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US investors ploughed a record $5.3 billion into European startups this year, and it's sign they're getting priced out of Silicon Valley

Business Insider | Aug 21, 2019, 04.27PM IST

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Reuters / Drew Angerer of Getty Images

Jeff Bezos' Amazon invested in UK startup Deliveroo this year.

  • US investors ploughed $5.3 billion into European tech firms in the first seven months of 2019 - up 40% on the same period last year, according to TechNation research.
  • Major deals have included Amazon's investment in UK food delivery service Deliveroo and Sequoia's investment in Europe's most valuable private fintech, Klarna.
  • Mark Tluszcz, CEO and managing partner of Mangrove Capital Partners, said it could be a sign that American investors are getting priced out of Silicon Valley
  • "Valuations are lower in Europe because the market is not as mature as the US," Tluszcz told Business Insider.
  • Click here for more BI Prime stories.

US venture capitalists are on course to plough a record amount of funding into European tech startups this year.

American VCs have invested $5.3 billion in Europeans startups including Deliveroo, Checkout.com, and Klarna in the seven months to the end of July, according to figures from Dealroom in conjunction with TechNation.

This was a 40% increase on the $3.8 billion invested over the same period last year. It means investments this year are likely to eclipse the $6.1 billion raised from US firms during the whole of 2018.

US investors are coming into later-stage funding rounds to help get a stake in some of Europe's most exciting tech companies, the research said, and it could also be a sign that Silicon Valley is too expensive.

"Valuations are lower in Europe because the market is not as mature as the US," said Mark Tluszcz, CEO and managing partner of Mangrove Capital Partners, in an interview with Business Insider.

"Silicon Valley is expensive because you have massive levels of competition driving up the price with many funds involved, whereas in Europe you only have a few players on big deals."

Klarna sebastian siemiatkowski and Niklas Adalberth

Klarna

Klarna founders Sebastian Siemiatkowski and Niklas Adalberth.

Figures from GP Bullhound in 2016 indicated that unicorns (companies valued at more than $1 billion) are valued at a staggering 46 times their revenue in the US, whereas in Europe the figure is a more modest 18 times revenue.

"It's excellent news for European tech because now companies have significant access to capital," added Tluszcz. "On a global playing field capital is a key element for success and in the past as good as companies might have been they were always underfunded, this is no longer the case."

One of the largest US/European deals in 2019 was Amazon's investment in UK food delivery service, Deliveroo, as part of a $575 million raise. Other notable deals have included Sequoia's investments in Europe's most valuable private fintech, Klarna, and a deal with Tessian.

Read more: A VC who worked on Microsoft's $8.5 billion acquisition of Skype says it provided a valuable lesson about why the best startups are 'bought not sold'

Similarly, Insight Partners signed deals with fintech N26 and London startup Checkout.com, while Index Ventures took on major deals with German deposit marketplace Raisin in a $26 million round and British company WhiteHat in a $20 million deal.

The opportunity to enter buzzy European companies and develop their growth into the US market is a key factor in the recent spate of funding, according to investors.

The fact that US funds are increasingly taking part in later stage rounds is testament to the growing size of the European market. Access to capital has been key in the growth of tech firms on the continent but now "there is plenty of juice to extract," according to Eric Martineau-Fortin, cofounder and managing partner at White Star Capital.

"The inflow of US funds into the European market is a function of the size of available funds in Europe, but this will change in time," he told Business Insider.

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