The Future of Silicon Valley

European Straights, 2020-02-12

Issues (re: Europe)

  • No European strategy for most US VC funds

  • Investments are random and people are moving in for anecdotal reasons (wife from the UK)

  • Founders still have to go to the SV to pitch

  • US VCs think (for a reason) that the best deals are: a) in the US; and b) incoming, so why bother going to Europe at all?

  • Being in Europe costs $$ - staffing, office, etc.

New US VC entrants can’t justify going to Europe because of it, also no track record

Time better spent chasing US investors —> increasing management fees

  • EU is disadvantaged: all the knowledge sits firmly in the US with no pathways to be shared.

  • SV focus: larger rounds, EU rounds are smaller —> less exciting

This means investors can’t build relationships with founders early on.

SV specifics

  • Faster turnaround of $$. More capital, higher ambition, huge secondary market —> liquidity when you need it. Easier to cash out.

  • Fast exits —> building solid companies (which takes time) is less interesting, doesn’t fit the investment expectations. (New nature of VC disruption: things take time —> no capital for you)

This is also the Achilles foot of SV companies that they say no to good businesses that take time to build. (returns have to be huge, though)

  • US strategy: raise in 2 steps: 1) trial, small amount, expecting to raise 2) much more from the same investor (or even someone else). Product validation at speed.

  • May become a financial hub for a startup ecosystem. Startups don’t need to stay there.

Financing the future

  • VC (equity, venture debt) is not the only pathway to capital raising.

  • Pure debt (which is cheap) secured against future revenues.

  • Raising LESS and avoiding SV may make more sense:

Most new businesses are hybrid (i.e. consist not just of the software) and their returns to scale are diminishing.

They can’t meet the VC expectations of instant high ROI.

Also, the lack of SV connections (international companies – how can they get access?) is a huge drag on time.

Less money —> more innovative/cash-conscious/efficient (look at Aviasales)