The press is abuzz with the news that more and more US venture capital firms are establishing a foothold in Europe. This is good news indeed for the local ecosystems. Ambitious founders will be able to raise more money, and the trend validates the idea that tech entrepreneurship is finally taking off in Europe.
But are these US investors prepared for what they’re about to discover? From a European perspective, Americans often come off as unaware of what Europe is about, and clumsy in the way they approach things here. This is why I compiled the following list of advice to help them succeed.
1. The first piece of advice is to get out of London. It may be the most enjoyable city (trust me), but you get used to too many good things: the fast pace, the ease of doing business, the fact that everyone speaks English. And if you’re keen to grab low-hanging fruit, staying in London will leave you in brutal competition with the best European venture capital funds. While you have the brand and the allure of the US. they have the giant head start! If your goal in Europe is to find excellent mispriced assets then you need to take the leap and leave London as often as possible to explore the continent.
2. Mind the cultural barriers. Here’s one example: don’t expect European founders to hype themselves up. It’s a unique characteristic of the US education system that people are taught early on to demonstrate a great deal of confidence. While this is somewhat seen in the UK, that kind of confidence is completely absent elsewhere in Europe. Public speaking is not something we practice in either France or Germany. So if you base your judgment on people blowing you away with how well they pitch themselves, you risk making many mistakes (in terms of both false negatives and false positives).
3. Mind the language barriers. A big European problem is the lack of English-speaking skills outside the UK and Ireland (although it’s pretty good in Scandinavia and the Netherlands). In many European countries (including France and Germany), very few founders have actually practiced speaking English before founding their startup and training their pitch. Sure, Europeans know some English words, but they’re terrible with accents and limited in their vocabulary. As a consequence, you need to overcome your first impression, put people at ease and make it easier for them to convey their message.
4. Be prepared for legal complexity. Are you about to invest in a German company? Expect a bureaucratic nightmare like no electronic signatures and lots of interactions with the local notar. Is it a French company? You’ll find that it’s difficult to get rid of angel investors who have participated in previous rounds. Do you care about employee equity? Maybe you don’t realise that the rules differ from one country to another and it all depends on where the employee is located, not where the company is headquartered. All to say, many shortcuts that you take for granted in Silicon Valley don’t exist here!
5. Don’t hire locally. If you want to play on your competitive advantage as a US company, you need to send a partner from the US. Not only will it impress European founders, that person will also bring forward a great deal of education that the local ecosystems are in desperate need of (exactly what happened with Israel’s Yozma programme in the 1990s). Also, by not hiring locally you can avoid many mistakes like picking the wrong person, creating a rift between your headquarters in the US and your European operation, or hiring someone who already has their own (good or bad) reputation in the local ecosystem.
6. Send someone senior. Having a senior person relocate in Europe will send a strong signal that you mean business, thus attracting the best European founders. A senior partner is also best positioned to bring US talent over to European companies in which you invest and they can build bridges with large US tech companies for future partnerships or acquisitions. And if you’re afraid that a seasoned American venture capitalist won’t find their way in Europe, do it like Goldman Sachs: hire local advisors to teach them about the local customs and how to make their way into European ecosystems.
7. Start scout programs with young, talented locals. The best way to complement a senior person from the US is by sealing an alliance with young Europeans on the ground. A scout program is the ideal way to achieve that goal. It makes it easier to spread your operation across different ecosystems where people have different cultures and speak different languages. And you, as a non-European, are best positioned to bring together a diverse group of European talent. Also, working with young people without previously-established allegiances is a hedge against being entrenched in the local ecosystem wars.
8. Co-lead deals with the few very good venture capital funds here. Once you’ve done all of the above (realising that Europeans are different, learning about the local customs and spreading out operations thanks to your scout program), you should be able to spot the best venture capital firms in Europe. Once you have that list you can start approaching them to discuss co-investment opportunities, and you will thus deepen your footprint in the European ecosystem (Hint: these firms are not necessarily the ones with the most money under management or the biggest names on the door).
9. Double down on content and social media. Marketing yourself as a venture capitalist using blogs, podcasts and Twitter has become common practice in the US. You’ll be surprised to realise how far behind local venture capitalists are in this social media race. European venture capitalists are lazy on that front because they can rely on their brand and track record, simply waiting for startups to come to them. There are exceptions, of course, with firms such as Point Nine Capital or investors such as Stride’s Fred Destin and Harry Stebbings. But if you simply keep on doing what you got used to in the US, you’ll realise it provides you with a decisive advantage over local competitors.
10. Most importantly, talk to everyone. Every startup ecosystem in Europe is immature. The lack of European tech giants means nobody knows exactly how the game is played here. It doesn’t mean that failure is guaranteed. Rather, it means that multiple groups of people are exploring different ways of building startups. And since it’s too early to know the one best way, there’s no single point of entry in a single city, and definitely not one person who speaks for everyone. Therefore, if you want to make the most of each city, you need to make sure you talk to everyone there, including people that openly speak ill of one another (and not just the biggest names in town, or the government, or those with the largest office 😉).
In conclusion, bear in mind this observation by former former Goldman Sachs co-president John Thornton (quoted in Charles D. Ellis’s The Partnership as part of a discussion of the bank’s international expansion): in each foreign city “the pecking order is unspoken, but known to everyone — like in a small town or a secret society. Reputations are formed by actions, and people make judgments”.
Goldman Sachs is the rare US investment bank that managed to expand internationally back when it was neither easy nor fashionable to do so, and their approach of treating foreign markets as secret societies has been key to this success. I’ve long been an admirer of this approach, and I think it should serve as an inspiration for US venture capital funds now seeking to expand in Europe.