Together with the Technical University of Munich, Speedinvest surveyed the views of 437 individual investors across Europe. The results show how venture capitalists approach startup investments.
When it comes to the decision of whether to invest or not, the startup’s management team is the decisive factor. This is stated by 49 percent of the investors surveyed. According to the study, 42 percent of investors decide at their first meeting with a management team based on gut feeling whether they will invest.
Metrics less decisive
When it comes to finances, plain numbers are obviously not everything. After all, 13 percent of the venture capitalists surveyed stated that they do not analyze financial metrics at all in their investment decisions. When they do deal with numbers, three factors determine the company valuation: the ratio of valuation to revenue or profit (75 percent), the ratio of company profit to invested capital (49 percent), and the expected return amount (32 percent).
Investors rely on their network
Furthermore, the Speedinvest study shows that the industry continues to be dominated by networking. According to investors, the most important sources for learning about startup deals are self-generated leads (29 percent), recommendations from their professional network (28 percent), and introductions through other venture capital firms or business angels (21 percent).
European vs American ecosystem
Speedinvest also analyzed investors’ views on the ecosystem in Europe compared to its US counterpart. 70 percent of the investors surveyed cited Europe’s greatest strength as lying in its education system and academic institutions. Talent (65 percent) and technical expertise (61 percent) are also mentioned as European advantages.
At 87 percent, however, the majority of venture capitalists see Europe as a highly fragmented ecosystem that relies heavily on regional centers. This makes it difficult to navigate investments. Most investors cite cultural differences (70 percent), the maturity level of local ecosystems (68 percent), and the regulatory environment (65 percent) as the main reasons for this fragmentation and as current challenges.
Nevertheless, the complexity of European markets does not appear to be an obstacle for international investors. A full 76 percent of VCs report an influx of US investors into Europe. Andreas Schwarzenbrunner, who led the research project at Speedinvest, says:
“Despite the still relatively young ecosystem, Europe offers enormous potential. The continent attracts new investment opportunities, passionate founders, and access to talented professionals from renowned technical universities. Proximity to cost-effective engineers is also a major advantage. Europe promises market leadership, high quality of life, and attractive investment opportunities for US and international investors.”
