US or EU: Which Startup Idea is Better?

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Raising capital for your startup idea is ought to be much more difficult in the European Union than in the U.S. But is this really the case?

I’m in process of raising capital for my startup which, in my opinion, has global potential. Because of all of this I’m trying to understand the startup investment ecosystem, how it functions, advantages and disadvantages of different roads/strategies, because I need to solve an equation – how to make global B2B company from Croatia, or at least how to start it in Croatia.

I’m not total beginner, I have already opened several companies, sold one to a foreign (Polish) public company, raised capital (smaller amounts), started business in other countries… I still run some of those companies, in Croatia they are under constant question because of the economic situation there, but we don’t give up.

So we live in Croatia…. And for the sake of argument I will use Croatia as one extreme.

Let’s start.

Location/investment infrastructure

Do you know that in Croatia there are no VCs? Our government, which is keeping us under 12 consecutive quarters and 6 consecutive years of economic instability (picture below), is planning to open tender for one by the end of the year. We shall see… Regarding Angel investors, there are some, but as I heard and experienced (with my first startup), they were investing around 50.000 € for 50% of equity. The biggest “angel round” in Croatia I know about was €160K. And you can count angel investors with fingers of one hand. In Croatia we also have only one startup accelerator, I hope one more will be opened next year.

   GDP growth (cumulatively in %) Croatia is in red dashed line

GDP growth (cumulatively in %) Croatia is in red dashed line. 
Taken from

So in Croatia we don’t have the investment “infrastructure” and when we get to the phase of raising more than 200.000€ (and even this is difficult) we have to go abroad to get seed money from VCs (or better to say – try to get).

And it is beautifully written here:

Greatness can start anywhere. We’re a small team with a modest-sized fund, though, and believe we can really only help if we’re nearby. Startups depend on trust, and it’s hard to build trust without spending time together in person. That means San Francisco and New York since our team is in both of those cities. We have deep roots in both places so our ability to bring in local folks who can help is greater there, and we only want to invest where we believe we can be disproportionately helpful. We would consider an investment elsewhere (for example if an area has a deep specialty, as some regions do with security startups), it’s just harder for us.

Bloomberg Beta – Manual

Also I have found great blog from Mark Suster (@msuster) where he said it is possible but location is a factor, again, even in the US: How to raise money when youre not in a major VC market

So yes investments can be from any country to any country, but it is much easier to build relationship with your neighbor than with someone who lives at least 3-hour drive from you, who speaks a different language, understands and laughs to different jokes, eats different food, etc. This is true especially in the first phase, idea phase, and second phase – start of commercialization. When you are already established in more than one country and if that country is some country with a better developed investment infrastructure, than you could find VCs from that country for investments. But again you need money to get there.

Market size and market homogenity

Domestic market

It is not just the location, another challenge is the market size. Croatia has 4 mio. people, 2.7 mio of them  are regular internet users. And Investors want to see traction. So what kind of traction for a B2B project and what kind of revenue I have to get from the local market (which is in economic crisis for the last 12 quarters) to get wanted/needed valuation? This product was never intended or built just for the Croatian market, but we need to start in Croatia, we need reference and wherever we go everybody will ask us what you have done on your market.

Herein lies one good thing, but it is hard to prove it/sell it or maybe it is not so important in reality. When you are building a “global” product on a small market you have to make it technologically extremely scalable but also so optimized so it is also profitable even on such a market. From the start you know that your road will be more difficult so you have to be better, you can’t expect the luxury that you will be able to patch software with hardware, because hardware is expensive even now in a cloud world. We are in this industry for more than 10 years, so we know exactly what we can expect from our market in terms of sales.

European market

Yes Croatia is one extreme, but every EU market is in shade of gray comparing to the US market. In the EU we have 507 Mio. people, but they are divided in 28 states, and every state has its own history, culture, language, main city, centers of industry, problems, web portals, newspapers, preferences politics, president, etc… not to say issues between themselves. Also every market protects itself by preferring domestic company. So it is not only that you have to localize your operations, but you are selling your product to local companies. Even multinational companies which have their subsidiaries in every state, every subsidiary probably has its own local partners. So when you “enter” the EU market you are not entering the EU market but you are entering one of the states/local markets of EU. And for every state you want to enter you might need to adopt/localize your product and be locally present. And even if you do everything right, some of them might be skeptical because of where are you from. It is old news that central and eastern European startups are opening virtual UK offices so they could present themselves as UK companies.

US market

One market, 316 Mio. population, similar culture, same language, same companies, same portals, dollar as currency, etc. And I believe that they see themselves as market leaders in many things, and in most cases they are, so US companies might be better accepted by US clients than EU companies.

Trends and early adopters

Even if we can predict future and we build product based on that from Europe. Trends in my industry are led by US companies, US companies are innovators and early adopters, so an US startup is much closer to them and they will implement their solution easier even if I built the product one year earlier. And the same solution which I have built for my market is two or three years ahead of its time for my market, so I can’t even implement it on my market.

US VCs vs. EU VCs

If we compare US VC investments to EU VC investments we can see that in 2013. US had $33.1B VC investments and EU had $7.4B, or US 68% VS EU 15.3% of global VC activity (Source: Global venture capital insights and trends – EY)

Then if we compare average deal size we can see that average deals are at least 100% bigger in US than in the EU.
Source: Venture Capital In The US And Europe Compared

Also we might conclude that in the US, because of a vibrant and competitive VC market, you will be able to get money faster.

Also, maybe not something to neglect, VCs from the US can help US startups on the US market, and EU VCs from e.g. France, probably can help startups just in France.

So there are probably at least twice as much startups funded in the US than in the EU, those US startups get twice as much money than EU startups, so they can develop their products faster. US startups are starting on a market which by default provides much more scalability then the EU market so they can get serious revenue faster. From that revenue they can finance expansion and prove better valuations for the next round.

What now?

So if the main dimension is time, how can an EU startup idea compete with the same US idea?

As I see it, to be able to fight with same idea in the US, we need to level a playing field and as we should get more money than a US startup, enough to produce a product as fast as they can and additionally enough money to start operations in US. Then we could even have benefit of being present on two markets.

After going through lots of different materials I think that someone is already using this “strategy”, and it looks like they are doing fine! And that someone is (never would have guessed?), yes, Israel.

Take a look at this:

So on a market which is 40 times smaller than the US market, Israel is investing more in every round, but maybe the best indicator of their seriousness is investment per capita.

I haven’t found an exact information but I’m ready to bet that number of startups opened in the US from Israel is 10 times bigger than startups from the EU. What I have found and what partially proves my claim is that in 2009 some 63 Israeli companies were listed on the NASDAQ, more than those of any other foreign country. They don’t just have the perfect investment infrastructure in Israel, they are building their own startup infrastructure in the US –,,,, and so on…

Also, from

The amount of support of for Israel’s economy originating from Silicon Valley’s private equity firms is especially large. In 2001, during the first year of the Second Intifada, Sequoia Capital Partners, a private equity company headquartered in Menlo Park, raised $150 million to invest in Israeli technology companies. This was Sequoia’s second Israel-focused venture capital fund. Last year Sequoia raised its fifth Israel-dedicated fund, totaling $215 million. Since 1999, Sequoia Capital has injected over $789 million into Israel’s software and electronics industries. Much of this money managed by Sequoia Capital was contributed by California investors, including major tax-exempt institutions like the J. Paul Getty Trust, and the Gordon and Betty Moore Foundation.

Source: Israel’s Most Important Source of Capital: California

It would be also interesting to see a number of Israel startups who have entered EU market, but I think that is pretty clear which is their primary target market, and why.

Please, can someone prove me that I’m wrong?

Because if I’m right that means that answer to my title is YES, at last for B2B projects. And even if I get funded in the EU but I don’t get enough money to start a business in the US, a startup with the same idea from the US will come to the EU and will be better funded, with better revenue, with no competition on the domestic market. So what does that mean for me and what does that mean for EU VCs? Should they also go to the US and invest in their startups? Because what is going to be the competitive advantage of EU startups which US startups won’t be able to copy/adopt?

If I’m right than EU VCs should change their strategy, and one way is to invest more especially in seed and first rounds. And by more I think more than the same idea in US gets, or just take a look how it is done in Israel.

Probably I didn’t find out anything new, but if this is widely known, why nobody is doing anything about it? Or they are but I don’t know anything about it? And even if someone is doing something about it shouldn’t they hurry up?

Of course there are exemptions and proof that even we in CEE can do something. Do you know that  Outfit7 (Talking Tom and crow) is a Slovenian company founded by my ex-coworker, a guy who made a Slovenian search engine, which has for many years successfully fought Google on the Slovenian market. Samo you are the king!

Do you know Nordeus was founded 2010 in Serbia (which was self-funded) in 2013. It had a  revenue of more than 64 € mil? Guys you have my utmost respect!

Do you know that the fastest electronic car is made in Croatia by Rimac cars, and it is first car ever exported from Croatia. And Mate is insisting to keep the production in Croatia!!! He is crazy, and I love him because of that!

Have you heard about Farmeron – a Croatian startup which has caught the eye of Dave McClure, and now they are in the US (B2B).

If you have any connection to online advertising you probably know about Celtra – a Slovenian startup, and now they are in the US (B2B).

Photomath, Distrupt London Finalist – Croatian startup. Damir, respect!

Agrivi, winner of World Startup Competition 2014 – Croatian startup. Matija, bravo!

Bellabeat (Croatia-Slovenija), even Jessica Alba invested in it! :) Now in the US

Not to forget ShoutEm or Codeanywhere from Croatia (B2B), now in the US.

Or rising star from Croatia – Degordian!

There is more of them, sorry to those I forgot, or don’t know. Almost all of these guys I know personally.

And what we can see even from this list is – If you are in B2B and past seed phase you are also in the US.

Also three B2B projects from the list are funded by closest VC fund RSG Capital from Slovenia (1 hour of driving from Zagreb).

So what does this all mean for Europe?

If we go one step further and analyze long term effects on the EU this is just a part of the problem for EU. Wider problem is that Europe is losing their best talents, you see Nikola Tesla moved from Europe to US in 1884, so for more than 100 years top European talents are moving to US to realize their potential, and they are not coming back.


So to wrap this up, because this post is by any standard way too long to read.

If all of this is right, VCs in the EU should realize that they have to change their strategies and formulas for valuations (at least for B2B startups) because there are some things for which even we need money and with that money they are buying future results, and that money will be one of decisive resources for establishing global company/wanted results. So my advice for EU VCs who decide to invest in B2B would be invest in B2B startup on their start enough to secure that that startup can be developed into a global market leader/owner of category. If you don’t, results will never be as they are for US startups, and you will lose money for investments because that money will find its way to go to US/more profitable startups (basically, it is already there). My friend who now lives and works in the US and is on top of the industry said that that money will only come in the EU if “there will be a VC management team that had a successful track record of making a lot of money for his investors in prior investments.” And that means globally successful startups. I know, easier said than done, there are many other aspects which have to be considered, unfortunately maybe it is even easier for VCs not to invest in B2B startups. Because it is not just seed or A round problem for EU startups, maybe even bigger challenge is round B and C, and at the end IPO. My friend also said that situation in EU is getting better but “IPO/Exit markets are much deeper in the US, regulatory framework more favorable for start-ups; traditional VC investors (college endowments, foundations, etc.) are US-based and the talent pool deeper”. Regarding EU, EU should find a way how to make whole EU market more accessible to local startups by building pan EU startup investment infrastructure, e.g. by supporting VCs from different EU countries which decide to co-invest in same startup. Only by making whole EU market accessible to local EU startups like US market is for US startups there is a way for us to compete with US startups on EU market. And for sure this won’t be done by restricting access for US companies with laws because those laws also restricts development of local startups.

And maybe I’m totally wrong in my conclusions, but in that case I would love to get different side of the story.

Please don’t perceive my post as an admission of defeat or withdrawal. We will succeed for which the reason is simple, we know what we do, we love what we do, we are hungrier than our US friends and we are all in. I’m new in raising bigger rounds and to be able to do it, I want to understand everything around it. Only by understanding I will be able to make a winning strategy. But also we will need some luck, so please keep your fingers crossed!

One more thing, the situation is better than it was ten years ago, the internet is flattening the world and I believe/hope that in the next ten years it will be much better, and maybe then an idea will have same value regardless from which part of the world it is.

And for the end I want to say thanks to all the entrepreneurs, VCs, private equites, investors in PEs and VCs I had talks with till now, I really appreciate it! And thanks to all VCs/bloggers like @msuster, @ganeumann and many others who are sharing their knowledge with us!



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