TU Munich and Speedinvest with survey result on European startup and venture capital industry

Speedinvest and the Technical University of Munich have published the results of an extensive survey of European investors. The study reveals exclusive insights into the mindsets of venture capitalists across the continent.

Berlin - The survey, which involved 437 individual investors across Europe, sheds light on how European venture capitalists view and approach startup investing. The study also compares the European ecosystem with its U.S. counterpart in the current market environment.

Europe promises market leadership, high quality of life and attractive investment opportunities for U.S. and international investors.

Andreas Schwarzenbrunner, Partner Speedinvest

Key findings include that a startup's management team is the deciding factor in investment decisions for 49% of investors surveyed, 84% of investors believe Europe's "unicorns" are overvalued, and 87% of VCs view Europe as a fragmented ecosystem with regional hubs and different regulatory processes.

According to the study's findings, networking plays a critical role in the venture capital industry. Venture capitalists use various sources to find potential investment opportunities. The most important sources are self-generated funds and recommendations from the professional network. Recommendations from existing portfolio companies or conferences, on the other hand, are considered less relevant. For investors, the management team of a startup is the decisive factor in the investment decision. The first impression made by the management team is the deciding factor for 42% of investors as to whether they invest or not. This illustrates how important the first impression is

Our goal was to take the pulse of the industry and show how European VC firms think and act in the current market.

Oliver Holle, Co-Founder, CEO & Managing Partner Speedinvest

Investors consider European "unicorns" to be overvalued, regardless of whether they already have such a company in their portfolio or not. The main factors in valuing startups are the expected exit, the desired ownership percentage and the valuation of comparable investments.

According to the survey, 13% of venture capitalists surveyed neglect to analyze financial ratios when making investment decisions. When they do look at numbers, they rely primarily on revenue/earnings multiples, cash-on-cash multiples, and hurdle rates or IRRs. Only 13% use discounted cash flows and NPV for their investment analysis. This suggests that traditional financial valuation approaches are not commonly used in practice by European VC investors, especially for early-stage startups.

The continued enthusiasm for European startup culture evident from the survey is refreshing.

Philip Chopin, Partner & Managing Director NEA Europe

The Speedinvest survey results show that investors are flexible in negotiating term sheets, but there are exceptions. The most negotiable areas are dividends, option pool, redemption rights and board control. Non-negotiable terms are pro-rata rights, liquidation preference and vesting. Despite regulatory challenges and a difficult exit market, U.S. investors continue to invest in Europe. The study shows that European investors see Europe's education system, talent and technical know-how as strengths. However, there is room for improvement in capital markets and exit conditions, ecosystem maturity, private limited partner money and regulatory environment. U.S. investors are more optimistic and seek higher participation in technology companies than European investors.

The full study can be found at Speedinvest.