An investment bubble? Not in Europe

There’s a lot of talk about an investment bubble in tech recently. First, there’s a lot of new angels, putting their money into startups rapidly. Next, there are superangels, pouring money into somewhat proven startups (i.e. didn’t die in the first 6 months during which they’ve burnt through the seed cash), effectively replacing a series A, because you need less money to take your company to the next level nowadays. But traditional VCs still want a piece of the action and so they don’t hesitate to put a lot of money into startups and drive valuations to bizarre heights, just to be in the game.

Or at least that’s what I read. Nothing like this is happening in Europe. There’s just not enough pre-seed & seed stage capital around here. As David Hornik put it:

The biggest challenge European entrepreneurs face is a crisis of capital. There simply isn’t a robust network of angel investors who are actively investing in Europe. There are some exceptions but the scale of early stage capital is insufficient to sustain the breadth of startup ideas being born. I believe that this lack of early stage capital is the biggest single challenge Europe faces when promoting the emergence and growth of a meaningful startup culture.

Clearly, there’s a huge gap between US and Europe. On the other side of the Atlantic, some more experienced angels are standing on the sidelines for the time being, until the current “problems” with round sizes and valuations go away. But what might be a problem in the US, doesn’t have to be in Europe. In a recent interview, Joschua Schachter raised a concern that $500.000 angel round doesn’t take you far:

If you raise that, you can pay the two founders decent salaries, you’re able to hire one or two other people, and that gets you maybe eight months, almost a year, except you have to start fundraising again three or four months beforehand.

I am based in Central Europe. If I was to raise $0.5M for my startup, it would take us far. Very far. Doing some rought math, I could hire 8 people, give them competing salaries and go 18 months, with enough left for servers, infrastructure, rent, lawyers, etc. You see, new and upcomming European companies are a great place to put your money into right now. If you don’t believe me, take it from Fred Wilson:

Eastern Europe, from Ljubljana to Tallinn and everywhere in between, contains a ton of smart entrepreneurial technologists looking to build businesses on the web and on mobile devices. I am not going to leave NYC and focus on this emerging market but someone should. It is ripe.

That’s right, Europe isn’t Mordor. Great teams are already here, building stuff. And capital is catching up. We have a couple of initiatives (HackFWD, Openfund, Seedcamp, etc.) and funds (Kima Ventures, European Founders just to pick a random sample) investing early on. There’s also Seedsummit, a brand new list of angel investors from around Europe (inspired by AngelList). Yes, I have high hopes for the future of European startup ecosystem. We’re not quite there yet, but at least we’re going in the right direction.

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