Another two reasons why Europe tends to be breed small exits

Europe Inc., formerly on top of the world (circa 1792) needs to get with the programme and start building some world class companies.  I am not sure it is really about to get around to it.  Last week I announced a new investment in a company called InspirationalStores.  I got a lot of emails of congratulations (mostly, but then Europeans are very polite), encouragement, skepticism (“are you mad?”) or constructive criticism (re for example the challenges to achieving scale in this market).  But two “events” really stuck in my mind:

Event One, the frantic calls from the French Financial Press

I got about 5 calls from the local financial press; these guys rarely seek you out and I don’t seek them out either.  PR is for the company.  But in this case they all wanted to talk “the financiers”.  Questions on their lips: “Why such a large round of financing ?”  And “why now”, in the face of a global financial meltdown ?  “Don’t you realise you are going to get wiped out” !   They found it amazing that we would be funding anything at all in the face of what is happening in the credit sphere and quickly spreading to the rest of the economy.  Of course saying “we are long-only investors no matter what the weather is” would not quite suffice, so …

… two answers

  • the boring and obvious one is that great companies are often built in times of crisis and that capitalisation becomes a critical competitive advantage when the funding markets are shut.  If we can ride out the downturn in a capital efficient manner and leverage the inherent advantages to the model (which I will not detail here :-)) then we will emerge strong on the other side.  It ain’t going to be easy, but then anyone who thinks making money in venture obviously has not been in the sector long.  Scars on my back and all that.
  • the less obvious one maybe is that €10M really is not that much money when you are backing an ambitious project and an ambitious team.  Why is it that in the French landscape people seems stunned by a perceived “huge round for an e-commerce company”.  If our startups lose the capital battle then they will never win the war against much better funded US competitors.  The self-fulfilling prophecy of the middling local success.  I have a different definition of the word “venture”.  Yes, cash is more important than your mother (aka CIMITYM, courtesy Ken Morse).  Just raise enough of it.

image <—- Ken says: CIMITYM !  Got it?

Event Two: The Copycat Cometh

Given that (a) this is Europe and (b) I am no Fred Wilson, I tend to get few comments per post.  But on a piece of news like this new funding, I get a few more than usual, and they are from or about startups who would like you to know that they exist: a dash of MixCommerce and a hint of BrandOnlineCommerce.  Besides the fact the fact that I would rather invest in the original artefact, I don’t really care who was there first (see the comment thread on that topic), but it does point to an interesting problem: in Europe everyone seems to be interested in starting their own company rather than partnering with other entrepreneurs to build better and bigger businesses.

Richard I and Philip II, during the Third Crusade<— I am the real king of e-commerce, you Cathar heretic !  Now go Away or I shall taunt you a second time !

Even for a second it all these energies partnered together and decided to go after GSI Commerce in a meaningful way.  Wouldn’t that be a better way of building a large business ?  Isn’t more important (and profitable) to build a large exit than own a large percentage of a tiny failure ?

Start for a second about how you will build your business in a different way.  As my partner Jeff Fagnan would say, think about how you “play to win”.  Not how you play to win €2M.


Right now, we are a tiny industry with limited amounts of money being put to work, not enough big plays, undermined by our own industry body (yes, EVCA), dependent to a certain extent on public funding, and occasionally providing interesting exits to our LP’s.  To change this across the industry we need fewer / better funds supporting fewer / better startups and focusing on game changing outcomes.

In the meantime, it’s humble pie and (probable) recession for all of us.  Gotta get back to work !

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