Real Deals

There has never been a better time to invest in early-stage venture capital, angel investor Alex Hoye told delegates at the Next Web Conference in Amsterdam.

The rise of open-source software, cloud computing and direct B2C platforms such as Facebook means it has never been easier to develop a technology and generate revenues quickly. As a result, there has been an explosion of European early-stage firms in recent years such as PROFounders, Notion Capital, Team Ventures Europe, Kima and Passion Capital, as well as start-up incubators like YCombinator in the US and Seedcamp in Europe.

Hoye added that structural changes in the venture capital market also favour early-stage players. In the past, mega firms like Sequoia Capital could provide the most follow-on funding and had access to the best deal flow, creating a cycle of wealth creation and enabling them to negotiate favourable terms with entrepreneurs. 

Entrepreneurs now have access to cheap and fast business models, and can take on minimal external funding. In addition, more established firms have been caught out by the exit market. “A number of VCs still need to chase $1bn businesses in order to justify large fundraising efforts,” said Hoye. “But if you’re an early-stage investor, a $50m play is still a big win.”

Hoye pointed out that a number of successful VC firms have moved into early-stage investing. Sequoia Capital has invested in YCombinator and Index Ventures has “scooped up” a number of team members in early-stage investor TAG. Russian investor DST has offered a blanket convertible to all start-ups involved in YCombinator.

American-born Hoye came to Europe in 1999 to establish online auction business GoInvestor, which was listed in 2006. “I came to Europe because I knew it would be harder. There are different languages, regulations and everything is much smaller ­– we thought no one would compete with us.”

“A number of European countries are ahead of the US in terms of ad spend per capita, and I think it’s a good place to invest in adtech,” added Hoye. “My prediction is that the next decade will be one of unprecedented wealth creation, and this time it’s not going to be super-concentrated in a few firms.”