DiPP - Challenges to investing in Europe

The conversation proved extremely rewarding although it failed to deliver the resounding ‘No’ that everybody wished to hear to the question asked.

The main problem that holds Europe back seems to be a widespread aversion to risk. In turn, this deep-rooted attitude limits the availability of the capital needed to accompany startups on their journey to scaling up to meet growing market demand. Arguably digital technology has only made this problem worse as you need extra capital when the whole world is your addressable market.

As a dire consequence of this sorry situation, Europe is bleeding talent.

Presently the EU investment picture is patchy, with the Nordics clearly in the lead, including as regards funding clubs driven by business angels. By and large, Belgium lags ten years behind France, which was ten years behind the UK at the time. This contrasted picture bears practical consequences as it informs the path investors will follow:

Belgium is fine below €3 million
 France is OK up to €20 million, with a few brilliant outliers such as Sigfox that raised €150m there
The UK can help you to upper levels
But above €200 million you have to turn to US investors.EFSI-style hubs work even at a lesser scale: one just opened in Belgium has attracted 15 investors and €5 million in less than two months.

While much of a blessing for scaling up, digital technology carries its own complexity:
By putting the world at your fingertips, it makes for more money-hungry entrepreneurs.
By making location irrelevant, it eludes the grasp of most policy makers who, being unable to construe ICT-enabled connectivity as a game-changer, keep seeing national borders as a natural incubator: grow your business nationally before you take on the world, they say, based on pre-digital experience.

This country-focused mindset generated poor cohesion across Europe. It builds forbidding barriers to scale up, which drives Europe-originated startups towards the US at some point in their development. All too often the only ‘Frenchness’ of a successful digital company is the French passport held by its owner. 44% of new European firms are bought by US companies, even though the ‘exit’ market is going down the drain in the US. Silicon Valley is no longer a much vaunted nirvana for startups: this is also the land of ‘zombie funds’!

Europeans should shed their fixation with Silicon Valley as the only template and develop their own pathway closer to their own values, perhaps by looking eastwards, to India for instance.

Commonalities found between the ‘investment mix’ that works at the EIB level as well as in various Member States sound like an invitation to consider amore systemic approach. As storms are looming, Brexit, elections in key Member States, it is time perhaps to ponder thoroughly how we could possibly shift from caring too much about keeping what we’ve got to caring a little more about gaining what we’ve not got yet.