In days gone by, the bright lights of countless tech giants’ headquarters made San Francisco the destination of choice for many intrepid European founders with global ambitions.
But now they’re better off setting their sights on New York as a springboard, says Zoe Chambers, partner at UK and Ireland-based Frontline Ventures — which has just closed a $100m seed fund to back B2B European startups with ambitions to cross the Atlantic.
Frontline is also announcing the close of a new $100m growth fund — which will invest in US B2B startups from Series B onwards who want to launch in Europe.
“One of our controversial takes is that it's better for European startups to open their first US office in New York rather than San Francisco,” says Chambers. “For a long time New York was just consumer folks — but it’s becoming a hub in the B2B space, too, particularly for European leaders.”
New York > San Francisco
Startups are heading to New York for capital — and customers, says Chambers.
An increasing number of B2B-focused funds have set up in the city over the past decade, while there are also as many big businesses based in the city as in San Francisco.
“Given the density of Fortune 500 companies, there is an obvious draw for businesses selling software to enterprises; be where your customers are.”
Talent in New York is “slightly less expensive” than on the West Coast — and the time zone also helps.
According to an analysis carried out by Frontline of 140 European B2B startups that’d gone to the US over the past 10 years, 66% chose a city running on Eastern Time (five hours behind CET), compared to just 23% on Pacific Time (eight hours behind CET).
“Having a crossover of time zones between two teams trying to integrate and run a business together is genuinely more important than you realise,” Chambers says. “Having just a two-hour overlap in your working day can be really difficult.”
Several of Europe’s tech darlings have opened a New York office in recent years, including financial crime company Quantexa in 2021, AI video company Synthesia in 2022 and HR tech scaleup Personio in 2023.
It’s all contributed to a growing community of European expat founders, CEOs and execs — and created an attractive support network in the region for incoming startups, says Chambers.
“If you want the experience of other CEOs and execs expanding into the market for the first time from Europe, you will find a community of those European CEOs in New York — in more volume than you would in San Francisco,” she tells Sifted.
The seed fund
Frontline's new seed fund is its third — following on from a previous €70m fund the firm raised in 2021 — and will back 25-30 European B2B startups over the next three or four years.
The backers of the fund are a mix of institutional investors, sovereign wealth funds, family offices and high net worth individuals.
It’ll write tickets of between €1m-3m and will back B2B startups across applied AI, developer tools, fintech, climate tech and healthtech. It’s already backed one climate tech startup from the fund — which is yet to be announced.
But Frontline puts a bigger focus on “global ambitions” than sectors, says Chambers — and wouldn’t back a startup that didn’t have hopes of heading Stateside at some point, she adds.
The European expansion opportunity for US scaleups
Frontline has also closed its second growth fund — which will also back B2B companies that want to cross the Atlantic — but in the opposite direction.
Via the fund, it will invest in about a dozen US B2B startups from Series B onwards – with ticket sizes of $1m-5m — which have ambitions to expand to Europe over the next three to four years.
“A lot of US scaleups don’t understand the size of the European market and don’t realise that some of the biggest companies are based there,” Chambers says.
According to a 2023 Frontline analysis of 50 public US software companies — including Dropbox and Slack — that have listed over the previous 15 years, 30% of their revenue came from Europe.
But despite all those potential customers in the region — Frontline is not in the position to back European later-stage startups.
“When you set up a fund, you need to offer a product you’re an expert in,” says Chambers. The first growth fund was launched in 2019 by partners Stephen McIntyre and Brennan O’Donnell, who, between them, have experience opening European offices for US businesses like Google, Twitter and Airtable.
“To get onto late-stage cap tables, you need to bring something extra to the table — and that’s what we can do with the European expansion piece,” Chambers tells Sifted. “European growth companies going to the States is not our area of expertise.”
IPOs on the way
The potential to IPO is also a key consideration for Frontline’s growth fund — and while the public markets have been frozen shut for tech companies over the past couple of years, Chambers says she expects it to open up at the end of this year.
The leading indicator for this is the uptick in growth rounds, she adds. “We're definitely seeing interesting growth rounds being done again, having had a very quiet market for 18 months.”
While the value of late-stage deals in Europe plummeted 50% in 2023 in comparison to 2022, according to PitchBook data — there’s more excited chatter among growth stage VCs on both sides of the Atlantic than there has been in a long time.
Frontline is anticipating its first IPO within the next year — although Chambers can’t disclose which company that is. It’s already made one investment from the new growth fund, an unannounced deal for a company helping businesses with customer engagement.
