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Talk to VCs or bankers these days and you’re likely to hear that M&A has been “slower” this year than many predicted, as one banker recently put it to me. For those that are lucky enough to do a deal, the reality is that, as European startups grow, many take larger cheques from US VCs and, in many cases, end up finding a suitor across the Atlantic to buy them; or they go public on an American stock exchange.
I’ve recently been hearing conflicting viewpoints on whether or not that pattern is a problem. For some European investors, getting snapped up by the US is a goal. “We do invest initially in Europe, but we are not inward-focused European investors,” Michael Münnix, a former partner at Target Partners and founding partner of a new early-stage fund Backtrace, recently told me. “It would be great if we could say, ‘We do the initial investment here, and the whole chain — go to market, and also the exit — happens in Europe,’ but this is unlikely.”
Münnix said the majority of his and his cofounder’s portfolio company exits at their previous firms happened in the States, and “this will likely remain true at least in the midterm”. While Backtrace will invest in companies whose core is in Europe, “These are global companies from day one; the US is a super important entry market for us. We are not dogmatic European investors, but we like Europe. There’s a lot to like about Europe, but we are still dependent especially on the US when it comes to exit markets.”
Backtrace’s other founding partner Dominik Tobschall takes it a step further. “I think that’s kind of the winning combination: having R&D in Europe, at least in the beginning, and building up the companies in the US right from the get-go,” he said.
But other investors echo broader concerns that acquirers in the US are pulling entrepreneurs (and exit money) out of Europe. Instead, Europe needs to work on being a more attractive place for a startup to sell or go public. “Capital markets in Germany are not as attractive as [they] could be,” one attendee said at Founders Forum’s Europe event in Berlin on Wednesday.
They said: “[Europe has] a very strong base of very successful, established incumbents that are looking, especially when it comes to applied AI, into acquiring companies […] there’s a lot of potential. And I think we venture capitalists — all of us — have to leverage our industry networks to make sure that they are aware of the upcoming companies that could be potential targets for them before or while waiting for the German and European IPO markets to get more attractive.”
It’s a debate that I think we’ll be having more as discussions around European tech sovereignty bubble up, and as European policymakers and investors try to boost the amount of growth funding available on home shores. But I’m curious to hear from you, VCs and founders: Is it really a problem that many European startups look to the US for exits? What needs to change to make going public or exiting in Europe more appealing? I’m all ears.
Read the orginal article: https://sifted.eu/articles/vc-merger-usa-europe-startups/
