“Lisbon is really a cool city”, an interview with VC investor Yannick Oswald
2019 Atomico’s state of European Tech Report shared some very encouraging data about the performance of the European tech sector, with an increasing volume of VC deals happening in the old continent. Is this trend here to stay? Or will the US keep dominating the scene for the years to come?
BRIDGE IN discussed this and other hot topics with Yannick Oswald, Principal at Mangrove Capital Partners. In addition to being a very prolific VC writer (read his blog here), Yannick is always on the move around Europe to scout for the next big thing in tech.
BRIDGE IN - “Every year, roughly three times more is invested in US and Chinese tech companies than in Europe. However, 2019 Atomico state of European Tech Report shows VC funding in Europe up 40% from 2018, outshining the Asian and US markets. What reasons can you identify for this shift? Do you think it will be a long-lasting trend?
Yannick - “We invest all over Europe and Israel and we don’t invest as a seed stage in the US, but many companies have moved to the US - Europe and Israel give us enough work anyway! Let me quickly explain how we function and then we can dig deeper on why I think the activity is bigger. We have 200M € funds and we invest around ⅓ in pre-seed, ⅓ in seed - let’s say right after product launch, and ⅓ series A. We have been doing it for 20 years, with the same strategy and there are three things that characterize Mangrove
1 - We have a relatively concentrated portfolio with around 30 investments per fund, meaning we always take the lead and therefore we are quite involved with our portfolio companies
2 - We are quite generalists - we do everything besides Hardware, although we are more active in areas we think can be disrupted by tech, such as healthcare for example.
3 - As I mentioned before, we are essentially pan-european and also include Israel.
If we look at the European activity obviously the numbers have been growing a lot since 2000 - there was not much before, everything basically started with Skype. The most active among the markets we cover is clearly Israel, in terms of concentration of good companies.
If we want to compare the US vs European market, there are a few things that we have to consider. The US tech industry is much older and all the institutions are investors - pension funds, endowment funds… they all invest a certain portion of their capital in PE and in VC funds. Whereas in Europe, many of the large institutions still need to become familiar with the VC category and, being mostly run by governments, they outsource their investment strategy to banks. That is why half of our capital comes from the US and the rest is European capital with some Asian investors. This means that in Europe there is less capital in the system, but on the other hand, you can find capital anywhere and the whole tech ecosystem in Europe is way younger so there was no need for that capital until recently.
Europe is definitely catching up, especially the Nordics, and for the rest of the countries, it is happening now. For this reason, the European ecosystem is very dynamic and appealing to investors but it can also be very challenging since it is very fragmented. If you ask me where the next good companies are, I have no clue where I will find them - could be Paris or Lisbon… While in the US there is a certain concentration into main hubs - SF and NY - and a couple of emerging hubs in Chicago and Austin. I think it is more sustainable in the long run than a fragmented ecosystem, where there is no network effect and therefore it takes more time to research and scout for good companies. But there is a lot of money getting into the European ecosystem and obviously the EIF (European Investment Fund) has been very instrumental in that, backing many emerging fund managers.
BRIDGE IN - “OK so capital is coming to Europe and companies here have a great disruptive potential. Dealroom founder has recently said that the next tech giants will be nothing like Google or Facebook, they will be focused on frontier tech, where Europe is particularly strong - maybe because of what you just said, that we are a younger ecosystem. Plus, especially during the pandemic, many European countries have proven to be willing to support tech startups. Taking into consideration EU public policy vs the US, startups' burn-rates and the cost-effectiveness of Europe when it comes to talent, would you advise a US-based founder to move or open a hub in Europe?”
Yannick - “Well it depends on why he/she wants to move to Europe. Obviously, if you’re doing well in the US and you are targeting mainly the US market then you should definitely stay in the US. If you are looking for specific talent though, it makes sense to have an office in Europe. Let me give you an example: our portfolio company Wix, they have offices in Lithuania, in Berlin, in NY and in Tel Aviv. They concentrated some roles in some specific locations - marketing in NY and tech in Lithuania - and that is what I would recommend to some companies. This kind of role distribution makes sense also within Europe. Imagine I have a company in Switzerland or Luxembourg, it means that I have limited tech talent, and it’s a massive problem. Being this the case it would make sense to open an office in Portugal for example. To sum up, if we are speaking specifically about US companies then I would say it depends on what they need - Talkdesk is a great example of a company that has HQ in the US and tech talent in Portugal. While for many European companies it would be an advantage to have a team in a country such as Portugal, and not simply as an outsourced location.
Europe also has an additional challenge, related to stock options. In the US it is very common for companies to give stock options to their employees - it is a way for employees to profit from that and then reinvest that money into the ecosystem. But in Europe, most of the Countries are taxing this sort of thing so that it ends up not being very “sexy”. This is something that should definitely change, it is a structural barrier to the growth of the whole ecosystem - governments are on it, France has introduced some changes now.
BRIDGE IN - “Let’s talk about Portugal - you are definitely a local ecosystem’s friend and you have also invested in a Portuguese company. What are the strengths and weaknesses of the Portuguese ecosystem? Do you consider Portugal as a strong European hub for a company that is looking to expand its operations?”
I’d say there are three angles to take here:
Funding: that would not be a problem since you can be based in Portugal and still raise from any European investor, plus everybody wants to come to Portugal anyway so that wouldn’t be a challenge. There are also a bunch of local players now, Shilling, Indico and some more.
Operations: Portugal is a small country and it’s kind of on the edge of Europe so you need to ask yourself what kind of operations you want to set-up there. If I look at tech then great, if I look at marketing - for example - then there are other locations that I would suggest. But the good thing about Portugal though, is that you can still easily attract those profiles that aren’t naturally there.
Lifestyle: Portugal it’s a nice place to be and from a cost perspective it is relatively interesting. Plus, I have worked with many Portuguese people and the work ethic is just impressive.
You know, Lisbon is really a cool city. I am in Luxembourg now, thinking how difficult it is to attract talent here.
BRIDGE IN - “Very last question for you Yannick - also somehow related to how some countries are able to attract more talent than others. What do you think about remote work? Is it really going to be the future of work as everybody says?”
Yannick - “ What’s happening is - we will probably have a hybrid model. It is true that people are becoming more and more open to working remotely but still, I think it’s very important to keep that social element and, you know, having human connections. Surely tech companies were always used to working remotely but now it’s been an obligation for everybody - even for large corporations - and it will definitely have implications on some locations: their capability to attract talent, real estate prices, taxes… We’ll see soon enough how it will go.”
