Differences between European and American startups
The differences between European and American startups | Part 2 of the Linnify in the US ecosystem series
Cătălin Briciu is currently on a three-month-long business trip in the USA to enhance our understanding of the cultural differences between American and European startup ecosystems. This is part 2 of his findings, regarding investor attitudes and revenue versus growth first.
Cătălin Briciu
3 min. read
The differences between European and American startups | Part 2 of the Linnify in the US ecosystem series

As we speak, one of our founders, Cătălin Briciu, is currently on a three-month-long business trip in the USA to enhance our understanding of the cultural differences between American and European startup ecosystems. Our objective is to refine Linnify’s tailored solution to how American start-ups can accelerate innovation and development processes by following a validation-driven approach.

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In the last article, we discussed some of the most significant differences between the EU and US startup ecosystems: failure culture, access to funds and their size, and value pool size


Now it’s time to tackle two other differences that founders should take into consideration if they wish to develop their business in another tech ecosystem. 



#1 Investor attitudes



‘More than 90% of European early-stage investments came from angel investors’ capital in 2019. The size of the angel investment market is more than EUR 10 billion in Europe and more than USD 26 billion in the US and Canada.’


According to Depo Ventures, in Europe, early-stage startups have the chance to access a wide variety of grants, which can be quite successful and profitable in the European market. However, they don’t provide a significant hit


Statista’s research shows that the number of active angel investors (referring to early-stage investments) has grown steadily between 2011 and 2019, having a slight downfall in 2020. In 2020, there were a total of 322,000 active angel investors in Europe. Furthermore, the European Business Angel Network reports there are over 140 angel groups across 41 countries. 


In the USA, the Center for Venture Research reports 262 angel groups as members, with dozens of other North American groups that operate outside this association. According to TechCrunch, the Center for Venture Research estimates there were over 363,000 active US angel investors in 2021, who were investing across 69,000 startups. 


The major difference, however, is the investor’s attitude. European and American venture capitals are driven by different motives. 


Source: Depo Ventures


For US investors, one of their ‘biggest fears’ is missing out on investing in the next big thing. Take, for example, Peter Thiel’s (PayPal) declaration when asked about what his worst investment was: ‘not doing the Series B round of Facebook’.




#2 Revenue First vs. Growth First


When talking about US startups, they need to compete in an enormous market. This means that they require a higher degree of market penetration so that they manage to gain a significant competitive advantage over potential competitors. In this case, investors and startup founders see growth and traction as some of the only ways in which they can achieve success. 



When talking about US startups, they need to compete in an enormous market. This means that they require a higher degree of market penetration so that they manage to gain a significant competitive advantage over potential competitors. In this case, investors and startup founders see growth and traction as some of the only ways in which they can achieve success. 


For example, when we talk about SaaS companies, the USA (especially North America) clearly dominate, having:



‘63% of the world’s companies in this space and 89% of the world’s funding’.


This only leads to a mismatch between funding and the geographical space where the majority of funding goes.


Many American startups get the chance to launch with massive media coverage and get thousands of users within the first weeks. After that, there is only a continuous ‘growth marathon’. These movements are funded by VCs.


On the other hand, 


Europe has 22% of the world’s companies with only 5 % of the world’s funding’.


A massive difference from their American counterparts.


Despite the fact that Europe is having an increased number of new startups being founded, they still have limited access to capital and growth opportunities.


European startups have less later-stage funding available which means that they cannot spend massive amounts of money on growth. Generating revenue first is the only way to prove that the business is creating something valuable that users would pay for. 


In this case, EMEA founders have the chance to be more autonomous and enjoy less equity dilution by not being on a continuous hunt for money.



Conclusion

Whether to start a business in Europe or the USA depends on the type of startup and the goals you set for yourself. Take these criteria into consideration when evaluating where exactly the future of your business looks better. 


You have an idea for a digital product but you’re not sure how well it will be received by users? Let’s find out together and validate the market need for your innovative idea. 

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Are you part of an American start-up or do you have an idea that needs to be validated? Drop us a line at contact@linnify.com. Let’s build your product.


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