US VC Investors

Eye Top European Startups

By Daniel Glazer, Partner, Fried Frank


As we near the end of 2015, one trend to watch for in 2016 is US investors’ increasing interest in European startups expanding to the US market.  Spark Labs and Fried Frank are already actively helping a few dozen startups in that US expansion process including connecting them to US  venture capital investors.

Many of those US venture capital investors – particularly early-stage investors – historically have been reluctant to consider Europe due in part to their perception of a lack of interesting opportunities. 

But, the last decade’s economic crisis has resulted in fewer, less-secure employment opportunities. And now an entire generation of European talent is embracing an entrepreneurial career path.  In turn, national governments in the UK and elsewhere in Europe are actively encouraging – through tax incentives, favorable regulatory regimes, relaxed immigration restrictions, and even direct equity investment – a sustained, tech-driven recovery intended to fundamentally alter the nature of their national economies and their ability to compete in the global marketplace.

Yes, European tech ecosystems are in their infancy relative to the US.  Even in London, Europe’s startup capital, total annual VC investment as recently as 2010 was only $100 million. 

However, 2014 VC investment in London-based tech companies grew to $1.35 billion, a figure surpassed during the first three quarters of 2015.  The absolute numbers remain small relative to Silicon Valley, but the rate of increase suggests an emerging powerhouse.  Indeed, London already has become widely recognized as a global leader in fintech, with key strengths in other areas such as health tech, edtech, and games.

Valuations haven’t kept pace with quantity and quality, and the European market offers investors value opportunities that are potentially more attractive than those in Silicon Valley.  This disparity is driven in part by differing investment philosophies.  Historically, European VC investors have focused more on startups’ past performance than their potential-focused American counterparts. 

As a European founder once ruefully remarked to me:  “As a US startup I could raise $10 million in the Valley based on nothing more than a strong founder, a solid business plan, and a bit of IP.  To raise $10 million in Europe, I need a revenue-generating, profit-making business.  But I can’t create that business without the $10 million in capital!”  Despite a bit of hyperbole, the sentiment reflects a common desire among European startups to access US capital.  For US early-stage investors, Europe is a buyer’s market.

Of course, early-stage investors add more than just capital – their networks and expertise are essential to a startup’s success.  Those assets become harder to leverage when the Palo Alto VC has to Skype with the startup’s Berlin-based decision-makers across a nine-hour time difference.   As a result, a European startup’s desire to raise early-stage US funding typically goes hand-in-hand with its need to establish a significant US presence near anticipated VC investors. 

That US expansion makes them viable investment targets for early-stage US investors accustomed to investing close to home, especially when they can leverage an ecosystem such as Spark Labs to qualify the deal flow.

Additionally, some savvy US VCs are realizing that corporate tax disparities can make European startups with US operations more attractive than homegrown US startups. 

US combined federal and state corporate tax rates approach 40 percent (depending on relevant state and local taxes).  By comparison, the corporate tax rate is approximately 20 percent in the UK and 12 percent in Ireland.  These disparities have materially impacted corporate strategy. 

One result has been the popularity (or infamy) of “inversion” transactions, structured to ensure that a parent company based in a lower-tax jurisdiction results from the merger of a US company with a non-US company.  The most well-known of these was Pfizer’s aborted bid for AstraZeneca.  While the US Treasury has taken steps to discourage inversion transactions, the controversy has focused investor minds on the benefits of operating a global business through a non-US parent company.

Another effect of these jurisdictional tax disparities is that US companies are holding approximately two trillion dollars in “trapped cash” profits outside the US.  Repatriating these profits to the US generates a significant tax charge.  In this context, large US companies such as Microsoft and Cisco increasingly have focused on non-US acquisitions.

These dynamics work to the benefit of European startups heading to the US.  A European company that conducts US operations through a US subsidiary (rather than by “flipping” into a US parent company) is utilizing the same corporate structure as the inversion transactions that US-based multinational companies have gone through so much trouble to undertake. 

US investors increasingly see value in this structure regardless of whether the ultimate exit is a sale or an IPO.  If a sale is the preferred route, potential US acquirers with offshore “trapped cash” have acknowledged that non-US tech companies are attractive targets.  If an IPO is desired, the startup’s ability to pay less tax on corporate profits will help boost valuation; European startups establish similar efficiencies in expanding to the US as US companies do when inverting out of it.  King Digital, one of 2014’s significant US tech IPOs, is a good example; despite a strong US presence, King filed for its IPO through its Irish parent company.

US investors naturally seek the opportunities most likely to maximize returns, and US investment won’t continue to flow into European startups unless quality investment opportunities are available.  But as top startups expand to the US from growing ecosystems in London, Berlin, Paris, Stockholm, Amsterdam and elsewhere, they will increasingly find that savvy US investors are waiting to welcome them with open arms & Spark Labs can help them in that process.

About Daniel Glazer

Daniel Glazer leads the Tech Group at the New York-based global law firm Fried Frank and is co-resident in the firm’s London and NYC offices. Dan’s team provides US legal advice and practical business guidance to European early-stage and growth-stage companies seeking to expand to the US, raise US capital, and transact with US business partners.  Dan can be reached at

About Spark Labs

Spark Labs is the collaborative ecosystem  & US expansion platform for tech & media companies.  Our mission is to support the creation or expansion of Tech & Media companies. We help tech entrepreneurs develop their business in the US or Europe by leveraging our space and support infrastructure. We believe that fostering great businesses starts with having the right environment, team, mentors and local connections. Being entrepreneurs ourselves, we know that launching or expanding a company into a new market can be difficult. That's why we've decided to develop a revolutionary ecosystem for entrepreneurs with a very strong focus on community, network and relationships.