In recent years, the European tech ecosystem has developed significantly, with new startup hubs, accelerators and a flourishing talent pool and ample venture funding. Even with the recent slowdown, the European venture capital industry has more than quadrupled it’s investments over the last 10 years.
However, I would argue that the US market continues to be very attractive for European tech entrepreneurs. Here are some of the things to bear in mind when looking to go west.
The american market is one of the world’s largest and most homogeneous market with a population of 330 million and the world’s 6th highest GDP per inhabitant. In comparison, the EU market has a population of 450 million, but is divided by boarders, languages, regulations, customs and traditions, making it less approachable and harder for a business to scale in.
Here are some of the main reasons for expanding across the Atlantic:
Surveys show that European tech startups are expanding at later stages than before. Comparing the period 2008-2014 with 2015-2019, the number of European tech startups that expanded or moved to the US prior to a Series A round fell from 59% to 33%, according to an analysis by Index Ventures. The tendency is for a US base to be established only when certain milestones are reached, as making the leap west can be expensive and challenging.
Large European companies invest 76% less in software than their American counterparts.
In another analysis by Index Ventures, it is estimated that large European companies invest 76% less in software than their American counterparts. It is also reported that investments in Europe tend to be more focused on process and legislation rather than innovation.
This presents an interesting opportunity for B2B software companies that are pushing innovation in the Future of Work space in the US market.
In Q4 2022, $36 billion was invested in American venture-backed companies, accounting for half of global venture capital and three times more capital than deployed in European venture-backed companies.
According to the research firm Preqin, there are 3 times as many venture exits in the US as in Europe, and the exits are on average 3.5 times larger in the US. The number of exits above $250 million is even 7-8 times higher in the US than in Europe, according to the online media TechCrunch.
European technology companies ought to have the US market on the road map as part of their scaling journey.
The political agenda in the US is pushing for innovation and development, with “green” and “clean” technology companies attracting vast amounts of funding. Innovation requires talent, and foreign knowledge workers are offered visas and residence permits to come and help support this development and fuel entrepreneurship in America.
These policy shifts are good news for European startups pushing the green agenda, as it helps create a market for green technologies and creates a smoother US visa process, removing the hurdles implemented under Donald Trump’s presidency.
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There is no doubt that the European ecosystem of entrepreneurs, venture funds, business angels, government initiatives, etc. has developed enormously over the past 10-15 years and to some extent caught up with the Americans. However, the pole position still belongs to the US, and ambitious European technology companies ought to have the US market on the road map as part of their scaling journey.
