European VCs team up with US investors

Every month the GO4Venture Bulletin lists larger transactions. In the month of July, the market is actually very diverse apart from the continuing interest in consumer internet services (half of the activity), showing a broadening landscape of opportunities in terms of geographies, stages (with an upsurge of Series B investments) and sectors (with cleantech and software making a rather poor showing this month).

In the first half of 2012 European investment as measured by the Headline Transactions Index (HTI) of Go4Venture is on a par with the same period (January to June) last year.

The presence of US investors in larger transactions (in a majority of cases these days) is now a feature of the European market. This month's tally of US investors includes Accel, Benchmark Capital, Canaan Partners, Cross-Atlantic Partners, Insight Venture Partners, Intel Capital and Summit Partners. Tier 1 European VCs choose to syndicate with US investors and tap stronger funds which have the depth of pockets to support companies through thick and thin. This is also a meeting of similarly minded investors around more ambitious international rollouts, those which bring a chance to build world-class companies of substantial value.

As Danny Rimer, co-founder and General Partner of Index Ventures mentioned when announcing Index's new €350mn VC fund: “Companies have to think from day one about international". Unfortunately, the average European startup is hampered by chronic underfunding from smaller, often tax-incentivised, home country-bound funds who are finding it difficult to support early international expansion. Only the very best of European VCs are breaking the curse, resulting in a lopsided market where Top tier funds are cherrypicking a handful of companies, with the next lot condemned to operate with less than ideal venture partners.

That is not the only reason why the authors of the bulletin are a little less optimistic than usual. In addition they increasingly believe that although the innovation funding environment is getting better in Europe, the challenges are mounting: Eurozone in tatters before reconstruction (hopefully) starts, emerging markets slowing down, and the US stuttering through a shallow recovery with a key election on the way. As a result the bar to success is being raised: bigger stakes will need to be risked, more marginal players will be swept away, and slow-moving portfolio companies will need to be tackled more decisively.