Venture capital doesn't exist in Europe

John Felipe Branch, economicsentrepreneurship

There is only private equity. The terms venture capital and private equity are both translated to Spanish or German as “capital riesgo” and “Risiko Kapital”. Same applies to Switzerland and therefore I assume to the rest of the mainland continent.

Let me try to explain it to all European entrepreneurs in a way that you no longer consider those funds, seek or await, as possible investors into your new idea or project. If you expect any self called “venture capital” fund to invest into a project full of ambitious goals without a market track record, it does not happen here. They only invest once the product has been tested on the market,i.e. there are sales. That’s to say there are numbers to apply multiples and run excel sheets with. Very challenging at software, revenue before a “finished” product release.

Venture capital invests into innovative ideas, people, and goals. It tries to quickly seize a market opportunity. And it values the overall potential rather than what it is today, and current numbers. While Private equity invests into what is already existing today, what it was in the past, recovery or potential. Run numbers and then decide, much economic criteria is applied, numbers look promising, some needs of adjustments or room for quick improvements? They might take care of the challenge, and buy the company. Private refers to investments into non listed or quoted companies, in contrast to the general public and popular stock exchange. Field where deep pocket capitalists play at.

I no longer seek this kind of funds, however they are invited to reach me in any future venture. For new entrepreneurs, you should also know that from the moment of first approach to a final investment several months pass by, 6 months on average, due to their responsibilities towards their investors and need for justification. Due diligence is performed, analysis of numbers, negotiation of terms of agreement and the end valuation decided.

Other financing, the main one in Europe: State grants. They are distributed by calls with a deadline month, long waiting periods for an answer and in case of success long waiting payment times. Remembering some numbers, around 70% of startups funding in Europe comes from State grants, the other 30% are beyond great projects, some specific cases achieving large financing rounds and moving the statistics. Probably already once successful founders and people closer to the money, the money managers at financial institutions. Who might be located at the main entrepreneurial hubs for startups at capital cities or places where you know if you are there or not. I am usually in other non-trendy cities.

As entrepreneurs, we have read much about the US company's creation process, and their classic entrepreneurs' steps; it doesn’t apply in Europe. You should forget the American story of best seller books.

Lower the ambitious complex goals, stick to easier to achieve business models, be profitable and risk only with your own funds. Once you have administration infrastructure there are plenty of undistributed funds by the EU for R&D purposes that you can apply and get, or disregard.

Good luck!