European VCs push for improved option distribution

Amy King
22 October 2014

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The European venture industry is maturing, resulting in several billion-dollar exits, according to panelists at TechCrunch Disrupt, held yesterday in London. But do the financial rewards line the pockets of too few entrepreneurs? Amy King reports

"We're chasing the best deals, and have to compete to get into them, because today, capital is a commodity," said Index Venture's Saul Klein, speaking at TechCrunch Disrupt, held yesterday in London.

"The best companies have a lot of capital available to them, not just in London and Europe, but internationally," he said. As the European venture ecosystem develops, with global venture capital firms increasingly targeting the continent and local players ramping up their activity, competition to sign the best deals is increasing. Said Klein: "Investors have to work – and should work – really hard to get into the best deals, because the best deals really have a choice of capital."

But though today's zeitgeist may be turning in favour of entrepreneurs, just how many individuals are able to reap the financial rewards? The relatively limited equity pool typical in European companies has traditionally seen just a handful of entrepreneurs and investors take home the rewards of strong exits, but the situation looks set to change.

"Take a company like Criteo, which went public last year," said Klein. "It grew up in Paris and became a global business and is now worth a couple of billion on Nasdaq. Criteo created 30-plus millionaires; that's not a big number for the Valley, where Google, Facebook or Twitter would have created 300. But today's entrepreneurs have a much more Silicon Valley-style attitude to options and fair distribution of rewards."

"It's really part of the evolution of the ecoystem in Europe," said Philippe Botteri, partner at Accel Partners. "When you haven't seen the exits yet, you hire an employee who will ask for more cash, because he hasn't seen the value of the options. When you see more exits and they start to see the value, then they ask for options. The other part of the problem though is, are the founders and the investors pushing for it?" Though Accel encourages option distribution in company shareholding structures, it seems Europe has some way to come if resultant cash rewards are to inspire serial entrepreneurs.

Billion-dollar babies
Of course, the relative youthfulness of the European venture industry compared to the start-up society of Silicon Valley is often identified as the source of such frictions. But recent heavy hitting exits – several of which occurred via the stock markets – suggest the industry is producing more multi-billion-dollar businesses than ever before. The recent hall of fame includes Supercell, valued at $3bn, King, valued at $7bn when it first listed on the New York exchange, and Just Eat, valued at £1.4bn in its flotation. "It's a process; you don't get these kinds of exits out of the blue," explained Eileen Burbidge, partner at early-stage firm Passion Capital.

"The ecosystem has been developing and we're seeing more successes in the earlier stages than before," said Burdbidge. "But it does take time to realise that kind of value, so the companies that we've invested in in the early stages, over the next five to seven years, we'll be looking for those 10-billion exits for sure."

Panelists agreed the European venture industry has matured, with several lessons learned from Silicon Valley. And with Google Ventures' revelation at the conference that its new London-based European arm will primarily seek to co-invest, the partnership between European VC and Silicon Valley looks set to continue.