A European entrepreneur who lives in Europe would probably start a company like everyone else, out of his apartment, then coffee shop etc. until he needs to raise capital. “It is tougher to raise a C round in Europe” says Alex Fries of Ecosystem Ventures, “Start here in Silicon Valley, raise a C round here, then open an office in Europe if needed”.
Alex Fries, Ecosystems Ventures
Why? Many European VCs are based here or have a significant representation here. “We want to be involved and be a business side in a tech company, founders can do the building of a product, engineering”, he explains, “we do not see if an entrepreneur is building the right team in Europe, prefer to work closely with local teams.”
Alex specifically emphasized the fact that Ecosystem Ventures want to lead a business side. “Entrepreneurs come here (to the States) and say that they need an attorney. Then they spend a month looking for one, talk to ten of them, then still get screwed.” Ecosystem Ventures is an early stage investor, up to 1/2M, offers experience and full business infrastructure with attorneys and other professionals on staff.
Although, corporations based in Europe have tax advantages, in some countries more than others. Ireland, for instance, is a great place for corporations.
Ecosystem Ventures isn’t really looking at investing in Russia, and have one company in their portfolio Spectralos.
Some companies are transactional and are not that intersting to investors. Meaning, they get started with a help of some angel capital, quickly become profitable and keep status quo, keeping profitable, yet unable to grow rapidly thus create more revenue. Investors still would like to get thier money back and out of the investment plus return. The company keeps sitting in VCs portfolio, founders do not want to sell it, being comfortable with generating steady revenue.
VCs want to have exit of some kind. They like mergers and aquisitions. They prefer to have one or two rapidly growing companies to become big corporations in thier portfolio.
Watch outs for entrepreneurs: some early stage VCs offer to invest 50K for 10% ownership, which is a wrip off – cannot take a company from an entrepreneur for 50K. VCs have thier own risks. “Twice” Alex says, “we had very little money in the bank, died almost, 15 partners firm. Then were saved by angels bringing in cash to the firm’s fund.”
Angel and Venture capital in Europe, Stanford University
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