“Mind the gap” (exploring the difference in performance between European and US venture capital funds)

The summer edition of the BVCA Journal, published on 20 June 2017, features an interview with me on my discussion paper which explores the performance gap between European and US venture capital funds. A copy of the interview is available here: Keith Arundale Article – BVCA Journal Summer 2017

My research, on which the paper is based, investigates whether differences in practice between the ways in which European and US venture capital funds go about originating, executing, monitoring and exiting from their investments, and the structural and wider environments in which they operate, might go some way to explaining the historical difference in performance between European and US VC funds.

Semi-structured interviews were carried out with VC practitioners from 64 firms across UK, continental Europe and US, supplemented with 40 interviews with limited partner investors, entrepreneurs, advisors and corporate venturing executives. Thematic analysis was used to identify emergent themes.

A copy of the full discussion paper is available here:

A key aim of the paper is to encourage debate and discussion on these areas and on the constraints to their practical implementation. Readers are encouraged to submit their comments to me here or email keith@keitharundale.com
I am keen to follow-up this research with further in-depth interviews with VCs and others interested in this area.   

In summary, for the sample of VC firm executives and other participants interviewed in this study, the research found a number of differences were found between UK / European and US VC firms and the structural, operational and wider environments in which they operate, as summarised here: 


– Smaller size of funds in Europe compared to the US.
US funds in the sample had an average size of $282m, compared to UK funds with average size of $168m and continental European funds of $128m. There is a shortage of finance, particularly of later stage finance, for growing and scaling companies in Europe.

“There’s a massive inefficiency in the UK because you haven’t got scale of funds; you’re forever having to look to raise another round of funds and then another round of funds and at each break point for the next fundraising, there are valuation disputes, there are allocation disputes, it’s just hugely inefficient, a huge drain on management time”. (UK LP)

– Differences in the backgrounds of the VC investment executives. US VC firms had proportionately more partners with operational and, to a lesser extent, entrepreneurial backgrounds. European VC firms had a greater proportion of partners with a financial, investment or consultancy background.

 “People who are good entrepreneurs are often the folks who end up becoming venture capitalists here”. (US Entrepreneur)

US firms have around one more partner in total than European firms and more US firms have two partners working together on a deal at the same time.


– US VCs were consistent in using a “theme” approach to identify future areas for potential investment. European VCs tended to follow the trend.

“About 10 times per year partners decide where to put resource to try and identify an investment thesis, whatever it takes, and present to everyone in the group a thesis with respect to, is there an investable idea behind that?”(US VC)

– More US VCs pursued a home run, higher risk, “1 in 10” investment strategy than European VCs, perhaps due to the intensively competitive environment in which US firms operate where taking a middle ground approach does not work, compared to Europe where there are constraints with funding and scaling. The more recently established VCs in UK do appear to follow more of a US higher risk approach.  

“When we speak with one of our LPs in particular I mean their constant push is “are you taking enough risk in your portfolio?” (UK VC).

– The brand strength of US VC firms, particularly those in Silicon Valley, aids quality deal flow and optimal exits through relationships with big corporates.

“I can’t think of European VC backed firms that would have the same kind of brand franchise for a start-up that would be as attractive as some of the Silicon Valley groups here in North America”. (US LP)

– Whilst most US VCs in the sample reached investment decisions unanimously or by consensus, a senior partner could force (“railroad”) decision in some US VCs. Consensus may “kill” the outlier deals which may produce outlier returns.

What we found was that consensus would kill the outliers. Anybody who feels strongly about something can make it happen”. (US VC).

– Use of more entrepreneurially friendly terms in investment deals in the US, particularly on the West coast, versus investor friendly terms in Europe, again perhaps reflecting the more competitive environment in the US, particularly in Silicon Valley and perhaps an entirely rational approach to protecting the downside in Europe.

Europeans are saying how do I not lose and Americans look at the question how do I win?” (US Silicon Valley VC)

– Perhaps greater use of milestone based financing / drip-feeding by European VCs.

American CEOs think that European VCs just want to drip-feed them; the European VCs under-capitalise companies”. (US Silicon Valley VC)

– US VCs focus on the metrics portfolio companies need to manage in order to determine how much money to continue to invest at subsequent rounds.

“The US VCs know exactly what metrics they’re willing to fund. The reason they’re willing to put another X in is because they’ve seen that happen before”. (UK CVC)

 European VCs syndicate with other VCs often for monetary reasons. US VCs may not need additional finance but collaborate together to pool expertise and know-how.  

“We syndicate not because we need to (we have the ability to write the whole cheque if we wanted to) but because we want to”. (US VC)

– More US VCs wait for the best exit. There was a tendency, perhaps, in Europe to exit from investments too early, possibly because of pressure from institutional investors to demonstrate returns. 

You’ve got to take the best offer on the table for the money that you’ve got so you’re maximising your return within the capabilities you have of limited fund sizes and that is a big issue for the UK”.  (UK LP)

– Though in Europe VCs may keep poor investments going for longer.

“In the UK, with smaller funds, the proportion of the fund of each investment is going to be larger and, therefore, there’s going to be greater reluctance to walk away and admit you got it wrong”. (UK LP). 

Wider environment and other factors

– Cultural differences between Europe and the USA, including a greater propensity for risk in the US and not thinking “big” enough in Europe.

“There are just as many smart people with good ideas in Europe. I think there’s only just a lack of entrepreneurial capital and mindset”. (US advisor)

– Relative lack of experienced CEOs and serial entrepreneurs in Europe compared to the US.

“I think Europe is getting there but we didn’t have that initial, we don’t have that large enough base, yet of entrepreneurs and CEOs that have done it before”. (UK CVC)

-Difficulty of scaling by investee businesses in Europe, largely due to a relative shortage of funds and the fragmentation of the European markets.

“The challenge for Europe has always been that we don’t have big enough home markets to build great home run returns, so companies need to be international from day one”.  (UK VC)

– Difficulty with copyright law in Europe.

“Whilst there is now a unitary patent system and copyright across Europe the issue is who licenses it for which territory. This puts off US VCs from investing in the UK”. (Patent expert at Silicon Valley based company)

– Difficulties of exiting in Europe with less receptive stock markets and poorer connections with  large corporates.

“You don’t IPO your company in London unless there’s something wrong with it usually. Because it’s not an exchange that’s gonna value a high tech company”. (UK CVC) 

An open and sharing approach in the US, with a willingness to share contacts, talents and information, contrasted with a more proprietary, protectionist, hierarchical approach in Europe. Silicon Valley was specifically highlighted with its unique open, networked ecosystem.

“This country is a lot more philanthropic. People feel they want to give back and that runs through the whole Valley.  People are much more protective in Europe.  (US Advisor)

– Importance of technology clusters for growing companies, particularly the open but tightly networked ecosystem of Silicon Valley.

“The investments, the CEOs and their teams are just surrounded by a phenomenal ecosystem (in Silicon Valley). The connections are just phenomenal: connected advisers, connected partners. The Valley is just unique” (UK VC).

Please send your comments to me here or email: keith@keitharundale.com