Europe's Venture Capital App Store Moment

In my 20 years as a venture capitalist, there is one constant. The internet inevitably democratizes, aggregates, and eventually transforms mechanics most take for granted. Clubhouse embodies this process well, by bringing creation and consumption in the same feedback loop. Venture capital is also entering such a transformative phase.

When the App Store came out in 2008, its digital distribution platform meant a more equal playing field. As a software publisher, suddenly you could access your customers independently of where they are based. One online market, the same for everyone.

The Covid pandemic is creating a similar even competing field among VCs. In the same way the App Store reduced the friction and transaction costs of publishing software, Zoom reduces the friction of investing globally.

Zoom reduces the friction of investing globally.

It doesn’t matter whether you are investing from San Francisco or Berlin. When both founders and VCs are calling from their own living room, nobody can feel less important for not being on the arrival end of an overseas flight. Location is no longer a moat, for VC brands.

This remote first-mentality is a shift like moving from snail mail to email. Entrepreneurs can now field as many VC meetings in a day as they could run pre-pandemic over a week. Driving multiple conversations simultaneously is the key to a competitive fundraising process. And this ultimately plays in favor of founder-friendly outcomes. Why would entrepreneurs want to return to physical meetings? These can only decrease their number of capital options available to them.

Today, venture capital flowing into Europe is still a small portion of what is invested in the U.S. and Asia. But as the number of successful companies born out of Silicon Valley increases, so does the presence of U.S. investors looking beyond London. The ecosystems that created today’s winners now benefit from the next generations of founders out of the new unicorn alumni talent pools. Cheaper software engineer availability across Central and Eastern Europe grows more appealing as VCs learn remote board management.

The setup isn’t just making it easier to fundraise. Traditionally, European Enterprise SaaS startups at the Growth stage try to open a U.S office as fast as possible, to chase the shorter sales cycles and bigger tickets of U.S. Corporates. With buyers and sellers embracing virtual, the next Zendesk will more likely have no need to move its HQ from Copenhagen to San Francisco.

For a long time, venture capital has gotten comfortable with playing with a certain set of rules. Covid is providing a new field at the same time players like rolling funds, crossover funds, hedge funds, tech-focused PE and influencers enter it. After decades of underfunded European startups, funding rounds are getting bigger, more frequent, and happening faster than ever - especially at the seed stage.

When the App Store launched, few understood what it meant to be mobile. Throughout 2008,  gag apps like iBeer, an app that lets you pretend you’re pouring beer with your phone, were among the top 10 highest grossing. It took a while for companies to adapt to the new distribution method: Twitter didn’t launch their app until 2010.

Despite its longer cycles, European venture capital also has to adapt to increasing founder expectations. Entrepreneurs are less and less constrained by liquidity and talent access. The bar is getting higher. It’s a great thing for the ecosystem.