US vs Europe — Comparing Two Startup Ecosystems
After having grown up in Europe, I’ve spent the last 15+ years in the US building three startups and now invest in companies on both sides of the Atlantic. I’ve always been fascinated by the contrast between the European and American startup ecosystems. What are the key considerations, possible surprises, and pitfalls that come with starting and scaling businesses in these two regions? Over the past few years, I’ve asked both European and American investors and founders this same question. Here are my takeaways.
1) Markets
United States
The US is one large, mostly homogeneous market of 330M people with a $27T GDP ($80k/person). It has well established corporate and tax laws and the most mature startup ecosystem in the world. If you set up in one state, you can sell across the US without major constraints. (The exceptions are highly regulated industries like financial services and energy where you will encounter local authorities and state regulations that will add complexity as you scale across state lines.)
Europe
450M people live in the European Union with a nominal GDP of $18T ($40k/person). The single market nature of the EU offers a handful of key policies for doing business in the region, including: (1) Schengen Area: free movement of people without border control. (2) Monetary Union aka the “Eurozone”: 20 of the 27 members of the EU use the Euro and have one interest rate regime set by the ECB. (3) “Single Market”: free movement of goods, capital and services within the EU.
As a startup, it would be a mistake to treat Europe as one country or even one market. You’ll likely struggle with your European expansion strategy — a more thoughtful approach is needed. Instead of thinking of the EU as one market or 27 separate countries, try breaking it up into a handful of core regions. Then prioritize where you want to start and expand from there.
The UK with a GDP of $3T has a strong startup and tech community. This is a popular first “land and expand” location in Europe given the cultural similarities and lack of language barriers coming from the US. With its recent Brexit, operating an entire European operation from the UK has become more complicated.
The DACH region (Germany, Austria and Switzerland) represents about $5.4T in GDP (30% of EU). These 3 markets can often be serviced by one team in a central location. It’s easy to hire local staff who are both fluent in German and English and have startup experience. For certain B2B sales, it may not be necessary to have a German speaker as English is very commonly spoken in business settings.
The Nordics (Denmark, Sweden, Norway, Finland and Iceland) represent a GDP of $1.6T (10%). Many folks here are excellent English speakers so it’s easy to build out a bilingual team or sell into these countries with English speakers. Watch out, the beer is expensive.
France has a GDP of $3T (16% of EU). We see most companies needing to hire local staff who are French to access and sell to French customers. Even most European startups usually set up a separate office here to service the French market.
2) Customers
European customers, especially enterprise buyers, are known to be more careful adopting new products. They move slower and buy less. Anecdotally, US sales cycles are 30% faster and ACVs 50% higher compared to Europe — plan your go-to-market motion, pricing structure, hiring and compensating strategy accordingly.
3) Competition
The flip side to the US market is that startups face stiffer competition from other, often better-funded, startups and large corporates. European startup founders often comment on the powerful marketing and sales machines US-based companies have built. If you’re a European company coming to the US, consider adding an advisor or board member who knows what great sales execution looks like and can help you hire an amazing sales team.
4) Hiring and Talent
Europe has largely leveled the talent playing field over the last 5–10 years. You can find great engineers and experienced company builders on both sides of the pond. However, if you’re looking for very rare technical talent or that VP of Sales who has built a $500M+ sales organization, you’re still more likely to find them in the US, especially the San Francisco Bay Area. Of course, that doesn’t mean they are easy to hire. Attracting great people requires a great product, story, leadership, competitive compensation, etc., no matter where they are. From a compensation perspective, Europe is still significantly more affordable for startup hiring. For example, a senior software engineer might ask for $80k-120k in Europe but would cost $160k-200k in the US.
5) Labor Laws
The European Union is a highly regulated market with national and EU-wide regulations. One major difference for some US companies is that European labor laws are much more employee-friendly. For example, once you get to a certain company size in Germany you can’t just let employees go like you do under US “at-will” employment agreements. Hiring can also take much longer in Europe: employees often need to give 3 to 6 months notice to leave their current employer. On the flip side, it’s easier to retain staff in Europe. The hiring market is less competitive and employees stay on average 10.6 years compared to 6.6 years in the US.
6) Fundraising
The US venture capital industry is 6x the size compared to Europe’s ($270B vs $44B AUM). As a result, US-based startups are often better funded at inception and can raise larger rounds as they grow. However, the European VC ecosystem is catching up, especially for Seed and Series A rounds. At the growth stage, US funds like G2 Venture Partners which invest both in the US and Europe have the network and experience to help companies successfully expand to the other side of the pond. The most promising European startups, who are considering going public on a US stock exchange, value having investors with US public company experience — a key consideration for Philipp Schroeder from 1Komma5 when he asked Ben Kortlang from G2VP to join his board.
7) Exits
Historically, there have been fewer and smaller IPOs and less M&A activity in Europe. What’s particularly missing are huge successes like Facebook, Google, and Amazon and deep-pocketed corporate buyers snapping up promising companies at high valuations. Interestingly though, recent data from Cambridge Associates showed that European venture returns have outperformed those of US firms, likely because smaller exits are more than offset by less capital availability/competition and therefore lower entry valuations for European investments.
About G2 Venture Partners
G2 Venture Partners is a venture and growth firm investing in transformative technology companies at their inflection points building a sustainable future. We support entrepreneurs who are unlocking new paths to environmentally and socially responsible economic growth. We invest in US and European (1Komma5, Scandit) companies and help our portfolio companies bridge the gap to the other side of the Atlantic. Learn more at https://www.g2vp.com/.
