. SEEDTABLE

October 4th | #45

This week in Europe: Is Europe growing up?

I’m in Japan for the Rugby World Cup. It’s my second time here, so I decided to leave Tokyo and visit a few spots off the beaten path.

The highlight of the trip so far has been Hiroshima.

• It’s beautiful and walkable. The green space bordering the canals are the perfect spot for running.

• Food and coffee are fantastic. Obscura Coffee Roasters is the perfect place to work (and where I'm writing this from)

• The A-Bomb Dome and the Hiroshima Peace Memorial Museum are an incredible, humbling experience.

If you ever have the chance to visit Hiroshima, do it.

Now, onto the real stuff.

Is Europe growing up?

For a while I’ve been saying that one of the biggest problems in Europe was a lack of growth capital.

And I’m far from being alone here.

“European tech companies are better funded today right up until they have a solid product and actually start securing market share. At that point, they often don’t have enough growth capital to accelerate things.” – Nicolas Colin, The Family

This issue is so well-known that it even has a name – the Series B gap.

Growth-stage companies have historically needed to tap into the US market (and most recently, to all-mighty Masa and Softbank) to get the capital needed to take over a market.

The Series B gap is being addressed by U.S. firms, which lead approximately 40% of financings at this stage.

This is a big problem because it throws a went at the European tech flywheel.

To start, I think this leads to smaller rounds, which means less fuel for the flywheel. This is might be a flawed assumption, but I believe that because it’s harder to get a US fund to lead a round in Europe, some tech companies are downscaling their ambitions and raising smaller rounds.

Second, and most importantly, more outside money means less European money. This is a problem because in case of a liquidity event, not all capital will come back to Europe.

Famously, when a company IPOs, a couple thousand employees will become single-digit millionaires and (after drinking some champagne) start new businesses, or start investing in the space.

But if a company raised outside money and hired outside employees, the cascading effects of a liquidity event will get diluted. This