One of the largest-ever surveys of European startup investors focused on better understanding how they make investment decisions, operate, and view the European market. In partnership with Professor Reiner Braun, Chair of Entrepreneurial Finance at the Technical University Munich, Speedinvest Partner Andreas Schwarzenbrunner interviewed 437 individual venture capital investors across the continent.

1. Inside the Minds
of European VCs
say management team
is key to success
Methodology
How European Investors Make Decisions
Valuations
Term Sheets
Comparing Europe & the US
• Report highlights
• Who we surveyed
• Due diligence by the numbers
• Most important decision factors
• The importance of a strong management team
• How does the changing market influence VCs?
• Who makes the final investment decision?
• Unicorns are overvalued
• The factors that most impact valuations
• How big of a stake do VCs want in each startup?
• What financial benchmarks do VCs want to see?
• How flexible are VCs when negotiating terms?
• How often do VCs partner with other funds?
• Europe's strengths & weaknesses
• US investor perception of Europe
This is one of the largest-ever surveys of European investors, focused on better
understanding how they make investment decisions, operate, and view the
European market. In partnership with Professor Reiner Braun, Chair of
Entrepreneurial Finance at the Technical University Munich, our Partner Andreas
Schwarzenbrunner interviewed 437 individual investors across the continent.
The survey was inspired by the US-based research project, “How Venture Capital
Investors Make Decisions,” by Gompers et al. (2020), which allowed us to
compare many of our results with those from the US to gain additional insights
into the European VC ecosystem.
Europe and the US are similar... but different
While the way US and European VCs approach investing is quite similar,
there are a few striking differences.
European VC firms primarily focus on early-stage startups, while the
US has a more mature later-stage focus.
Unlike the US, Europe is a fragmented market with multiple regional
hubs, making investment on the continent more complicated.
When it comes to ownership, US investors want a larger piece of the
pie in comparison to their European counterparts.
Founders may be surprised by the results
European VC is still very much a networking game. VCs ranked leads
from their own networks as the highest-quality deal flow sources.
The management team is the most important factor for VCs deciding
to invest, and many make gut decisions after their first meeting with
the management team.
Investors believe unicorns are overvalued. Both VCs who have
invested in unicorns and those who have not agree: Current
valuations aren't realistic.
Institutional VC
68
If the management team is so important, as a founder, you're probably
wondering what investors are actually looking for. According to our survey,
ability / potential, passion, and entrepreneurial expertise top the list.
As the economy began to tank in 2022, investors' priorities changed. The factors
below increased most in importance, according to our survey.
33%
There has been much speculation about the increasing number of unicorns in the
press for the past several years, so we asked investors their opinion on unicorn
valuations. A whopping 84% say they believe unicorns are either slightly or
significantly overvalued.
There is no difference in opinion between VCs who have not invested in a unicorn
and the 57% surveyed who have a unicorn in their portfolio.
The market seems to agree, as in the past several months many of the world's
most-valued scaleups have seen their valuations decrease, often dramatically.
31%
According to Gompers et al. (2020), US investors aim for 23% ownership on
average. In our survey, the median ownership stake in Europe is 13%.
Why the difference? It's impossible to know the exact reasons but there are a
few potential explanations.
Timing
The initial Gompers research was collected in 2015/16, while our interviews were
conducted in late 2022. Much has changed in the past decade, including the
syndication of deals and the ever-increasing competitive landscape of VC
globally.
Age of VC Firms
As seen above, the average age of the VC firms surveyed is just 13 years. In
general, European VC firms are much younger than US firms, with a majority of
European VC funds launching within the last 10 years. In order to build a strong
network and a steady source of deal flow, many European VCs may be more
willing to take a smaller ownership stake or syndicate the round (more below.)
Pro rata rights are the item investors are the least willing to negotiate, with 78%
saying they are not flexible when it comes to pro rata rights and 37% saying they
are not flexible at all. Other areas with little room for negotiation include
liquidation preference (59%) and vesting (52%).
80%
Aside from better understanding how European VCs approach investment
decision-making, we also asked VCs their thoughts on the overall ecosystem.
When it comes to strengths, 70% of investors highlight Europe's educational
system and universities, 65% the level of talent, and 61% the technological know-
how and IP. The public funding environment (43%) and the number of
interesting startups to invest in (43%) are also seen as strengths in Europe.
Looking at weaknesses, 75% of investors see the capital markets and exit
environment as major challenges. The maturity of the ecosystem (62%) and lack
of private LP money (59%) are close behind. The regulatory environment (51%),
limited access to capital for startups (44%), and the limited number of
experienced entrepreneurs (41%) round out Europe's problem areas, according
to our survey.
87%
seeing more US investors in Europe
believe unicorns are
overvalued
Why now?
Partner Level
How European investors make decisions
average number of days
from pitch to deal closing
49%
Investors prioritize the management team because they believe the team is
ultimately what makes or breaks the startup.
In fact, 64% say the management team is the biggest contributing factor to a
startup's success, and 71% also say they are primarily to blame if a startup fails.
How do you find the best VC for YOUR company?
As a result of this shift in importance, founders can expect investors to pay much
more attention to their company's entry valuation, the soundness and potential
profitability of the business model, and the management team's previous
experience.
Anonymous investment committee vote
84%
The anticipated exit of the company
of investments are syndicated
How do syndications impact founders?
Europe is comprised of dozens of countries, so it's no surprise that 87% of
investors say they believe Europe is a fragmented ecosystem. This means that
there isn't just one regulatory market or environment to understand and
maneuver.
When asked why the continent is fragmented, the four most common
responses in our survey center around the cultural and regulatory differences
between regions.
Perceived weaknesses aside, many European investors say they believe the
European ecosystem is vastly improving.
It's no wonder that US investors are now more interested in the continent than
ever before. Multiple US funds have opened European offices in the last several
years and are expanding to Europe more aggressively than in the past.
76% of investors we surveyed say they have seen more US investors on the
ground in Europe over the last 12 months.
Conclusion
say lack of capital & exits
are major weaknesses
Table of Contents
For decades, truly understanding how European VCs approach startup
investments –– everything from sourcing the best deals to term sheet must-
haves and determining valuations –– has been somewhat of a mystery. Most
in-depth research has focused exclusively on the US venture capital market.
Now that the European market has matured and is a major global player, it's
prime time to take an in-depth look at how European investors operate by
hearing it directly from the source.
Report Highlights
Average number of investors at the fund
average number of
reference calls
say the management team is the most important factor when
deciding whether to invest.
Our data also shows that fit with fund is the second-most important factor
(17%) for European VCs.
So what should startups consider before pitching for funding?
Round size: Only pitch VCs focused on your current stage of funding, pre-
Seed, Seed, or later-stage.
Geography: If you want to tackle all of Europe, make sure you pitch a VC with
a pan-European presence. If you're focused on one specific region, partner
with a VC who knows that region best.
Sector: Make sure the sector or vertical you are tackling is within the focus
area of the fund (B2B vs. B2C, Deep Tech vs. Health, etc.)
Networking: Identify the right partner or team member that is focused on
the market in which you are operating and build relationships with them.
Find their sweet spot: Find out what really drives them when making an
investment. Check out the VC's blog, social media, newsletter, or other media
to get an idea of what they value most.
32%
of VCs believe unicorns are overvalued
30%
When you're raising a round, think about the maximum dilution amount you're
willing to take. This is especially important when you want more than one VC
fund to join the round and build a syndicate.
Also, note that some funds have minimal ownership stakes that potentially
hinder syndications. You may find it's often difficult to combine two VCs. That's
why a lot of rounds in the early stages have one lead investor and a few smaller
investors. This does change in later stage rounds, where investors usually aim for
smaller ownership stakes, and syndication between a few funds is the norm.
Don't underestimate the importance of personal connections with all your
investors in the syndicate. This matters just as much as having different opinions
and experiences on the table. It is particularly important when thinking about
the constellation of your board.
believe Europe's ecosystem is fragmented
A majority of research into the venture capital industry focuses solely on the US.
That's something we want to change. The European ecosystem is now mature
enough for its own spotlight. That’s why we asked VCs across Europe how they
operate and make investment decisions and to share their personal insights on
where things currently stand with the European ecosystem.
To better understand both the similarities and differences between the US and
European startup scenes, we collected our own primary data by surveying 437
European VCs with 51 questions and compared it with existing data from the
Gompers et al. (2020) survey of US investors. While our research sheds new light
on the investment decision-making process at European VCs, it also opens up
many areas for potential future research about the European ecosystem as a
whole,and how VCs operate.
The VC ecosystem in Europe is quite young and significantly smaller than its US
counterpart, but it is rapidly growing and has many clear strengths, including
talent, know-how, and the educational system, as well as a strong focus on more
deep tech-heavy companies. At the same time, our survey revealed there are
multiple challenges to overcome. For example, Europe is still a fragmented
market with many regional hubs, which creates additional complexities.
This first-of-its-kind research would not have been possible without the support
of investors across Europe. We appreciate your help and we hope this report
becomes one of many that help to pull back the curtain on European VC.
are seeing more US
VCs in Europe
The goal?
Who are the 437 investors we surveyed?
13
Before investors can write a check, they first need to find the right startups to
invest in.
Today, there are numerous ways for VCs to source startup deal flow. But there
are only a few that seem to be truly valuable sources of introductions, according
to our survey.
Networking is still the name of the game in Europe.
According to investors, the most relevant deal flow sources are proactively self-
generated (29%), leads from their professional network (28%), and introductions
from other VC firms or angels (21%). While referrals from existing portfolio
companies, the management team, LPs / investors, conferences, quantitative
sourcing, and Entrepreneurs in Residence were mentioned as sources of deal
flow, they were not considered to be of the most relevance or quality.
94
42%
What makes a great management team?
Why do teams matter so much?
How does the changing market influence VCs?
30%
Majority consensus with veto power
Valuation of comparable investments
13%
Financial metrics to win investors
Comparing Europe and the US
437
We want both founders and investors to gain a deeper understanding of how
European VCs approach startup investments and how they compare with the
much more mature US ecosystem. What are the strengths and weaknesses?
Where are the challenges and opportunities? And how can both use the
learnings to their advantage moving forward?
1
9% Corporate VC
€300M AuM
hours spent on due
diligence prior to investing
of investors have made a gut decision to invest or not
during their first meeting with the management team.
While there are several factors investors consistently look for in a management
team, there are also subjective factors at play, which differ depending on who
you ask. That's why we interviewed investors at leading VCs in Europe to learn
what it takes to win them over.
67%
52%
14%
Valuations
30%
23%
Interestingly, 13% of investors surveyed say they do not analyze financial metrics
when making an investment decision. But when they do dig into the numbers,
there are three key metrics European VCs use most to determine if a company
is a good investment.
Click here for his perspective on the survey and qualitative
findings shared by investors
US investor perception of Europe
Report Content & Resources
investors surveyed
across Europe
6% Growth equity fund
7
Valuation
According to our survey, European investors care much less about stock market
exposure than their peers in the US. Only 30% of European investors say that
stock market risk effects their decision making. Meanwhile, according to
Gompers et al. (2020), 52% of US investors said the stock market is important
when making an investment decision.
Majority of partners
The desired ownership stake
When it comes to financial ROI, the two most important measures for VCs are
cash-on-cash multiple (CoC) and internal rate of return (IRR).
According to our survey, the median target return they're looking for is a 5x COC
and IRR of 30%.
Click here for detailed definitions of the most common
financial terms every founder should know.
What Top European Investors
Really Look for in a
Management Team
Methodology
2
25% Principal
Most important investment factors?
Click here to read their honest perspectives and opinions
54%
Does the stock market play a role in decision-making too?
Once due diligence has been completed and all of the above factors have been
considered, who at the VC fund makes the final investment decision?
While only 30% of investors said desired ownership stake is an important factor
in setting a valuation, when asked if they have previously set a valuation based
on desired ownership, more than 65% of investors said that they have.
United States
75%
Click here to read Philip's full overview of the European
market and the sectors he's most excited to invest in
Plug Your Metrics Into Our
Lead Investment Fund
Economics Calculator
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64%
16% Associate
Invest in early-stage startups
Due diligence by the numbers
And first impressions matter!
51%
United States
Multiple of sales / earnings
Term Sheets
→
READ
Subscribe to our newsletter
3
84%
65%
Business Model
Use the same process for both initial and follow-on decisions
49%
Term sheets can be massive and complex or short and simple, but there are
some items that are most likely to appear on every term sheet.
We asked investors which of those items they would or would not be willing to
negotiate.
→
76%
READ
86%
50%
Most important decision factors
Management Team
76%
65%
How big of a stake do VCs want in each startup?
Hurdle rate or IRR
Dividends is definitely the area with the most room to negotiate, as 54% of
investors said they are very or extremely flexible. 34% were very or extremely
flexible when it comes to the option pool, and 26% when it comes to redemption
rights and board control.
3
Andrea Helbig
Partner, Atomico
have set valuations based on desired ownership
32%
Need to brush up on your term sheet terminology?
Dive deeper into the ecosystem
We asked Philip Chopin, who oversees Europe for NEA, one of the world's largest
venture capital firms. Despite seeing similar weaknesses as identified in our
survey, he believes Europe has not yet tapped into its full potential.
"We have seen a refreshing level of enthusiasm within Europe’s startup culture.
Since Europe does not have the history of large exits that are a hallmark of the
U.S. ecosystem, there is capacity for European founders to possess tremendous
motivation and excitement around building companies that could become the
region’s foundational examples of big tech success."
76%
Focus purely on growth/late-stage
Rebecka Löthman
Director, Inventures
Who makes the final investment decision?
So how do European VCs set valuations for startups?
It depends on who you ask. Investors are divided on the most important factor.
Exit environment (both in general and for the company's specific segment),
desired ownership stake, and valuations of comparable investments were evenly
split in our survey.
Cash-on-cash multiple
→
Our Partner, Andreas Schwarzenbrunner, spearheaded the survey and knows
more about the findings than anyone else. From the ecosystem's strengths
and weaknesses to exclusive qualitative insights investors shared outside of
the survey.
Why are US investors so interested in Europe?
Investment Terminology for
Beginners: What Founders
Need to Know
2
16%
Katharina Wilhelm
Partner, Index Ventures
5x
READ
75%
What factors most impact valuation?
30%
Terms such as pro rata rights, dividends, anti-dilution, and liquidation preference
can be complex for even a seasoned founder. The more you understand these
terms, the smoother the term sheet process will go for everyone.
1
CoC
Which terms are non-negotiable?
47%
Plan to a raise a new fund in < 5 years
→
IRR
Where can founders negotiate the most?
Complementary expertise
Overview of the European
Startup Ecosystem
96%
What benchmarks do VCs need to commit to funding?
24%
READ
What do investors REALLY look for?
Capital constraints
21%
Visit our blog for more deep dive content & reports
Focus on a specific industry
What financial benchmarks do VCs want to see?
Risk sharing
56%
What do VCs consider before choosing a co-investor?
Median Assets Under Management
How often do VCs partner with other funds?
Strengths and Challenges for
the European Startup
Ecosystem, According to NEA
Investors across Europe were
surveyed, with the most responses
coming from:
Why do VCs choose to partner with one another?
READ
followed by France, Spain, Austria,
Sweden, Luxembourg, Switzerland,
and Finland.
Click here to plug your startup's specific financial metrics into
our Fund Economics Calculator for an estimate
Term sheets often involve more than one investor, as it is very common in
Europe for VCs to syndicate or partner on investments. In fact, investors
surveyed say that some 80% of their investments are syndicated.
Typically, VC investors apply a multiple on sales to come up with a first
valuation range. The multiple depends on several factors, such as growth
rate, gross margins, sector, the competitiveness of the round, etc.
The most common way to quickly evaluate a startup is a mix of comparable
publicly listed companies or private transactions. There is available data on
multiples for different sectors and business models. For SaaS, as an
example, an ARR multiple is often used. For example:
If your SaaS company does €2M ARR and an investor is looking at a range of
10-15x, then your pre-money valuation is between €20M and €30M. The
more an investor wants to seal the deal, the higher the valuation.
This approach is more top-down and focuses on the return an investor
wants to earn. The multiple is set by assuming a potential exit valuation
needed to achieve the ROI, and by taking into consideration both follow-on
investments and further dilution. For example:
If you are investing €5M over the lifetime of a company and you want to
achieve a cash-on-cash multiple of 5x, then you need to return €25M.
Assuming further dilution and an ownership stake at exit, you can derive
the exit valuation of the company and compare with the multiple of sales /
earnings to determine if it's feasible and achievable.
Average year firms were founded
This approach usually calculates a minimum annual return for the
investment and is more driven by discounted cash flows. The internal rate
of return (IRR) is a metric used in financial analysis to estimate the
profitability of potential investments.
Investors usually have a minimum return or hurdle rate they need or want
to return. This becomes increasingly relevant for later-stage investors as it
takes a clear time perspective into account when looking at the ROI.
2012
→
Now that you know what financial metrics are most important for European
VCs, find out how their investment targets and fund strategy will influence your
next financing round.
How do these metrics influence your startup valuation?
Focus on a specific geography
55%
Software
IT infrastructure
Healthcare
Financial services
Industrial technology
Top 5 Industries
Top 10 Countries Represented