‘United States Of Europe’: Early Bets On Local Startups Pay Off With A Record Number Of Midas List Investors In 2022
In the mid-2000s, American-raised newcomer to Europe Reshma Sohoni compared the continent’s tech ecosystem to Silicon Valley and couldn’t believe what she saw. “I didn’t see why Europe was not at the same scale,” she says. “We had the landmass, we had the population, so why wasn’t Europe at the same kind of productivity on the tech side?”
Sohoni (no. 94) is now a newcomer on the Midas List, one of a record 12 investors from Europe, Israel and the Middle East to break onto Forbes‘ ranking of the world’s best venture capitalists in 2022. For Sohoni, it’s a journey that began after cofounding Seedcamp in 2007, following one years at France’s INSEAD business school. Originally an accelerator Seedcamp has evolved into a fund that makes pre-seed and seed investments; first checks into UiPath and Wise, both of which went public in 2021, propel Sohoni onto this year’s ranks. (Alongside partner Carlos Eduardo Espinal, she was already a fixture on the Midas List Europe.)
To an outsider, Europe’s tech IPOs of 2021 — not just UiPath and Wise, but also monday.com and Deliveroo — and massive valuations reached for still-private companies like Swedish fintech Klarna ($45.6 billion valuation) and Germany software maker Celonis ($11 billion valuation) may seem like a sudden flurry. But for the European investors that have reaped the highest rewards, it’s been a long time coming.
Sohoni’s fellow newcomers Avi Eyal (no. 66) of Israel-based Entree Capital and Pawel Chudzinski (no. 92) of Point Nine in Germany also launched their firms around the time of the 2008 financial crisis. “We’re, quote-unquote, ‘suddenly exploding,’ but it’s not something that just happened in the last two years,” says DST Global’s Tom Stafford (no. 31), who moved to London from Hong Kong in 2017 to open his firm’s European office. “This is ten years in the making, maybe even longer.”
Many of Europe’s Midas investors set up shop in London. But one secret to their success: getting out of the U.K.’s capital city. “I took a very ‘United States of Europe’ approach,” says Sohoni, who found UiPath in Bucharest. “I didn’t think of Romania being so different from London, or Paris from Copenhagen.”
“If you want to cover Europe, you have to travel quite a bit or Zoom a lot,” says Chudzinski. For years, he and partner Christoph Janz have made investment decisions over Skype, as the two live in separate cities in Germany. That’s helped them be more receptive to startups in unusual locations, he adds, such as digital health company DocPlanner, which maintains dual headquarters in Barcelona and Warsaw.
Europe’s fractured market of a range of nations and languages has also helped in the long run in supercharging some startup categories, others argue. “I think that in certain areas like fintech, Europe is actually leading the charge,” says Sequoia’s Luciana Lixandru (no. 58). Three of the world’s largest fintech companies besides Stripe, valued by investors at $95 billion, are currently based in Europe: Stockholm-based Klarna ($45.6 billion), London-based Checkout.com ($40 billion) and London-based Revolut ($33 billion). Recent IPOs in fintech include Wise, which was founded by two Estonians, and Adyen, based in Amsterdam. “With too many countries, too many payment methods, too many currencies, somebody had to process the interoperability between all those different national systems,” says Index Ventures partner Jan Hammer (no. 17).
Investors point to Israel’s more mature tech hub as a blueprint that Nordic countries and others in Eastern Europe can follow to keep the unicorns coming. “Fifteen years ago, Israelis were selling companies for $50 million to $100 million because they thought that’s as much as they could do,” says Eyal. Increasingly, entrepreneurs in Israel have returned from experience in the U.S. or at multinational companies based locally to build startups to scale, not sell, he says. Eyal’s portfolio company monday.com, for example, never relocated its headquarters, and went public last June.
Midas List veterans like Fredrik Cassel (no. 82), who has been with early stage firm Creandum since 2003, and Philippe Botteri (no. 91), who has invested in Europe for Accel since 2011, say they are seeing more blue-chip American firms hovering around the companies they monitor. Sequoia opened its London outpost in 2020, and others like Bessemer Venture Partners, Iconiq and Insight Partners have come since.
“Three or four years ago, the competition was mostly composed of local European funds,” Botteri says. Now U.S. funds are looking to invest at earlier stages, he notes: “It’s hard to do an early deal [in Europe] when you’re based in California.”
That means more competition for Europe’s Midas investors over the next decade than they faced in the last. It’s a trade-off they’ll take for the optimism and staying power it means for the ecosystem’s entrepreneurs. “You’ve got the confidence now that there’s no inherent disadvantage to building in Europe,” Hammer says.