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Start-up stars R (not just) U.S.

Posted By TelecomTV One , 19 November 2012 | 2 Comments | (1)
Tags: mobile Europe start-ups

European start-up tech companies are now performing even better than their Silicon Valley equivalents.. at least according to one global M&A specialist. By I.D. Scales.

Magister Advisors predicts that 2013 will see the "first $1 billion valuation for a next generation European technology company" and may see more as a wave of European high techs mature into high-value businesses. 
Not only is the wave coming, but it's individual components are - on average - "performing" (from a start-up investment point of view) twice as well as their peers in the U.S., it claims.
According to Magister, VCs in Europe are getting better returns on their risk capital when they "exit" and their company is floated and this trend has been apparent for several years: "VC-backed technology exits in Europe in 2009-10 reached a high water mark against the US, with European exits having a value of around $15bn against $30bn in the US.  What is more striking is the differential in funding levels.  In the US in 2009-10 $25bn was invested in VC funds and in Europe $6bn was invested.  Europe, therefore, delivered half the results with one fifth of the resources – or a multiple of 2.5x that achieved by US VC funds." 
This is good. According to Victor Basta, managing director of Magister Advisors, “the quality of startups in Europe has increased enormously. Part of the reason for that is that we are seeing a wave of repeat entrepreneurs.  Back in the late nineties, fewer than one in ten European startups was led by a serial entrepreneur.
That figure is now closer to four in ten.”
In Magister Advisors’ view, the most likely companies to achieve a $1 billion "financial event" in 2013 are:
Wonga – the pioneer in small personal loans
Klarna – revolutionising the payments industry
MindCandy – developer of Moshi Monsters
Shazam – the world-leading music search app
Huddle – collaboration tools for companies
Just-Eat – online platform for restaurant deliveries
Rovio – entertainment media company, creator of the Angry Birds franchise
So is this a blip or are we looking at a sustainable level of achievement? 
That there are a number of factors seems to argue for it being sustainable. Magister identifies things like a European enthusiasm for 'Big Data' (this year's black), business models that focus on social engagement and mobility (Europe's lead in mobile penetration is a clear assist here); more growth capital available (much of it coming from Silicon Valley investors getting active in Europe); and lots of available and stable talent. 
"The playing field is now much more level, with European companies arguably better at exploiting particular aspects of the commercial potential of the Internet," claims Magister's Basta.  "To build scale online requires an ability to trade across borders and cultures and Europe is a better breeding ground for web-based businesses in this regard.”

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(1) 24 November 2012 13:35:00 by Pedro Menendez-Valdes

Another reading is that US is still attracting more VC funds than Europe, and that investors are ready to invest in more risky ideas. When a VC investor puts money in Europe, they have been more strict in what regards the risk. If this was the case, this is a limit to revolutionary business ideas which can have difficulties to find funding in Europe, but they can get developed in the US. Thus, the highest value companies would always flourish there.

(2) 24 November 2012 23:00:23 by Ian Scales

The figures might also imply that there are ventures being offered to the VC market in Europe in a perceived risk/reward tier just below the successful ones. And that these are being left on the table because, for historical reasons, the risks are being rated too highly. Once VCs see the real return figures itemised above it might encourage even more VC investment in European technology start-ups.