Where European start-ups are better than American ones

An analysis shows that investors are increasingly focusing on the European start-up market, particularly because of the higher profits.

The USA has Silicon Valley, regular IPOs by unicorns and plenty of venture capital. It seems that the European start-up market is lagging behind. However, an analysis by venture capital investor Earlybird for Handelsblatt shows why Europe is becoming increasingly attractive for investors.

On average, exits of one billion dollars or more can yield more for investors there than on the American and Asian markets. On average, an increase in returns of 11.9% can be expected for Europe, compared to only 9.9% in the USA and 9.1% in Asia.

German start-ups are particularly impressive with their survival rate, according to Andre Retterath, an expert in data analysis in the field of venture capital, in an interview with the Handelsblatt. In the past, it was difficult for start-ups in Europe to raise funds after start-up financing, but their longevity is convincing investors. This is also reflected in the portfolio of 30 renowned venture capitalists from the USA: since 2010, the share of the European market has increased from four to nine percent.

It is clear that the USA produces more unicorns. However, start-ups there only need to raise 175 million US dollars to reach a billion-dollar valuation. In Europe, 208 million and in Germany even 250 million dollars are required. On the other hand, the capital efficiency, i.e. the money invested compared to the exit, is higher in Europe. Reffath explains to Handelsblatt: "For every euro invested, investors in start-ups that were successfully sold or floated in Europe received an average of around seven to twelve euros, whereas in the USA they only received four to ten euros and in Asia only three to nine euros." The financing options also create an imbalance: In the USA, pension funds are allowed to invest, whereas in Germany there are high hurdles to overcome. In addition, investors tend to value American start-ups higher than European start-ups with the same key figures, according to Reffath.