18/11/2015
One Hundred Million Buys Much More in Berlin Than Silicon Valley ­ Bloomberg Business
One Hundred Million Buys Much More
in Berlin Than Silicon Valley
Aaron Ricadela
November 18, 2015 — 1:00 AM CET
Google, Microsoft, Salesforce on hunt for European startups
Dearth of venture capital in Europe 15 years after dotcom bust
For years, the venture capital industry has lavished money on Silicon
Valley and Asia. Now, Europe is getting some love.
Salesforce.com Inc., Microsoft Corp., Intel Corp. and Google are all
scouring Western Europe for promising tech outfits ­­ from data­
mappers and mobile payment firms to game and cloud software
makers. Traditional venture capital shops such as Sequoia Capital
have an appetite for European startups, too.
Why the sudden interest in a region not exactly known for game­
changing innovation? For one thing, startups in Berlin, London, Paris
and Stockholm are typically much cheaper than in the U.S., so big
companies like Microsoft and Salesforce can win access to well­
educated technical talent and new ideas for much less than
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18/11/2015
One Hundred Million Buys Much More in Berlin Than Silicon Valley ­ Bloomberg Business
comparable deals at home. What’s more, venture capital remains
relatively scarce in Europe 15 years after the dot­com bust so startups
are hungry for American money that can help them scale up and go
global.
“I’ve never seen a time when there’s more innovation coming out of
Europe,” said John Somorjai, who runs Salesforce Ventures and in
October announced a $100 million commitment to the region. “Every
time I go to Europe my calendar is full with interesting companies to
meet, and that used to be harder.”
Growing Pains
For years, European startups were content to serve local or regional
markets, scaling up slowly and taking several years to hit 100 million
euros in sales ­­ a process VCs believe should take five years. A good
example is Xing, the German version of Linkedin, which never got
traction. Xing still exists, but most professional Germans in fields
like tech, banking and journalism use LinkedIn.
The European startup scene is still suffering growing pains ­­ music
streamer Deezer SA and Rocket Internet SE’s HelloFresh food
delivery service both postponed IPOs in recent weeks owing to
market volatility.
But much has changed in recent years. VCs have started making
money in London, Stockholm and Berlin. Job cuts at large firms
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18/11/2015
One Hundred Million Buys Much More in Berlin Than Silicon Valley ­ Bloomberg Business
prompted a flow of employees from banks, corporations and
consulting firms into the tech industry. Chancellor Angela Merkel,
meanwhile, has encouraged entrepreneurship and the creation of
digital services by German industry.
Billion­Dollar Companies
“Europe is now systematically creating billion­dollar companies,”
said Ciaran O’Leary, a Berlin venture capitalist who’s invested
alongside Salesforce and helped sell to­do list maker 6Wunderkinder
to Microsoft. “There used to be two or three and there are now over
30.”
Many of these firms are starved for capital. While VCs pumped $10
billion into European startups in the first three quarters of this year,
U.S. firms received almost six times as much in the same
period, according to researcher Preqin. As a result, U.S. companies
consider European startups very affordable.
“In the majority of cases buying a company in Western Europe would
be cheaper than doing it in the Bay Area,” said Yair Snir, Microsoft’s
director of M&A and business development for Europe.
Google Ventures
Besides acquiring the 6Wunderkinder to­do app in June, Microsoft is
expanding its Ventures Accelerator program in Berlin and striking
partnerships with established German companies including Siemens
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18/11/2015
One Hundred Million Buys Much More in Berlin Than Silicon Valley ­ Bloomberg Business
partnerships with established German companies including Siemens
AG in the automotive and industrial sectors.
Google Ventures, which has earmarked $125 million for European
acquisitions, has invested in various firms, including Kobalt, a music
publishing firm, and Oxford Sciences Innovation, a subsidiary of the
British university. Intel Capital has put money in MariaDB, an open­
source database in Finland, and mobile payments firm iZettle of
Stockholm.
Sequoia has invested in startups including Scottish travel search
engine Skyscanner and Swedish payments company Klarna. Kleiner
Perkins Caufield & Byers this month led an $11 million funding
round in Relayr, a Berlin maker of sensors and software for industrial
Internet applications.
In May, Salesforce Ventures’ chief Somorjai hired the fund’s first
venture investor, Alex Kayyal, who previously worked at the
London­based private equity firm Hermes Growth Partners. Since
then Salesforce Ventures has taken part in a fundraising round for
CartoDB, a Madrid data­mapping developer whose customers include
Twitter Inc. It’s also invested in Cloud 9, an Amsterdam outfit that
helps software developers collaborate in the cloud, and Stockholm’s
Universal Avenue, which provides “brand ambassadors” to
companies seeking a global presence.
Berlin has been a particular magnet for investment, and by some
measures has already eclipsed London in venture funding. VCs
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18/11/2015
One Hundred Million Buys Much More in Berlin Than Silicon Valley ­ Bloomberg Business
measures has already eclipsed London in venture funding. VCs
invested 1.93 billion euros ($2.07 billion) in German startups the first
half of this year, triple their 2013 level, according to Ernst & Young
GmbH. Berlin startups attracted 1.4 billion euros, compared with 1.1
billion euros for London companies.
“I love buying companies in Europe,” Somorjai said. “We’ve had
tremendous success with every company we’ve bought in Europe.”
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