Over the last few years, we’ve seen a growing interest in angel or scout programmes on behalf of European funds. Atomico, Backed VC, Blossom Capital and Ada Ventures have been among the first Europe-based funds to venture into this territory. While there are additional funds that are rumoured to be toying with the idea, I find it odd that the concept has seen only limited development in Europe. After all, such programmes could prove to be truly game changing for local investment — and the European ecosystem as a whole.
How is it possible that the first VC angel or scout programmes weren’t launched in Europe until 2018 — a full nine years after similar programmes had made their debut in the US? And why primarily with only a handful of London-based firms?
Perhaps this could be explained by the fact that investment activity has really only picked up in Europe over the last few years and was highly concentrated in London prior. Or perhaps this could be explained by the fact that European funds were using alternative methods to identify early-stage investment opportunities, like working with entrepreneurs-in-residence (EIRs), venture partners, or investing via programmes like Seedcamp (which actually predates Sequoia Capital’s scout programme).
But some major changes have taken place over the last few years and Europe’s funds are now seeing unprecedented competition. Europe’s ecosystem as a whole is maturing and centres of gravity are shifting — making scout programmes potentially key for a number of reasons.
The early bird
First, it’s becoming increasingly important to identify investment opportunities earlier. Not only have we seen a rise in the number of early-stage investors and deals, but funds that were previously writing cheques for Series A and beyond are venturing into early-stage territory.
With more capital available and better returns, investors are now resorting to new strategies to enhance their early-stage deal flow. Of course, not all funds will result to scout programmes for this; Draper Esprit and Heartcore are examples of funds that are taking different approaches to identifying earlier deals.
Getting further into Europe
Second, European funds are actually becoming, well, European. Or almost.
Many funds that often self-identify as “European” still maintain a large portion of their team and majority of their investments in several core markets at best, though investment geography is becoming increasingly diverse. Many investment teams are moving away from being organised by geography to being organised by industry, which means funds are now making investments in places where they may not have a local or dedicated team. For example, Atomico’s team is primarily concentrated in London with a handful of remote partners in places like Sweden, Switzerland and the US. However, Atomico’s angel programme currently features 15 angels in nine different countries, enabling the firm to get better coverage in a wider geography.
Been there, done that
In addition, operational experience has never been more important. With a wider variety of funds to choose from — including non-European funds that are showing a growing interest in European deals — top local entrepreneurs can afford to demand more than just money.
“With a wider variety of funds to choose from, top local entrepreneurs can afford to demand more than just money.”
European investors, historically criticised for their lack of operational experience (though this is changing), could greatly benefit from the operational experience of the scouts they work with — especially when competing with leading international funds. For example, Blossom Capital’s Cultivate programme has gone after scouts with experience at European unicorn companies and requires them to spend time with portfolio companies. Similarly, Backed VC has put the emphasis on talent and leverages its scout community to recruit for portfolio companies — with compensation included.
There are many reasons why funds should consider launching scout programmes in Europe — including the potential to benefit and strengthen our ecosystem as a whole. Scout programmes not only serve to benefit the funds that launch them but also contribute to developing the angel culture and community that Europe is still desperately lacking. This isn’t to say that there aren’t angel investors; Business Angels Europe represents over 40,000 angel investors across the continent (though this is hardly comparable to the numbers in the US). In Europe, many independent angels are highly driven by fiscal incentives and often lack relevant operational experience. Scout programmes would allow key people on the ground to gain proper exposure to investing, enabling us to develop and educate a new generation of future angels and European investors.
Naturally, when it comes to scout programmes, there is no one-size-fits-all. Funds have designed many variations of scout programmes and with different objectives in mind (hopefully not pure marketing). I’m hoping we’ll see more and more scout programmes in the months to come. With all this capital, our funds now have it would be a shame not to leverage it as much as possible.
Roxanne Varza is director of Parisian startup campus Station F and a regular Sifted columnist.