Europe Venture Capital

Why operator-investors will unlock VC growth in Europe in years to come

And why it's a great news

In the coming years, Europe is poised to be a center of innovation that will rival the US and China. We believe that higher access to venture capital funding will be key to fast-track innovation, and that operator-investors will drive the next phase of investing in Europe.

Europe and innovation

Why should anyone care about innovation, technology and start-ups at all?

The macro answer is simple: the nations leading in terms of innovation and technology also lead in terms of economic and military power, as Ray Dalio argued in his book, The Changing World Order. This means that technology improvements have profound impacts on a nation’s economic standing and geopolitical relevance. As it stands today, the US is the world leader in innovation and technology, China is a close second, quickly bridging the gap, and Europe is in third place. Tech start-ups are a key driver for innovation which is why, even if you’re not working in the tech industry yourself, you should pay attention to the ecosystem.

Focusing on start-ups, in the past 30 years, Europe has had significantly less traction compared to the US and China. For instance, when looking at the number of unicorns (privately owned startups valued at $1 billion or above), the US tops the charts having produced 487 unicorns, followed by China with 301 unicorns and Europe with 104.

While Europe still lags behind the two great powers, we believe that it is bound to bridge that gap since:

  • There are more trained computer coders in Europe than in the US (5.5M vs 4.4M in 2019)
  • It is home to 31 of the top 100 computer science programs
  • It benefits from an affluent consumer market hungry for tech products (EU consumer market size: 8,300bn$ vs USA 16,900bn$ and China 5,350 bn$)

The exponential increase of new unicorns proves that it is only a matter of time before Europe can and will be a productive innovation hub.

So what will be fueling this change?

Increased amounts of Venture Capital will be key to drive innovation in Europe

Let’s take a step back and focus on the Silicon Valley which is, without a doubt, the world’s most prestigious and productive hub for innovation.

For Sebastian Mallaby, the reason why is simple: Venture Capital. VC firms were born in the Bay Area and ever since, a positive feedback loop has helped improve both the number and size of tech companies on the one hand, and the number and size of VC firms on the other hand.

Why? Because Venture Capital underwrites risk. For a founder, it is much less risky to create a company when you risk your time only, but other people’s money. Increase the volume of Venture Capital, and you will mechanically increase the number of risk-takers creating companies.

The corollary is that for Europe to continue to grow its tech ecosystem, and therefore its relevance in the world, it should facilitate founders access to Venture Capital.

So far, Europe has failed to create a truly pan-European and harmonized approach to VC across countries, which has historically resulted in a market lacking consolidation of opportunities.

However, this is changing rapidly: while the amount invested by VC firms in the US increased by a mind-blowing 23x between 2001 and 2021, it increased by an even more astounding 148x in Europe during the same period.

Another way to say this is that in 2000, US start-ups raised about 30x as much as European ones, but in 2021, only about 4x as much.

The consequences are already visible in the increasing number of European tech champions, companies that have quickly spread throughout Europe and have become unicorns or are close to becoming one, without even stepping foot in the US.

This was unthinkable five years ago, and it’s becoming the norm today.

With the first European successes, operator-investors are emerging and contributing to the European start-up ecosystem flywheel

There are few sins worse than extrapolating curves without thinking about the causal drivers behind them, so let’s dive into who we believe will drive the next phase of Venture Capital growth in Europe.

Learning once more from the US, we see that two interesting behaviors have emerged with Silicon Valley’s success stories, and contributed to the start-up ecosystem flywheel:

  • Wealthy founders and early employees reinvest massively to give back to the ecosystem, increasing the pool of capital, but also sharing their breadth of knowledge with the next generation of start-ups. We call them operator-investors
  • Several early non-founding employees starting their own start-ups after a few years of experience, or joined as executives other new start-ups, increasing the pool of talent and start-ups in the ecosystem, and having preferred relationships with operator-investors
The start-up ecosystem flywheel

In Europe, we are at an exciting point in time, where we’re beginning to see the exact same pattern in some local ecosystems, as the number of successful companies exploded.

With Roundtable, we are convinced this is the beginning of the golden age for European operator-investors, who will drive value creation in the tech ecosystem and whom we are happy to empower.

We know there will be challenges building a unified European platform for co-investment, however, we’re pumped to start this journey!

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