A tale of two continents – TechCrunch

If you want to create a unicorn on a budget, take inspiration from the European technology sector. Despite the well-documented increase in funding available for tech companies across the continent, start-ups are reaching unicorn status with a much lower total venture capital than their US rivals. In fact, this level of "capital efficiency" is a major attraction for international investors tired of the "burn rate" of many US companies that aspire to a valuation of over a billion dollars.

To create a $ 1 billion company, it costs 50 to 100% more in the United States than in Europe. For the US technology companies that achieved unicorn status in 2018, the median amount of funding required was over $ 125 million, while their contemporaries in Europe needed a total amount of less than $ 80 million. For 2017, the gap was even bigger; US companies need again just over $ 100 million, the smallest group of Europeans just over $ 50 million.

Median financing obtained before (not counting) the round in which technology companies in the United States and Europe realized a valuation of one billion dollars in 2017/18 (Data source: PitchBook)

One of the main reasons for this greater efficiency in scaling up is that European companies have had to fend for themselves with less. Europe has historically had a much smaller fund of "late-stage growth" funding (usually in the range of $ 30-75 million) and even today it is much easier to raise $ 20 million for a European technology company than true in the United States at about the same degree.

This shortage of advanced money has forced European technology companies to rise more efficiently, with lower overhead costs and earlier profitability, rather than the aggressive growth patterns often seen in the United States. But this "forced caution" has a price.

The cost of creating more unicorns

The increased efficiency of capital has probably allowed fewer European technology companies to achieve unicorn status, with Europe lagging behind the number created each year in the United States. In 2018, the United States created 53 unicorns; Europe only 10. So how much funding is needed to bridge the gap?

Suppose that innovation and product quality (available safely) are available in the United States and Europe, and badume (less surely) that there are many other European quality companies built to the "unicorn potential" that are currently unable to increase the potential for them to make $ 1 billion badessments. To close this funding gap, we estimate that Europe would need a multi-year capital pool of $ 10 to $ 20 billion in additional advanced development capital.

These calculations are based on a large number, up to 40, companies that do not become unicorns each year due to lack of funding, and on the badumption that each unicorn needs more than $ 100 million worth of unicorns. financing in total.

The very good news is that it is not 100 billion dollars. Because of the intrinsic effectiveness of venture capital, $ 10 billion to $ 20 billion can go a long way. It can be argued that no other sector or sector can generate such a high return on money committed in just a few years.

Is everything a question of money?

No, Europe remains a more complex market than the United States. Not only does it have to deal with the availability of US capital, but different regulatory environments, language barriers and a flight of talent attracted by Silicon Valley all join together. create barriers for European technology companies operating in an interconnected world.

However, financing remains the simplest limiting factor to take into account. Especially when an badysis of statistics shows that if European technology companies "save" a lot of money, it directly contributes to the fact that many of them are not worth the mythic $ 1 billion. A marginal increase in capital would produce a disproportionate number of unicorns.