Interview with Joel Monegro of Union Square Ventures
Union Square Ventures is possibly the most well-known venture capital firm in NYC and one of the top firms in the US; contributing to their success is the firm’s willingness to look globally for the best investments. USV has not ignored the growth of startup hubs in Europe and recently several members of the team conducted investment Q&A panels over a two-week tour of Europe including Berlin and London. We spoke with Joel Monegro, an analyst on the investment team at USV who was part of the trip, about his experiences in Berlin and beyond.
You recently spent some time in Berlin with some of the USV partners. What was your impression of the Berlin startup scene and what did you do there?
I was in Europe for two weeks; one of those weeks focused on Berlin. I hadn’t been to Berlin in a long time—I was very impressed. We’ve been making an increasing number of investments in Germany, and particularly in Berlin where we are becoming more active. The culture there is interesting as there is a growing number of internationals moving to and working in Berlin, adding a really interesting vibe—similar to the diversity in New York City.
We were there running a panel discussion event with USV partners in cooperation with local partners. We had the audience submit questions ahead of time, so we ended up covering a broad range of topics, from the difference between raising money in the US and Europe to how we deal with personal data and security going forward. Many members of the Berlin startup ecosystem—both VCs and startups—attended.
What was particularly interesting you as you met the Berlin-based VCs and startups?
There seems to be a higher concentration of fintech companies in Europe than in the US. This is because the regulatory climate is more favorable and the technology is a lot more advanced in Europe. The US is stuck on a lot of outdated regulations and financial infrastructure; whereas Europe has the benefit of having implemented these systems a bit later, so they are a lot more modern. This is allowing fintech to grow in Europe a lot faster than in the US. There is also the advantage that when you get a banking license in one of the EU countries, you can do business with any EU resident.
What are the main differences you saw in the startup ecosystem in Berlin to the startup ecosystem in NYC?
The main difference is the number of companies that provide fintech services and the amount of capital they require to do that. There are a lot of companies in Europe that are raising money in fintech, but we’ve found they typically need to raise less money in Europe than they’d need to raise in the US. I was also struck by the amount of new banks emerging that are focused on providing financial services to millennials. We saw probably four of them, and they’re all based in Europe. I only know of one in the US.
Do you think NYC is losing its status as the finance capital of the world?
London and Germany are definitely betting on that. I think that could be the case.
What are the biggest hurdles to investing in Berlin?
We have an internal joke here at USV that just the mechanics of closing an investment is pretty crazy in Berlin. It takes a really long time, even more if you’re a US-based investor. This is because German laws around raising capital are pretty strange—one part of the process requires someone to read aloud to a notary the entire closing documents of the investment, letter by letter. It’s really expensive and time consuming. Whereas in the US it’s fairly easy and straightforward to close an investment.
Do you think that puts off US VCs from investing in Germany?
I’ve only spoken to a few VCs who have considered investing in Germany and then haven’t; it does seem that being unfamiliar with the process puts them off a little bit.
What are the big investment hurdles in NYC?
The main hurdle in NYC is that there is a lot more competition in US-based fields than in European fields. You have to compete with more VCs for a good US-based deal than for a good Europe-based deal. In NYC you’re competing not just with other NYC VC firms, but also European firms and West Coast US firms.
What changes would you like to see in the investment environment in Berlin?
In Berlin, we would be thrilled to see change in the way deals are closed—to make it easier and faster. We really like investing in Berlin, but our only complaint is the actual closing process. Maybe Berlin could take a leaf out of NYC’s book for that.
What other cities in Europe did you visit on this tour? Other than Berlin, where was most interesting to you?
My trip started in Helsinki, then Estonia, then London, Barcelona, and Berlin. Tallinn in Estonia for sure was one of the most interesting. Estonia is kind of a startup country with a startup economy. They have the highest concentration of startups per capita in Europe. Tallinn is a tiny city but has great energy and a lot of smart people, but very little venture capital supply. These companies typically raise from VCs in Europe, but I think there are a lot of opportunities in Estonia in the future for US VCs. I’m certainly going to pay more attention in future.
Do you expect to be making more European investments in Berlin and beyond?
Europe is increasingly interesting and more and more good companies are coming out of Europe. We are really optimistic about investing in Europe. Of the last six deals we’ve made, five have been in Europe. We have about fifteen investments total in Europe and we expect that to continue increasing as the world becomes more globalized.
Skype has been around for a while, but new tools like Slack allow people to keep in touch with team members in a more efficient way and it’s getting easier to work with European companies.
Joel Monegro is an analyst on the team at Union Square Ventures. @jmonegro