David Bates is a senior corporate and commercial lawyer, recommended in Legal 500, with over 20 years’ experience of advising on domestic and international mergers and acquisitions, private equity and venture capital transactions and complex commercial arrangements across a variety of sectors with particular focus on the tech sector. Experience also includes time spent on secondment to the inhouse legal teams of major corporate clients.
We Talk About:
When a startup from the US wants to expand into Europe, what is the process?
How does a company analyze the market to decide where in Europe to setup their operations?
What types of exits are companies looking for or what is the current state of the investment environment like in Europe?
Connect with David
LinkedIn: https://www.linkedin.com/in/dbates2/
Website: https://www.taylorwessing.com/en/search?term=davi d+bates
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- Shawn Flynn’s LinkedInAccount
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- Email Shawn@thesiliconvalleypodcast.com
Shawn Flynn 0:00
You’re listening to the Silicon Valley podcast. On today’s show, we sit down with David Bates, who is a senior corporate and commercial lawyer recommended in legal 500 with over 20 years’ experience in advising on domestic and international mergers and acquisitions private equity and venture capital transactions and complex commercial arrangements across a variety of sectors with a particular focus on the tech sector. On today’s show, we talk about what a startup in the US wants to expand to Europe. What is the process? How does a company analyze the market to decide where in Europe to set up their operations? What type of exits are companies looking for? Or what is the current state of investment environment like in Europe, and much, much more on this episode of the Silicon Valley podcast now let’s begin. Enjoy.
Announcer 0:52
Welcome to the Silicon Valley podcast with your host Shawn Flynn, who interviews famous entrepreneurs, venture capitalists and leaders in tech. Learn their secrets and see tomorrow’s world today.
Shawn Flynn 1:09
David, thank you for taking the time today to be on the Silicon Valley podcast. Now. I got a ton of questions for you. But before we even started, can you give our listeners a little bit of background on your career, your history up into this point?
David Bates 1:21
Sure. Thanks, Shawn. Thank you for having me on. It’s a pleasure to be here may be able to tell from the accent I’m from the UK from London originally and London’s where I spent the first 20 years of my career working as an attorney in the venture capital and tech world, doing venture capital investment and m&a tech firms. In 2014, I moved to a firm called Taylor Wessing, who a Europe’s leading tech law firm. And then in 2017, was given the opportunity to move to the office out here in Silicon Valley. We have an office here on the west coast. That was quite an interesting move. The firm asked me if I’d be interested in living in California for a few years. And I thought it sounded exciting and a great opportunity. But obviously I had to run it by my wife went home to speak to her. And she sports thought about it for about two seconds and said yes, when do we go. And so that’s worked out great. We love it out here. And what I do out here is basically help U.S. companies with their sort of international legal needs. So, they’re helping them sort of do business in Europe is the key focus of what we’re here. And we’re here to be on the ground and help them do that in their time zone.
Shawn Flynn 2:20
So now that you’re here in Silicon Valley, and you have that great background, that great perspective of the startup ecosystem over in London, in Europe. Now, for most of us, we have never had that experience. Can you tell us kind of some of the similarities, kind of some of the differences in the startup ecosystem there? And then here?
David Bates 2:40
Sure, absolutely. I think at the macro level, it’s very similar. If you start from the point of view, it’s smart people with good ideas, trying to raise money and develop their companies. It looks the same at that level is the same sort of set of ambitions and what people are seeking to do. I think, where the difference is the scale and the experience, there’s more money here, there’s more startups, I think most importantly, there’s a different culture here. There is a different atmosphere, people but I think particularly the valley wants startups to succeed, their support, people are happy to give back. And I’m not saying that doesn’t happen in Europe, particularly places like London and Berlin, it does. It’s just that they are maybe in London and Berlin a few years behind, where the ecosystem is here, Europe is catching up, and it’s developing, it’ll never be the same. But it is that there is just an intangible difference here. And that people, you know, people want these companies to succeed, people are willing to give up their time and, and share their experience. And there’s a greater pool of experience. And then you’ve got the access to capital, you’ve got a great ecosystem in terms of people are used to dealing with tech companies here, they want them to do well. And certain parts of Europe aren’t quite there yet with that system.
Shawn Flynn 3:49
So when you’re saying access to capital, access to resources, are there the accelerators, the incubators, is there the barrier, and most of the US, there’s a Small Business Development Center that has resources, there’s Chamber of Commerce, there’s a lot of local resources that have had experience working with startups and are able to give resources that help them grow their similar resources like that in Europe.
David Bates 4:13
Yes, absolutely. There are. And that is a sector that has been growing sort of massively in the last five to 10 years, let’s say. And there are definitely incubators in Europe, we probably have a little bit less in terms of angel funding, but there are more sort of individuals who are prepared to put money in sort of into groups and funds through that way. Rather than here you have that sort of pool of people that have been through the cycle once have had a great exit and now want to put it back in. We’re seeing that in, say the UK, but it’s you know, maybe 10 years behind where it is here, five years behind something like that. You do have that infrastructure, that network to help nurture these companies and that is really expanded in the last sort of five years or so I would say it’s just it’s not as advanced as where Silicon Valley is because this is the this is the birthplace of stuff, this is where it all started, and the rest of the world. And even within the US, I think the rest of the of the rest of the world is playing catch up to how the system works here.
Shawn Flynn 5:09
That’s interesting. So, it sounds like syndicates, investment syndicates actually are more than norm for invest in there.
David Bates 5:15
Yeah.
Shawn Flynn 5:16
Interesting. So, if a startup there wanted to get capital, is it more common than for them to try to go abroad, maybe here to Silicon Valley? And to get the resources? Or are there the angel syndicates in London, Berlin? Or where the hotspots, I guess?
David Bates 5:33
Yeah, so I mean, the hotspots would be places like London, Berlin, Paris, viticulturist. The three that jump immediately to mind, London is definitely is by far the biggest of those three, there’s great companies coming out of Paris, and some great companies coming out of Berlin, the Nordics have some very interesting sort of companies coming out of there as well. But on your point on funding? Well, I think what we see a lot in Europe is there’s sort of seed money, through those Angel networks, there’s in series a money, there’s some great venture capital funds, doing great investments in that area, where there’s often then a funding gap is that later stage venture growth, there are companies and funds that are trying to plug that but there’s not as much money in that area, as there is in the US. And that’s when we typically see really good companies really solid companies come to try and raise money in the US once they get to that stage. And once they’re beyond series A looking for that growth capital, they may well come. And what we’ve also seen is the US funds see the opportunity in Europe, in that they have now a number of the funds of set up offices in Europe, number of the household names. And they are now looking to invest directly into European companies, because they realize there’s really good companies really good tech, and also a big market 450 million consumers or whatever it is in Europe. So, we’ve seen last three to five years say, more and more US funds, making investments direct into European companies, and these would be the sort of Sandhill road.
Shawn Flynn 6:58
And when they set up their offices or facilities, is it mostly in London? Or is it Orleans in or some of these other spots you just mentioned,
David Bates 7:06
it tends to be London, what we see generally, as a generalization is that for US either funds or companies coming to Europe, the UK and Germany, in London in particular, it’s most comfortable. In the sense of culturally, there’s a better fit language wise, legal system is a common law jurisdiction. And then they use London as the base to then sort of expand into Europe from London, London is the stepping stone in all the cases. Now that’s not always the case, there will be some that have good reasons to go to other places. If you’re sort of an automotive tech, for instance, then you would look naturally to Germany, for example, and not the UK, as a rule of thumb as or as a generalization. You did London, UK tends to be the starting point.
Shawn Flynn 7:49
Let’s talk about that expansion into Europe. What’s that process look like?
David Bates 7:55
The starting point is sort of why are you expanding? And why do you want to go, we sort of primarily see three reasons. And the first two more so than the third, one is there’s a market opportunity, you’ve got customers or you think you have potential customers there that you want to go and win and get business from, and you need to be on the ground to do that. The second one that we increasingly see is its talent, a lot of good talent in Europe, London, but also in sort of places a lot of good engineering talent in places like Paris or coming out of the Eastern European, Czech Republic, Poland, etc., great technical universities, excellent talent at a fraction of the cost of the Bay Area. So, we see people sort of expanding into Europe for that reason. And the third is where a customer essentially tells you, you need to be there, I’m using you across the US, I now want to use you. My business operations in Europe, please set up there. It’s less common, but happens a fair bit, in terms of what we often see is it’s either the sales team or the engineering team going to the business and say we need to now be in Europe. And then it handed over, you know, legal finance, HR, tax, etc. to make it happen. But that initial sort of impetus, I would say gain as a generalization mostly comes from either sales teams or engineering teams.
Shawn Flynn 9:09
That’s interesting. And to go back in the US, it’s kind of normal to start off Bay area then you might set up your next office in Chicago. What’s kind of the pattern for expansion of a startup that maybe starts in London? Or maybe starts in Berlin? What’s their normal expansion? Or is there one?
David Bates 9:27
I don’t think there is an easy one in that sense, because it will depend on sort of your product and where your customers are. You may then want to say you start in Berlin or London, you may first look at the rest of Europe because it’s nearer and easier. The Holy Grail for a lot of companies is still the US biggest economy, the biggest market so that that’s obvious. There was a period where everyone was looking at China, I think that may have cooled slightly, but it will be I think, for the most part led by that stage, where is the business opportunity? Where are the customers for your product and that will drive your expansion within Europe itself, of course, we have the single market. So, you can trade and do business, across Europe from one location without having to set up in all of the different locations, there may be good reason why you need boots on the ground. And that’s a different question. But you if you can do it all from one place, then you’re free to do that.
Shawn Flynn 10:20
So then how does the company analyze the market there?
David Bates 10:24
I mean honestly, before the current times, the way who did it was get on a plane, and go and see the market get in person. Meet with customers or potential customers, if you have customers here that have operations in Europe use demos and an introduction. So, you can then speak to the relevant people in the European arm about what their needs are, because they will be slightly different. It’s a different, a different market, I think, traditionally, there’s been no sort of substitute for going out there and getting of spending time on the ground, getting a feel for the market, there’s obviously research you can do sort of online, there are consultancies that will help you with this stuff. Although I think most companies, certainly the, you know, the younger ones, will do it themselves. But it is about getting out there and seeing the opportunity meeting with clients talking to peers who’ve done it, we find a lot of companies do that. And that’s successful for them, talking to industry bodies in Europe, that will be there to help you. I think virtually every sort of major economy in Europe has trade delegates here located on the ground in the US that are there to help attract investment into their country. I know the British government does, it’s got a big team in San Francisco, for instance, that is very happy to talk to US companies about expanding to the UK and the market and what it looks like and how that operates. And that’s at a more commercially focused level than say, talking to a lawyer or an accountant. There are actually a lot of free resources out there as well that US companies can tap into within the US because everybody wants investment in this global economy. So, people are there trying to help. And then then you go and go and see if yourself.
Shawn Flynn 11:57
Okay, so say I talked to the, the London chamber in San Francisco, and they’ve given me some good advice set up in the city in London, these are some of the resources that are available earlier, as mentioned, top engineered talent come out of Eastern Europe, how do I mix all the benefits of every place in Europe to maximize it,
David Bates 12:19
What we find most clients do is they start in one place, get their feet on the ground, get used to it, and then they build on that. The exception to that would be companies and we see more and more of this particularly the current time where they use what we call a distributed employment model, they will find someone they like in Poland, they’ll find someone they like in the Czech Republic, they’ll find someone they like in Spain, and they won’t have an office as such, they’ll just be picking up talent where they wanted. And then they’ll do that. But that’s more talent driven play than a sort of customer driven play or a sort of market opportunity play. I think if it’s the latter, what we tend to see companies do is go to one country First, get their head around that. And then once they’re in the country, they can work out where their next opportunity is, and then the next opportunity and build from there. There are exceptions to this. But generally speaking, if you try to do them all at once, that can be very hard and you need, you certainly need a lot of resources to do that. We’ve worked with companies that have launched in sort of 35 European cities virtually simultaneously in the sort of micro mobility space. But they were geared up for that. And that was their plan that they wanted the big rollout. And they invested in that it was very well considered and it was very well thought out. But I think if you’re not that scale in that level of resource one step at a time, in that sense is that is that is the way that we see companies doing more successfully.
Shawn Flynn 13:40
Now I have to ask more questions on this, because you just said a customer rolled out 35 cities simultaneously,
David Bates 13:47
over the course of a relatively narrow window of months.
Shawn Flynn 13:51
Still that’s, that’s massive.
David Bates 13:54
Yeah.
Shawn Flynn 13:54
What are some advantages and disadvantages of the different countries in Europe?
David Bates 13:59
I think as I said earlier, most US companies in essence as a general rule, look to the UK first. And the advantages, there are the sort of cultural familiarity, the no language barriers, and things like that. Same with Ireland as well. To be fair, a lot of US companies go to Ireland. And the, you know, the UK is the fifth or sixth largest economy in the world. Anyway. So, it’s a big market in that sense in its own right. So, you’re not going there. Just because people speak English, there’s a sort of market opportunity. Digital online penetration is very high in the UK in terms of sales, a lot of sort of online, one of the highest rates of online sales in in the world, in fact, so people look at it that way. But then you’ll look at different companies we’ll look at different countries based on their market and their product I mentioned earlier, if your automotive the big auto manufacturers in Europe and the ones you really want to be in with BMW, Volkswagen, Mercedes, they’re in Germany. So, you might look at Germany. There’s a lot of cool software stuff in Berlin going on at the moment. So, if you’re in the software sector, you might look at Berlin for instance. fashion and luxury goods might drive you to Paris, it all depends on, I wouldn’t say there are, it’s a lot of it is market driven. But if you’re sort of agnostic as to that sector, then you’re going to look at where is it easiest to do business, that’s going to be the sort of the other big criteria. And I think generally speaking, we would say that it is terms of setting up a company employing people, London, Dublin, they’re going to be easier than the continental European countries were a little bit more process driven, a bit more process orientated. And in particular, much more labor law is much more sort of rigid, and employee friendly. Nowhere is probably as flexible as the US in terms of employment law and labor flexibility. But the UK sort of as ever sits somewhere in the middle between Europe and the US. And so, if you’re used to a US system of employment, and US system of doing business, setting up companies, etc., the UK will just be more familiar to you and easier to do business in as an entrance than say, setting up in France or Germany. It’s not to say, you can’t do it successfully in France and Germany, but we tend to find that people need another reason to go there you go there, because you’ve got a reason to go there. Not because always an easy to set up a company, Jeremy, let’s go and do it there.
Shawn Flynn 16:14
I got ask more about the employment flexibility. And especially in the startup ecosystem, where things are opening and closing, people are being fired hired on a daily basis with really no one knows what’s really going on. How are the employment laws for startups in Europe.
David Bates 16:33
The starting point is that in Europe, generally, employment law is more employee friendly than it is here in the US, there are more protections for employees to protect their employment. And now that, you know, there’s a whole raft of sort of social and political reasons behind that. And there’s probably not a lot of point debating whether they’re good or bad. They are what they are, what you have to be used to as a sort of the biggest headline point, we always sort of say to clients is that there’s not the equivalent of employment at will. And that’s the thing you sort of need to get your head around employees have rights. If you, you can dismiss employees, it’s perfectly possible to do that. But you have to follow processes and go through those. In the UK, for instance, whilst employees have been there for less than two years, it’s very close to employment at will. In Germany, whilst you have fewer than 10 employees, it’s very close to employment at will you’re looking at maybe a week’s notice to have to give someone rather than just say immediately they’re gone is broadly very similar. But as you grow and as you get more employees, that becomes harder, as employees have more tenure, that becomes harder. And then there are countries like France, Spain, for instance, where it is just harder to get to make the move people on and that becomes more of a process. How does it work in practice? It works with money you pay people to, to sign up to agree to leave, rather than just be able to get rid of them as quickly as you can here.
Shawn Flynn 17:57
Are there any regulation changes or things people are talking about for the startup community itself or say if the company has not raised their A round or is less than 20 employees, but it’s in a high growth area? There might be these exceptions or?
David Bates 18:15
I mean, I think the short answer to that is no. Employment Law sort of pervades across all sectors. And there are very few sort of sector, differentiated sort of systems. In that regard. What I would say is the flip side to the sort of employment sort of landscape in Europe is that you haven’t, there’s far less churn than you would see here. I think in the US this concept of sort of two years and move on, that doesn’t exist anywhere near the same degree. If you get good employees, you’ve got a much better chance, I think of keeping them statistically, which is the kind of the reverse side of the coin of, it’s harder to find people that people are also more loyal. And they tend as again, as a generalization, they tend to want to stay for longer.
Shawn Flynn 18:58
What about perks and incentives. And what I mean by that is, there’s cities overseas in Asia, and that have either local funds to invest in companies match funding, or they’ll say, first six months, we’ll ignore taxes, or this office building is designated just for startups free rent, if you set up a facility there, are there perks like that in Europe, and if so, where
David Bates 19:26
they’re all and there’s certainly sort of on the sort of non-governmental side, there are incubators and office hubs where you can get space and things like that, to that point, in terms of the governmental perk, rebates on taxes, rebates on property taxes, or tax holidays, they do exist, but they tend not to be in the major cities, they used by government as an instrument to drag investment into places that aren’t otherwise seeing as much so you won’t get, for instance, in London, you won’t get sort of government sort of tax holidays in London, because London’s very successful, it doesn’t need to offer that sort of thing. But in other parts of the UK, there are regional funds, there are regional development bodies that are able to offer those things. And these are still big cities in good cities in their own right, Manchester and Liverpool would be sort of good examples in the UK. And there’ll be equivalents in France, Germany, Spain, wherever they aren’t the Capitol, where everything naturally sort of goes to where they’re trying to sort of spread that investment around. And those are the places where you can get those incentives. We, in our experience, it’s not something that clients tend to focus on, they want to be in the right place for them. And very rarely do we see a marginal case where I could be here, I could be there, but this place is offering me incentive, therefore I’ll go to that one. But it tends not to be a significant federalize I’m, I think you’ve committed to going overseas, you want to be going to where you’re going for the right reasons, and three months off property taxes is probably not going to sway your decision.
Shawn Flynn 20:55
So then what tips do you have for that company that’s looking to set up an office in Europe?
David Bates 21:01
I think the first one is, understand why you’re doing it. And that is do your research as to are you going because this is where the talent is, are you going where this is because the market is and then work out why you’re going to somewhere and choose the right place, and then stick to that it’s quite easy to get distracted. It’s a huge mass of people. And, you know, 400 and 50 million consumers as I meant don’t suddenly sort of get diverted from your focus. Step one is to understand why you’re going somewhere and what you’re doing. And then the second step is to do it properly. We have seen companies that sort of where we’ve been asked to help them out once they’ve done it, and they’ve already set things up. And then we spend a lot of time and a lot of their money on doing things that weren’t done properly, where it would have been much cheaper and more efficient to do it. The right way in the first place is often sort of a force saving there. And that applies across sort of legal and tax in particular, get that structuring right initially. And it isn’t expensive, actually, it really isn’t, it can all be done very efficiently. And then that will pay dividends down the line because you won’t have problems to sort out. So just take a moment to get some sort of proper advice as to how you’re going to sort of structure your setup and then to formalize that.
Shawn Flynn 22:12
Okay, so you’d mentioned some things that might be issues or problems and what are some of the other things that companies quite often find themselves making mistakes?
David Bates 22:22
Sure, I think one of the things that we often spend some time sort of informally talking to clients about is the cultural differences. Whilst there are a lot of similarities between the Europe and the US and to some degree, you know, U.S. culture pervades. It is a different market, you will find that people in the Mediterranean countries are just not around in August, they take an extended three-week break, and that’s not a three-week break where they’re on their iPhones or laptops, they are off the grid. I think there’s actually lots of good arguments for that, but it is just different to the sort of the US experience so you have to sort of be used to that and be prepared for it. In Europe, we have noticed periods in contracts. So, people, typically anyone have any sort of level of seniority. You have to give their employer three months’ notice if they want to resign. So, you’ve found someone, you want to hire them. But they can’t start next week, they’ve got to give their employer notice they could have non-compete clauses in their contracts that locked them out for six months. You just got to be aware of these, these differences, obviously in in the valley a big way of incentivizing people to share options in the UK, that is absolutely the case to people who work in these sectors completely get that in some of the other economies. Cash is still King, and they haven’t yet it’s changing, but they haven’t. Employees haven’t necessarily seen the value of options historically, because there haven’t been the IPOs. They haven’t been the exit. So, they want to see their remuneration in cash. And that’s what they’re focused on not what level of options will I be getting, being aware, I think of those cultural differences is key. It’s not that something’s right or wrong, it’s just that it’s, it’s done a little differently in some respects. And if you can be sympathetic to those, then you’ll find a much I think, better experience of setting up and attracting talent.
Shawn Flynn 24:09
To learn about these cultural differences, what’s the best way to hire some cultural expert? How does one go about planning it the right way?
David Bates 24:19
I think it is around just the more conversations you can have with a broader range of people who are there to help you who have done this before and will help you navigate it. And that includes lawyers, but it’s accountants, it’s people who work in the HR field. And there are even in the valley, there are a lot of people who’ve done international expansion for tech companies to hire someone, if you’re thinking about it, who’s done it before. They’ve got the experience, and they’ll be able to work with your team to make it a much better success for you. It is all about experience.
Shawn Flynn 24:52
Let’s step back and say I’m planning on either going to Europe to set up or I’m a venture capitalist vested in a European company, what should the whole thought process be, high level overview of all this all the steps, every step possible?
David Bates 25:10
The gating item? And all the first decision is are you doing business in Europe? Are you doing business with Europe? And the difference between that is are you just selling your product, your services from the US into Europe? Or are you going to have a physical presence in Europe and do business there from that physical presence? That’s, I think that’s sort of step one, because that will lead you in different directions depending on which way you go down. And I think you need clarity as to which route you’re going in the sort of the doing business with from the US is definitely lighter touch, you don’t have a physical setup, there’s still some things you need to be aware of if you’re a b to c company, European consumer laws will still apply to you, even if you are consumer protections, even if you are selling from the US. So, you have to have sort of terms or conditions on your website that recognize that and work within that system. That’s a relatively easy thing to fix. And for someone to sort of go through them, who’s an expert in this area and make them work for that. Whereas if you’re doing business in and you’re looking at setting up a physical premises and office, you’re looking at employing people, you’re setting up an entity, that’s a more involved process. Starting Point is be clear, I think as to what model you’re going down, and then follow that path through.
Shawn Flynn 26:28
Great, that’s great advice. Now, let’s go back to you and mention helping a company set up over a period of time 35 different locations, I have to hear a couple stories of companies you work with. It could be good stories; it could be bad stories. I just got here some stories.
David Bates 26:45
Okay, well, we have one client who maintains a sort of a pinboard in their office of all the crazy employment laws they come across in Europe, just I think, partly to add brevity to their day, but also and liberty but also to ensure that they don’t miss anything. And my favorite one is they tell me and I can’t verify this, I should check with my colleagues in Paris that it is technically I think, impossible, or illegal to prevent a Frenchman or woman for having a glass of wine with their lunch, you cannot prohibit that. So, there are you know, there are those sorts of funny things that just look a bit different. Then there are other more serious ones which were brought into a situation where a client had done some something with some share options to employees in Europe and hadn’t done it properly, perfectly possible to grant European based employees share options in a US company. But they hadn’t taken the time to set it up properly. And they had to put a significant chunk of their purchase sale price when they were selling into an escrow because of the tax risk that they had created. You go from the sort of the amusing example to the one that has the real dollar effect because you haven’t taken the time to set things up properly. Any other stories that you can share with us about companies you’ve worked with either early stage or later stage. What we are looking for anyone who works in this sector He’s looking for the next sort of rock star that is going to really sort of take-off and become a stunning company. So the favorite anecdote, we’ve always sort of dropped out of Taylor Wessing is we incorporated Google’s first subsidiary in the UK for that simple piece of work setting up a company. And then you know, what became of them. That’s the sort of thing we are looking for. And that’s the, I think anyone who works in this sector is you want these companies to grow, you want to work with them as they grow. And that initial setup work is relatively straightforward. But over time, they’ll become, hopefully, bigger companies, better clients do more sort of interesting stuff in Europe. And that’s what, that’s what everyone who works in this sector, not just the lawyers or the government, people’s development agencies are all are all hoping to hoping to see.
Shawn Flynn 28:52
So we’ve talked about the different countries, we’ve talked about different cities, we’ve talked about different perks, we’ve talked about quite a few things. We talk a little bit more about, say I’m a US company, and I’m looking for venture funding from Europe, how is it different working with venture capitalists there versus venture capitalists here, different expectations, or
David Bates 28:12
I think in terms of expectations, it’s similar, they’re looking for the same sorts of things, they’re looking for a business plan that makes sense, I think the main difference we probably often see is, you go into a sort of a pitch here with a with a company with a VC in front of it, their business plan will tell you how they’re going to become the biggest company in the world or dominate their market. Whereas in the UK, or in Europe, VCs typically see pitches that you know, show steady incremental growth, and you know, a great trajectory, and in five years, there’ll be here, but not this year. And in 2025, we’d have taken over the world and we’ll be bigger than Amazon or whatever is a different sort of, it’s a different expectation set. It’s a different sort of mindset almost, which just reflects the cultural differences between the two places, I think if you are a European company coming to look for money in the US, you need to sort of tailor your business plan to what us money is looking to see in terms of your story. And vice versa, if you’re a US company looking to raise money in Europe, that is what we, you know, you need to sort of, they’re not going to believe you if you say necessarily, I’m going to be the biggest company in the world in 10 years’ time, you’ve got to be more conservative, shall we say, while still showing they want to see in terms of a great track, but a little bit more conservative in your pushing, I would say that we see probably fewer US companies looking to raise money in Europe than we do the other way round.
Shawn Flynn 30:37
What is kind of the current state for investing in Europe is has things slowed down quite a bit or what’s currently going on.
David Bates 30:48
In terms of sort of venture capital investment in the European tech sector. 2019 was a record year, really serious numbers not as big as the valley. But the London was neck and neck with New York last year in terms of VC money invested London, New York typically are always varying for number two, after the Bay Area, Berlin doing great Paris doing great as I mentioned, I think, inevitably, there has been a bit of a slowdown this year because of the sort of the global situation. But actually, tech is still very robust that the economic slowdown has been more in other sectors of the economy, we’re still seeing lots of good funding deals, there’s still lots of money for those series, a rounds and seed rounds that I mentioned, we’re seeing a continuation of the trend of larger rounds in Europe, companies raising worth of 100 million more than 1 billion valuations, which typically, that’s not always a lot of U.S. money in there. And non-U.S. money as well, but non-European money, but those companies that are now of a really substantial size in Europe as privately held sort of tech companies’ unicorns, as they’re known to see more and more of them in Europe. And that trend has continued through the current situation, potentially a slightly slower pace. But I think it’s still a very robust market. And people are still very optimistic. I think the what we were hoping to see this year before the pandemic hit was a number of those big companies, big European sort of very well-funded, alien plus valuation can exit into the US market through an IPO, those have been put on hold for obvious reasons. But I’m still confident they’ll come back. And that I think, is the next stage in the evolution of the European market is you’ve had here for a number of years, those sort of big exits the big listings that then enabled a sort of circle to regenerate, because people are then got money to go out and do the next company or do a bit of seed investing on the side Angel money, etc. So hopefully, when things get back to a bit more normal, we’ll see that as well.
Shawn Flynn 32:46
I’m actually really curious about exits in Europe, kind of what is the exit expectations for companies?
David Bates 32:53
It has changed. The trite way of saying it sort of five years ago would be that if you waved a check for $50 million in front of a founder in in the UK or Europe, where do I sign? There wasn’t that sort of then I’m not selling Now this company is going to be worth 2 billion in three years’ time, why am I selling to you now, if we didn’t have that same mentality as gain as a generalization, but I think the thing that has changed and is changing, you’re seeing founders want to grow companies to a much bigger size. And there’s the infrastructure to allow them to do that, before they exit, in terms of what do exits look like there’s probably a couple of main routes, we still see a lot of exits through m&a, through trade buyers, a lot of as a firm, we focus on U.S. money coming into Europe to do those exits. And that’s where a lot of those, the strength of the dollar helps those helps make those deals attractive. I think valuations are still lower generally, in Europe, and you get more bang for your buck as a U.S. buyer. There are great companies and great tech out there. So we still see a lot of those sort of m&a deals where U.S. companies bought come in and buy a European business. But increasingly, we’re seeing IPOs, to your question as to why to the really successful companies look to the U.S. to do that comes back to valuation valuations are generally higher here in the U.S. So that’s obviously more money for the founders, and particularly for their investors when they exit. And I think the U.S. market just gets tech IPOs more, it understands it with the strength of NASDAQ, there is a pool of capital, therefore, for those IPOs you see them in the UK, but not to the same extent they tend to be either smaller companies going on aim, which is our equivalent of NASDAQ, or to go to the full London Stock Exchange, it’s more traditional economy companies again, as a as a rule of thumb,
Shawn Flynn 34:42
outside question, I’m not sure if I got an answer this or not, but for the companies that are going public on the aims, or in Europe, are they? I mean, you mentioned more traditional companies. What about from Africa, such as Nigeria and Kenya that have startup communities? Are they mostly focused on European venture capitalists or the public markets there? Or is there how’s that relationship? looking right now,
David Bates 35:09
there’s a very good relationship there. There’s a lot of funds in Europe, in London, in particular, that focus on Africa, and see the opportunity there. I think, obviously, geography and history helps with that. But we definitely see a lot of that. And then we see those companies try to raise money in London, either through venture capital or through the public markets when they reach a certain level of maturity. And what we think one of the key points is to get a successful listing on aim, you can do it at a much smaller size of company, then you could list here on NASDAQ in terms of sort of turnover. So, there are a number of companies that have sort of listed in London first, and then when they’ve grown to a certain level may have moved over to NASDAQ at that point. But a lot of because of those sorts of historic roots, a lot of the places in Africa, look towards Europe first, raise money there, and then look to the U.S.
Shawn Flynn 38:55
Right? And is there anything that I didn’t ask anything that you think that our listeners should know, any topics, any, any stories that you’d like to share?
David Bates 36:05
I think we’ve covered a lot. The one thing I would say is, you know, when you’re at the right stage is a fantastic opportunity in Europe as a whole for U.S. companies. The younger generation in particular crave sort of U.S. tech and U.S. products. So, there’s, there’s that side of things on the consumer side that does very well, in places like London, Frankfurt is still massive financial hubs. So, if you’re in that sort of sector, FinTech is booming in Europe, there are a lot of opportunities there. Companies can really make an absolute success of going international and going into Europe, because there is so much potential there just coming back to my original point, just do it properly, and then you’ll make a success of it. And don’t be one of those companies where we’re talking about in a few years’ time where we’re talking about sort of the horror stories of things that have gone wrong, it’s much more boring, but do it right. And it’ll work really well for you.
Shawn Flynn 36:55
Great. And David, if anyone wants to find out more information about yourself, get in touch with you, or your company, what’s the best way to go about doing it?
David Bates 37:04
Sure. Thank you. So I’m on LinkedIn, you can find me on LinkedIn, David Bates, or through the website of Taylor Wessing. and got all my contact details are on that.
Shawn Flynn 37:13
Great, we’ll have all that information in the show notes. And for all our listeners at home, please share this content with your network, like and subscribe, and that encourages us to make more great content such as this. And I’ll see you next week on the Silicon Valley podcast. All right, cheers. Thank you again, David.
David Bates 37:29
Thank you, cheers Shawn.
Announcer 37:31
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