Why Europe is not like Silicon Valley

Here’s a little example of why Europe will never be like the Silicon Valley:

Let’s assume you developed a mobile app that is still in beta and has about 5000 users. A consumer app in a vertical conventionally looked upon as either too small or too unspecific and requiring additional explanations - it is not a no brainer, looks stupid anyways and there’s no clear TAM in sight. It’s never been done before so there’s no relatable previous case - duh.

And so if you pitch any respectable early stage VC from Europe, this is a plain no. It’s categorical, this will not even get you a meeting.

You will be most likely be offered polite feedback along those lines:

It’s too early for us, there is no traction, the market is too niched, I just don’t see it at 1 million users or 100M ARR, etc.

But keep us posted - if you cross the chasm and become successful, maybe we will look again. (this is an insulting line but I digress)

All in all, it sounds like reasonable feedback though. It makes sense, right? It sounds a bit defensive tbh but those are some decent points any first year analyst would make.

This is something you say if you play not to lose. You don’t want to make mistakes, you play it safe, this is the discipline - you will not get fired for this.

You seem like a nice guy and I would like to invest but I don’t want us to lose money if this doesn’t work out - you can get the same response from a bank teller upon reviewing your mortgage loan btw. Nobody does like to lose money!

However…

…in the USA though, respectable VCs will not only back this idea, but can also give you a $100 million valuation if you play the FOMO cards right.

Why - because they play to win not to no lose. This is a very important distinction.

Professional investors take risks even though they know that not all deals will be winners.

They know they will lose some money on some deals and not because they made mistakes but because they do not take the chance of missing out on what seemed crazy, stupid or hard to understand since it is outside of their comfort zone or of conventional thinking.

They play offensively, the opportunity costs are just too high if they pass and in general they put their money where their mouth is: they take risks.

That is why crazy ideas are funded in US and not in Europe. And also a related tangent as to why Europeans want to clone Airbnb and Google instead of building something crazy original - it won’t get funded!

In Europe it is hard to come by this kind of investment mindset - they are usually skeptical of everything and only comfortable to discuss if they see an immediate path to profitability, ideally laid out on a 3 year projection spreadsheet. Yes, at very early stages.

It is not right or wrong, it is just different. You can achieve an outcome with multiple strategies, especially in portfolio building management.

But this will deeply influence the founders market - ideas they come up with, how they sell the pitch and execute if they raise are all strongly correlated to the investor mentality. Founders job is to close the deal and adapt to what they find in the market, of course, but make no mistakes, they never build their startups not to lose, they build to fucking win, it is their only card in their hand.

It is a disconnect. But yeah, let’s copy Silicon Valley, we’ve got shitloads of money in Europe too. So guess what will the founders do when they have a crazy idea that can be the next Facebook? They will simply apply to YC and go to US, a place where investors speak their language and is just a $500 plane ticket away.

1 Comment

Great post, and very much agree! One of the things that would do most for the European venture scene would be if more investors shifted their focus from downside minimization to upside maximization.

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