want to be in France" - those broad strokes probably don't work. The ones who are more bottom-up and first-principles focused are more likely to find success.

Adam: Interesting. Thomas, to wrap us up.

Thomas: Yeah, I agree that Europe may not end up looking like the US or any other region. The way I think about it is Europe is essentially 20 years behind the US in terms of the venture capital and startup ecosystem, if not more. If you look back at where the US was 20 years ago, I think we're further along in Europe today. And the gap is narrowing. Obviously, the US is not going to stand still, and neither is any other ecosystem, but I find it very difficult to see how Europe does not keep evolving and does not keep spinning out more super talented people with unique ideas. And certainly as successes materialize from existing portfolios, more capital will be attracted to invest in those startups.

So from that very high-level logic, there's no reason why this shouldn't continue to be a very interesting place to invest.

Adam: Awesome. Well, thank you, everybody. You sat through some of my long-winded questions and educated all of us on the European market. Thank you so much. We'll be in touch afterwards with an edited version and we'll go out to the larger audience. We had over a hundred people tune in here, over the course of the last hour. So we appreciate you coming through, and we'll have Jesse kind of guide us out here. Thank you so much.

Thomas: Thank you very much.

David: Thanks, Adam.