Techstars Expands Investment in Europe - Why Now?

European Venture Capital Performance in Q3 2021

As we analyze venture capital activity during the third quarter of 2021, the European market is particularly noteworthy.

While significant venture capital growth has been observed in regions such as India, Latin America, and the expanding African startup landscape, Europe has demonstrated robust performance of its own.

Recent data reveals that France's startup ecosystem is achieving unprecedented levels of funding. CB Insights reports approximately $8 billion in investment directed towards French startups over the past two quarters, with investment being relatively consistent between the two periods.

Record Funding in France

This two-quarter total represents a substantial increase compared to the total funding received by French startups throughout all of 2020.

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Coupled with prominent initial public offerings (IPOs), such as Truecaller’s recent debut, Europe warrants close observation.

This assessment is widely shared; Techstars has recently unveiled two new accelerator programs on the continent, one located in France and the other in Sweden, signaling their positive outlook on the European market.

Techstars' European Expansion

The Exchange sought to understand the rationale behind Techstars’ selection of France and Sweden over other potential locations.

Key questions included how the accelerator group is structuring its equity investments, whether there is a sufficient pool of founders in Europe to support additional accelerator programs, and if the region possesses the necessary follow-on capital to nurture pre-seed and early-stage ventures.

To gain clarity, we interviewed Techstars CEO Maëlle Gavet to explore the company’s strategic considerations. Let's delve into the European venture capital scene!

Techstars’ Expansion into Paris and Stockholm

Techstars has announced plans for increased accelerator program activity in both Paris and Stockholm. The Paris accelerator is scheduled to host two program sessions annually, while Stockholm will begin with one session in 2022, expanding to two per year from 2023.

These new locations supplement Techstars’ existing European presence, which already includes established programs in cities like London, Amsterdam, Berlin, Oslo, and Turin.

The relaunch of the Paris accelerator was openly acknowledged by Gavet. Techstars previously ran a program in Paris from 2017 to 2020, but ultimately shifted away from that initial operational model.

Furthermore, Techstars has a long-standing history within the city, having hosted Startup Weekends and Startup Week events since 2009, as Gavet highlighted.

The decision to focus on Paris isn't a reaction to Brexit, but rather a demonstration of Techstars’ confidence in the French startup ecosystem. Gavet, who is French herself, emphasized that this decision was based on concrete data.

According to CB Insights, French startups secured $5.4 billion in funding during 2020, and the number of French unicorns continues to increase.

The selection of Stockholm was similarly informed by thorough market research. Stockholm boasts the highest concentration of tech unicorns per capita globally, outside of Silicon Valley.

Increased venture capital activity throughout the Nordic region also played a significant role in Techstars’ decision, as shared by Gavet.

However, Techstars’ strategy extends beyond simply tracking investment trends. Despite their growth, both Paris and Stockholm are considered underserved markets by the organization.

Techstars aims to capitalize on this opportunity, not only through accelerator programs but also by strategically identifying areas for future pre-seed investments.

Optimism Regarding the European Startup Landscape

Following the announcement of Techstars’ expansion with additional programs in Europe, questions arose concerning the availability of founders. Specifically, whether the continent possesses a sufficient number of entrepreneurs to populate a growing number of pre-seed accelerators, or if Europe is nearing a point of market saturation. According to Gavet, this is definitively not the case, asserting that Europe is “not even close” to having an overabundance of talent.

She attributes this robust talent pool to a confluence of advantageous factors. These include “Europe [having] an extremely strong educational environment, amazing infrastructure, and supportive governments,” all of which contribute to the continent’s capacity to foster an even more thriving startup ecosystem.

Gavet substantiated her positive outlook with concrete data. While acknowledging that Techstars is not yet established in every European capital city, she indicated that “there is enough space for some of [those] cities to host six, seven, eight, even up to 10 programs annually.”

Furthermore, she believes that “there are multiple cities in Europe that [could] readily support between 50 and 100 pre-seed investments from Techstars each year.” This perspective clarifies the rationale behind Techstars’ recent $150 million fundraising effort.

This capital is earmarked specifically for pre-seed investments, as Gavet confirmed to The Exchange. Deploying this substantial amount of funding will require a significant volume of investments, but Techstars appears well-prepared to facilitate the necessary flow of capital. (Techstars provides $20,000 in equity funding per startup, alongside an optional $100,000 convertible note.)

Recent discussions with Gavet revealed growing Limited Partner (LP) demand for greater exposure to European startups. When questioned about the timing of this shift in investor sentiment, she noted that, having joined Techstars this January, pinpointing the exact moment is difficult.

However, she stated that in current conversations with LPs, “the question of Europe has been very much top of mind,” and “the appetite is definitely there now.” This interest is not static, but rather, is demonstrably increasing.

Gavet shared with The Exchange her assessment that there is “increasing interest” in European startup investments among her LP network.

Despite the generally positive outlook, it’s important to recognize that no market is without its complexities. Europe’s startup investment landscape does present certain challenges that warrant consideration.

Is a Series A Funding Shortfall Imminent?

Techstars is positioned to provide support to the pre-seed funding landscape within Europe. However, the question remains regarding the availability of capital for later investment stages.

We inquired with Gavet about whether the European venture capital ecosystem has sufficiently developed to accommodate the increasing number of new startups, or if additional post-seed funding is still required. Her response indicated a continued need for more capital.

Her organization is aiming to facilitate access to subsequent funding rounds for early-stage European startups. “We introduce investors to the geographies and industries we enter,” Gavet explained, “[and thereby] facilitate connections between startups and potential investors.” A key objective for Techstars in Europe is to “significantly expand the investment ecosystem,” as “considerably more capital could be deployed within Europe.”

Despite Techstars’ efforts to bridge funding gaps, a complete solution remains elusive. This creates uncertainties within the European startup market that could impact future expansion.

Illustrating this point, French startups secured $3.86 billion in funding during Q3 2021 – the second-highest quarterly total for the nation, surpassed only by Q2 2021. However, the number of funding rounds experienced a substantial decline, dropping from 232 in the quarter ending June 30, 2021, to 169 in the subsequent quarter.

These statistics suggest positive conditions for unicorn companies, and also indicate ample opportunities for Techstars to invest in startups at earlier stages of development.