Where European start-ups are better than American ones

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

The US has Silicon Valley, regular IPOs of unicorns and plenty of venture capital. That leaves the European startup market behind, it seems. However, an analysis by venture capital investor Earlybird for Handelsblatt shows why Europe is becoming increasingly attractive for investors.

On average, investors can get more out of exits of one billion dollars or more than on the American and Asian markets. For Europe, an average increase in returns of 11.9 percent can be expected, in the USA only 9.9 percent and in Asia 9.1 percent.

Especially German start-ups convince with their survival rate, Andre Retterath, expert for data analysis in the field of venture capital told the Handelsblatt. It used to be difficult for startups in Europe to raise sums after seed funding, but their longevity is winning over investors. This is also reflected in the portfolio of 30 renowned venture capitalists from the US: since 2010, the share of the European market has increased from four to nine percent.

It is clear that the USA produces more unicorns. There, however, start-ups only have to raise 175 million US dollars to reach a billion-dollar valuation. In Europe, 208 million and in Germany even 250 million dollars are needed. For this, 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 the start-ups successfully sold or floated on the stock market in Europe received an average of around seven to twelve euros, while in the US they received only four to ten euros and in Asia only three to nine euros." An imbalance also arises from funding options: In the US, pension funds are allowed to invest, while in Germany there are high hurdles to overcome. In addition, investors tend to value American start-ups more highly than European start-ups with the same key figures, says Reffath.