Editor’s note: This is a guest post from Mathilde Collin, co-founder and CEO of social email app Front. Based in San Francisco and Paris, the startup recently announced a $3.1 million funding round, following a summer at Y Combinator (YC). Afterwards, Collin said many European founders contacted her for advice and insight on the whole process, so she decided to write this article.

Before I begin, please keep in mind that this is an opinion piece – not a ‘pros and cons’ list nor a quantitative study. My observations and comments pertain mostly to seed funding, and perhaps even to Series A, but may not necessarily apply to later-stage investments.

The EU/US dichotomy

VC funds in Europe and in the United States are two very different things. There are probably dozens of perfectly valid reasons as to why. Nevertheless, as the founder of a startup in the email space, the US market was overwhelmingly more favourable to me, but this might not be the case for you.

If you’re a European founder, you’ve likely been told countless times that the two regions are distinctive markets when it comes to fundraising. I’ve heard it, too, but because of a lack of first-hand experience, I had a hard time understanding what it really meant. I thought it was mostly a matter of magnitude, with VC firms in the US investing more money at higher valuations.

I was wrong.

In reality, the difference in the amount invested and valuation completely transforms the fundraising process – both for the entrepreneur and investor.

Getting a meeting

The very first thing I noticed in the US was the sheer amount of money available. Founders raising funds in Europe sometimes describe the process as the corporate equivalent of begging for money in a crowded subway car. Having tried to raise funds in Europe, this is what I was expecting in the US too. So I was very surprised to discover that VCs in the US are chasing founders as much as founders are chasing them.

American funds seem to be more willing to invest money because their line of work is very profitable. The US has always seen more exits, at higher valuations, than Europe, no matter how you look at it. Venture capitalists there know startups can make them big money – it’s happened before, so it’s likely to happen again. Consequently, these returns on venture capital has brought competition and shaped the current ecosystem.

When it comes to EU-based startups, they can be very profitable and successful in their market, but don’t yield as enormous hits. The matter is, there’s simply less money available – although I’m not sure there are fewer companies started in Europe. As a result, getting a meeting with an investor seems to be so much harder in the region. It’s just too many of us founders going after too few investors with less money to invest.

And that’s why in the US, venture funds do much more outbound work and talk to more founders. The risk, as a founder, is that you can spend a lot of time just meeting investors. For me though, I considered it a privilege  – each meeting represented a chance to introduce our company, lay down its vision, and get feedback.

Rouse interest – “it does work” vs “it could work”

Even as early as the seed investment stage, American and European VCs are already driven by different motives. My experience trying to raise funds in Europe and managing to raise funds in the US has led me to phrase it this way: US funds invest in case your company succeeds, whereas in Europe, they invest because your company succeeded.

Another way to phrase this? The biggest fear for a US investor is to miss out on a big hit. When Peter Thiel was asked what his worst investment was, he replied “not (doing) the Series B round of Facebook”. See the difference? Instead of going over the many investments he made that turned out to be failures, he’s blaming himself for a risk not taken.

This gap is by no means trivial. The idea of doing something big generates a lot of enthusiasm amongst US investors, while the default reaction in Europe is skepticism. When you start a company, everybody’s skeptical – your friends, your family, your first customers, your potential hires. You don’t need more skepticism from your investors. Finally meeting people who are as excited as you are about what your company could become is a huge relief. And it really feels like we are both taking a risk together.

When I recognized that the motives of US and European investors were different, I realized I had to change the sales brochure of my company.

At the seed stage, US investors know that spending weeks analyzing the ‘total addressable market’ (or TAM) is a waste of time. The most interesting companies are those that expand their TAM as they go. For example, before Google came along, the market for PPC SERP ads was non-existent; today it’s a multi-billion dollar market with a clear leader.

But that doesn’t deter European investors from requesting a full deck, including a three-year business plan as a prerequisite to any form of conversation. If your path to profitability is not already proven, you will have a hard time getting as much as a phone call. From what I saw, in the US, the focus is on the potential market, the team, and the product. The rest will be sorted out at the series A/B stage. I tried the European way before getting into Y Combinator, with the business plans and absurd forecasts.

What I can tell you is this: when you have no idea whether you’re building something people want yet, trying to paint your startup as a Fortune 500 company feels very wrong.

Always Be Closing – it’s a matter of time

VCs in the US make decisions faster. From my first meeting with an investor to the closing of the $3.1 milion round, exactly 21 days elapsed. This is nowhere near what I would expect in Europe.

You could argue, at the time of our fundraising, we were just out of YC, and given the chance, European funds would have been as eager to invest as their US peers. Unfortunately, this is not what happened. I called or emailed every single European VC I had ever contacted before and told them about the round we were raising, conditions, other investors and expected timeframe. Only two of them found the time to get back to me, and incidentally, both agreed to invest. To give credit where it is due, they are Kima Ventures and Point Nine Capital.

As a result, this round of funding had a marginal impact on the day-to-day activities of Front, which alone is very valuable. The last thing you want is for your fundraising to jeopardize your entire business. The average time-frame to raise funds in Europe is three to six months – just for seed investing. Dedicating six months to fundraising when your company is barely off the ground is sometimes needed. But knowing that your American competitor raised twice as much in a third of the time can be hard for morale. Also, they probably got less diluted, so much so, that if they need one more round to reach profitability, they will at least have this option available… You see where this is going?

If you can create a captive market in Europe, or if the market you’re after is clearly only in Europe, you probably need European investors. If you have reasons to fear a US competitor, raising funds in Europe is not giving you an edge.

Bonus note: a culture of giving back and passing along

There is one more thing that really struck me, but doesn’t really fit in the earlier sections. During the whole fundraising process, I witnessed what I call a culture of ‘passing along’. Almost every single angel investor who invested brought another investor in on the deal.

With a bit of cynicism, one could say that they didn’t want to be alone should their investment fail. Failure is never pleasant, but being the only one to fail – how horrible, right? But something else disproved this theory.

Of course, a lot of VC funds turned me down. They all had good reasons, whether it was a prior investment in a competitor, or they couldn’t see the market, or it wasn’t their kind of deal. But every one of them referred me to another fund, for which Front could be a great fit. Clearly, they had little to win in the short to mid-term by doing that.

In the long run, they might hope others would return the favor. But I’d rather interpret it as a form of ‘if someone wins, everybody wins’. After all, if a good company fails because of a lack of funding, no one gets to make money at all. But if a good company gets funding and makes it to an exit, the funds are successful and can raise another fund, and everyone in the ecosystem is happy.

I don’t know if the involved actors of said ecosystem do it consciously or not.

But they do it, and it’s more than enough.

Feature image credit: Rawpixel / Shutterstock

  • kowdermeister

    Great article. I’d love to see a similar comparison for sub $500k angel rounds.

  • choosabe

    What an informative article. Wishing you the best of luck.

    • Mathilde Collin

      thank you!

      • Judy Robinett

        Excellent insights, Mathilde. Years ago I read an op-ed in the Wall S. J. by a Nobel winning economist. He said all of his life he was wrong that success was based on culture. I discovered the differences you mentioned while meeting with VC’s in Germany. You’re doing great. Keep going.

  • Flávio Mestre

    Congratulations Mathilde on getting to the next stage, despite the difficulties, et Merci pour l’article!

    • Mathilde Collin

      Merci Flavio :)

  • Interesting article. What do you think could make European VCs be more in line with what startup founders need? Bigger success stories?

    • Mathilde Collin

      bigger exits I guess

    • Ronin_Jim

      The sheer volume of funding available. In the US, the amount if capital committed to VC by LPs (the people who fund VCs) is orders of magnitude larger. Therefore VCs find it easier to raise bigger funds and once they have they need to invest that money asap. The result is a seller’s market in the US compared with a buyers market in Europe. This is great for startups because it’s easier to raise money, but its also a challenge for startups because your competitors also find it easier to raise money. The fundraising process is no longer a succeed/fail point for many startups, and everyone is now competing for the same markets, and to secure the same resources (talent etc).

  • Tim

    This is an absolute must read – thanks a lot for sharing this Mathilde! Et bravo pour la levée 😉

  • Love the post Mathilde: thanks! I didn’t raise seed here but I wonder if it’s not rather about the difference between raising after YC vs raising before YC? :-) Of course, even so, we could argue anyway Europeans have to get better at identifying potential success and create their own YC…

  • Stéphane Baudin

    Bravo et merci pour le retour.

  • Richard Phan

    100% agree. Very well written. Congrats for the round, and best of luck!

  • Sharky

    If you would have just landed from EU.. Same company. Same deal. Same traction.. but no YCombinator connections.. how difficult would have been to raise the round ? 10x? 100x?

  • Great read Mathilde, inspirational and informative thanks – I’ve been begging on the London Tube for nearly 12 months – raised $750k for http://www.lowdownapp.co but boy was it hard work.

  • Greg Kennedy

    Excellent article Mathilde. It goes right to the heart of the pre-seed problem of having a limited funds/time to go bring an idea to prototype/MVP/beta where you can attract seed/series A investors. A lot of amazing ideas are left on the table because they simply ran out of money or time before the investment process could complete. Apart from targeting US investors, can you suggest any other methods to entice European investors to move more quickly or take more of a risk like their US counterparts?

  • Con Tool

    Thank you – a very insightful piece

  • as a european vc, i’m guilty as charged. i could provide you with a boatload of reasons for this, all valid, but the more important thing is that we evolve as a species. european entrepreneurs have evolved, now time for we vc’s to step up, and for good reason: my anti-portfolio crushes my real portfolio in performance. http://rude.vc

  • Thanks Mathilde. Just beginning our funding endeavour. Sounds like if we can crack the U.K., we’ll get speedy support when we cross the pond. Best wishes to you and your business.

  • Thank you so much, a superbly well written piece accentuating the appetite for risk in Europe versus US.

  • Klausi

    Hey Mathilde, great article, and congrats! I have a question – I just closed a seed round with my startup in Europe and I’m thinking of raising next funds in the US. Do you think this will be more difficult given I’m not yet based in the US nor have been with the Y Combinator? Thanks!

  • This is so true. European Business Angels are not risk takers and I find that European VCs even lack vision. I wrote a very similar article http://news.urbytus.es/2011/11/copycat-or-original-the-future-of-european-it-and-the-malaga-valley/ back in 2011 in response to an article by Davor Hebel, http://realdeals.eu.com/blog/the-future-of-european-copycats, which justified the European copycat VC attitude as opposed to supporting originality. While my US competitor is now worth US$600M without any revenue, European VCs are still doubting us even though we have now got a validated business model and generating revenue.

  • Nickske

    Great Article! Gets a broader understanding why all the Europe founders move to America to get a fund and return to their hometown to execute since America is to expensive to live in for a startup that wants to make the most out of every penny.

  • Jean-François Parès

    Great article. Thank you very much.

  • David Szabo

    Amazing article Mathilde! This is a question we’ll soon have to ask ourselves as well. Originally, we started our business in Budapest, Hungary, where we’ve seen all those things you wrote about European VCs. Since then we raised funds from UK investors, moved to London, and I’m excited to see what’s going on here.
    Would be great to hear similar stories/experiences from other founders as well, especially non YC companies.

    How do you feel, how much did YC make you more attractive regarding your last round?