It used to be that in order to be able to scale globally, European companies had to spend a lot of money on market launch in the USA in order to achieve the desired growth. That usually meant moving large parts of the team to San Francisco / Bay Area or New York. New research suggests this is no longer the case as the US has become more expensive and opportunities in Europe have improved. This means that European startups spend much less team and resources on a US start, but still get good results. Even so, European startups will continue to look for exits in the US as European companies continue to lag behind in innovation.
New research from Index Ventures today shows that less than 1 in 5 (50 in 275) European tech companies are relocating their engineering base when they expand to the US, in stark contrast to the general strategy 10 years ago. According to the Index, Europe's top tech startups are instead managing to get the growth gains they need for the US, with a much smaller footprint locally.
The survey of 275 European startups over the past decade (including an in-depth survey of 100+ companies) shows that the creation of U.S. engineering, tech, and R&D teams has fallen out of favor and they stay longer in Europe the vastly improved availability of talent and finance in Europe.
Between 2008 and 2014, almost two-thirds (59%) of European startups expanded before the Series A funding rounds or moved entirely to the US. However, between 2015 and 2019 that number fell to a third (33%).
This is in line with research by StackOverflow which found that the European tech scene has improved with more than 6 million professional developers in Europe compared to just 4.3 million in the US. Tightened US immigration regulations and a demand that exceeds supply has increased US tech salaries, which are 42% higher in San Francisco compared to London, making it more expensive and less cost effective for European startups to get into the USA to double. Especially if they can get similar growth from home.
The European founders are now also collecting more. Over the past four years, the rounds have increased from $ 15.3 billion to $ 34.3 billion.
Danny Rimer, Partner at Index Ventures, said in a statement: "While for some founders, and certainly once a company has reached certain milestones, establishing a US base is a good decision, it becomes increasingly costly and challenging."
At the same time, however, Index found that European companies invest three quarters (76%) less in software than their US counterparts, and this is usually due to compliance rather than innovation. This means that European startups are likely to continue looking for company exits in the US.
The research results will be published in the third manual from Index Ventures for technology founders seeking national and international growth in "Expanding to the US". It also includes a “personality test” for startups to find out at what stage they need to prepare for a US launch.
In addition to analyzing 353 startups supported by European (275) and Israeli (78) VCs that have expanded into the US in the last 10 years, it includes US expansion strategies and interviews with founders who have done so.