Startups Leaving the UK, US Interest Rate Cuts, Labour’s Growth Plan, and Germany’s €12B Startup Bet hosted by Dan Bowyer

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Startups Leaving the UK, US Interest Rate Cuts, Labour’s Growth Plan, and Germany’s €12B Startup Bet hosted by Dan Bowyer

Sep 20, 2024

Welcome to a new episode of the EUVC podcast, where our good friends Dan Bowyer and Mads Jensen from SuperSeed, discuss with Monik Pham, Founding Partner at Pact, to cover recent news and movements in the European tech landscape 💬

Here are the core take-aways:

Startups leaving the UK for the US – Trending now?

What it is: 11X, a startup providing automated AI workers for sales and customer support, has moved its headquarters from London to San Francisco after Series A.

Why it matters: Monik points out that this trend is a concern for the European ecosystem, as more startups choose the US over Europe for growth. European funds often lack the size and follow-on capital that US investors provide, making it harder for startups to stay in the region. This exodus underscores the challenges Europe faces in retaining successful companies, as the listing environment and IPO market remain stagnant.

While there are efforts to build stronger ecosystems, such as the appointment of the EU's first commissioner for startups, Europe still has a long way to go before it can compete with the US in terms of funding size, talent pools, and market opportunities. The fact that European VC firms like Atomico and Balderton are beginning to raise billion-dollar-plus funds is a positive sign, but as Mads notes, European venture capital is still evolving from a cottage industry. There’s potential, but the key question remains: what can Europe do to keep its most promising companies from heading across the Atlantic?

What a US interest rate cut could mean for startups?

What it is: There’s growing speculation about a potential interest rate cut in the US and its implications for investment and startup ecosystems.

Why it matters: This rate cut has significant implications for the startup and investment landscape in the US. Lower interest rates make borrowing cheaper, encouraging more investment in equities over credit. This environment benefits startups by increasing access to capital and making equity financing more attractive. Additionally, it could drive growth in sectors like real estate and consumer credit, further boosting economic activity. For the public markets, the cut may also spark a resurgence in IPOs and other equity-driven investments.

Globally, the effects are expected to ripple outward. As Mads pointed out, "when the U.S. sneezes, the world catches a cold," meaning the rate cuts in the US could positively impact European economies and startups. Investors will be seeking higher returns, and that shift could open new opportunities for both public and private markets worldwide over the next 6 to 12 months.

UK's economic challenges and labor's plan

What it is: Rachel Reeves, the UK’s shadow chancellor, faces the daunting task of crafting a growth plan for the country amidst high debt, Brexit challenges, and low productivity.

Why it matters: Dan and Monik highlight the scale of the task ahead for labour, emphasizing that bold decisions need to be made regarding infrastructure investment, innovation, and re-opening the economy to talent and capital.

Rachel Reeves, the UK’s shadow chancellor faces a critical choice: Will she push for transformative policies that could stimulate long-term growth, or opt for politically safer routes?

Germany wakes up to startup investing – Is this a big deal?

What it is: Germany’s largest pension scheme (BVK), along with BlackRock, Allianz, and other major players, has committed €12 billion to invest in startups under the WIN Initiative.

Why it matters: Historically viewed as a conservative, risk-averse market, Germany’s decision to inject such a substantial amount of capital into startups signals a major effort to shake off its "sick man of Europe" label and drive economic growth through innovation. Monik notes that innovation thrives where there is access to capital, and this initiative is a strong step in that direction. However, while €12 billion is impressive, the estimated need is €30 billion annually, so this is just part of the puzzle.

The potential impact on Europe’s wider venture ecosystem is notable, particularly since the UK has been discussing similar strategies without any concrete plans. Germany’s proactive approach could serve as a model for other European countries to follow.

The first-ever EU Commissioner for startups, research, and innovation.

What it is: Ekaterina Zaharieva has been appointed as the EU's first dedicated commissioner for startups, research, and innovation.

Why it matters: Ekaterina’s mandate includes helping the EU invest more in strategic priorities, promoting groundbreaking innovation, and working on the European Innovation Act. Zaharieva also aims to develop a startup and scale-up strategy and set up an AI Research Council to pool resources across the EU.

Zaharieva’s task will be to address key challenges like the fragmentation between EU nations, bureaucratic hurdles, and the difficulty startups face in navigating different regulatory systems across countries. Monik points out that unless these issues are tackled, European startups will continue to look outside the region for growth and funding, particularly to the US, where the market is more unified and accessible.

Mads and Dan also discuss the potential for a "startup passport" system that could allow early-stage businesses to operate more freely across borders, similar to Delaware’s model in the US. Such a framework could ease regulatory burdens and create a more seamless market for innovation within Europe.

Potential proxies for economic health – what should we look at?

What it is: TGI Fridays going into administration, car prices dropping, and corporate hotel bookings falling.

Why it matters: While it's not surprising that certain sectors like high street brands are struggling, the decline in corporate bookings post-COVID is concerning, especially since travel and hospitality had experienced a brief resurgence. Monik notes that despite this, several hotel booking management startups are still raising significant funding, which might indicate a longer-term opportunity in the sector.

Mads expands the conversation by discussing how startups might focus less on macroeconomic conditions and more on creating value for customers. While traditional economic indicators like the Consumer Confidence Index and jobless claims can offer insights, most startups, especially early-stage ones, are too small to be heavily impacted by these trends. Instead, they should focus on positioning themselves within emerging trends—like AI, which has been a key driver of corporate investment over the last 18 months.

Mads emphasizes that startups with a compelling value proposition, especially those tapping into the AI wave, can thrive even in uncertain times. For founders, this means the real opportunity lies in identifying where the market is shifting—whether due to economic downturns or new technological trends—and positioning their product or service to create tangible value for customers in those areas.

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