Jamie Finn’s insights on the Venture Capital market disparities between Europe and America
Jamie Finn is an experienced angel investor and M&A adviser who has participated in over $500 million worth of transactions including Kontera, Jajah, Tokbox, RingRing Media and Zingy. He has also successfully launched new products and businesses in Germany, Spain, Argentina, Mexico, the United Kingdom and America. This all-rounder has taken a short break from his day job as AT&T’s AVP Big Data Product Innovation to delve into the world of venture capital (VC) shedding lights on the differences between Europe and North America.
There is a widespread belief that the European venture capitalist market is not as developed as its American counterpart. Ariadne Capital founder and venture capitalist Julie Meyer once said during one of her Monday morning Weekly Briefings on ECTV that: “the dirty little secret of most European venture capitalists is that they do want to back the best and the brightest European Entrepreneurs but they have one play in their playbook and it goes like that – they are going to figure out within the first or second session with the European entrepreneur that they back which US technology company they are going to sell them to.”
In an interview with The Financial Times, Facebook’s chief messenger David Marcus spoke about the difficulty to grow a technology company in Europe because there is “less venture capital, many languages and a substantial bureaucracy.” The former president of eBay’s subsidiary PayPal did add that Germany and the United Kingdom were exceptions.
As an angel investor with international experience Finn says “the valuations are historically lower and rounds are even smaller in Europe.” For instance, “I happen to be working with European startups in an advisory capacity and in one particular case the business would have raised 5x more money if its operation was based in America.”
“That said I think we are starting to see a shift in Silicon Valley that is not happening in Europe, there has been a lot of irrational exuberance with some of the valuations in the Valley and now it seems that the time is coming for some of these companies to pay the piper as it were and they are not able to deliver.”
This explains why European venture capital is going through some kind of resurgence. Forbes describes it as a rebirth while the Seattle Times claims investing in Europe is not only attractive, it is cheaper too.
Finn argues that the fundamental difference between the two continents is that there is no “Valley hype machine in Europe.” He says in the United States, “venture capitalists believe what entrepreneurs tell them without looking at the metrics,” adding that “just because you say you have a billion dollar company does not make it true in most of the world but in Silicon Valley it does.”
Well it seems that in face of IPO these billion-dollar companies – also known as unicorns – are experiencing a rude awakening. For instance, the Financial Times reported in early November 2015 that Square’s $6bn valuation fell short of its expectations ahead of the company’s IPO on the New York Stock Exchange. The report also quoted a tweet from the company’s former chief operating officer Keith Rabois saying that “The steroid era of startups is over.”
Rabois is not the only one to foresee tough times ahead for technology startups. Earlier this year prominent investor Bill Gurley who backed companies such as Uber and Snapchat predicted the death of some unicorns. American entrepreneur and investor Marc Andreessen concurred and explained in a series of tweets why “startups will vaporize.”
Is the tech bubble about to burst? “No” according to Finn but “the valuation bubble is bursting.” He thinks that there will be “a lot of down rounds and acquisitions done on the cheap. This could be a great opportunity for larger corporates to acquire some strategic knowledge and also potentially new products.”
This could potentially address the many challenges large corporates face when they attempt to develop a new product. “Most large firms think that they can quickly have an idea, deploy it and turn it into a billion dollar business,” says Finn. “The reality is 99% of the projects end up delivering microscopic amounts of revenue and are just rounding errors.” He adds that “once in a while something goes big and usually the business lacks the patience to wait it out and invest further, they kill it by using the wrong metrics from their legacy business.”
Innovate or die, that is the question!
In the face of potential disruption stemming from Digital Enablers, large firms are urged to review their business model and adapt to the new demands of the Digital Economy. Finn argues that “industries don’t just disappear they die of apathy.”
He explains that “the apathy is created when businesses make so much money that changing anything becomes risky.” This is why EntrepreneurCountry has created the fitness journey for large corporates to assist them and manage their digital transformation.
Finn reflects on innovation: “I am sure we will look back in 20 years and wonder why there were ever cable companies or phone companies but that future will take time and deliver hundreds of billions of dollars to investors pockets in the meantime. The future is like the past but it just hasn’t happened, so I would say that evolve or die will continue to be true.”
Any investment tips?
Google’s acquisition of Nest for $3.2bn as well as British Gas’ purchase of AlertMe for £65m has turned the smart home industry into a gold nugget. Finn’s bias on the topic is apparent, “to me everything is going to be connected in the next 5 years, not as an option but as the only way you can buy things from appliances to toothbrushes so naturally the Smart home is a great place.” He does admit that the market is rather complex from a consumer’s point of view “it is a total mess with multiple platforms and technologies competing with each other.”
Security is also a massive market with huge potential “we see hackers messing around with cameras and anything else they can get their hands on, so this is a mega opportunity around security and privacy.”
Despite the current hype around Blockchain Technology, Finn is less eager to invest in this encrypted public ledger “I don’t think the world understands the implications of Blockchain and so I would not invest in it yet since the legacy industries are not yet awake as there is not enough pain disrupting the standard way of working.”
Jamie Finn can be found tweeting @finnstr