Bitcoin and Europe Need More VC Money
It's time for Europe to fulfill its potential and step out of the shadow of the U.S. I believe Bitcoin is the ideal tool to do so!
Although most people in the Bitcoin ecosystem don’t like to admit it, we do have liquidity and money issues. In some cases, it’s the one thing holding us back. Think of the Lightning Network with the inbound liquidity issue. In other cases, we don’t have enough money in the bank to fund projects or companies.
This is something the Bitcoin community shares with the European Venture Capital space. Granted, I’m not saying we’re small, and nothing is happening. Looking at the 10-year return of VCs in Europe, they outperformed the U.S. in various sectors. However, we mostly have to work with half the fund size of a regular VC fund in the U.S. and often more regulatory scrutiny.
I chose to compare Bitcoin with the larger Tech VC world because this is where we have the most overlap. This is also where most money for Web3 and Crypto has been allocated. Therefore, if you have other tables or data to compare, remember this.
The idea behind this article is to show what we need to do to improve the situation, where investors could potentially allocate some of their money, and what the ecosystem needs to do to attract more VC money.
He Who Shouts Loudest Gets Heard
You can ask 100 people in Marketing what to do to be recognized more. I bet 99 of them will tell you to make sure you’re the one who shouts the loudest! After all, these are the folks that get heard.
This is no different in the VC world. Fund managers have one job: They have to invest money from their Limited Partners wisely and make sure to return more than the amount they’ve been given. On paper, this is a very broad definition of how the VC landscape works, but it’s an effective one to keep in mind, especially regarding what VCs are after and under how much pressure they are.
It’s not as easy as folks on the All-In Podcast make it look. Sure, if you have connections to your Silicon Valley moguls, it’s easier to get early access to a great company. However, the reality is that this is not the case. Most VCs operate under immense time pressure and must return a factor X by a specific date.
This is why you often read about failed VC funds or projects they invested in. They didn’t do this to scam people or waste money. They did this because these pump-and-dump schemes often are an easy way out for them.
Therefore, most of these VCs shorten their time preference, do minimal work that often involves very poor due diligence, and look for an 18-month return with fast-growing companies.
Now, guess which projects they invest in? Bingo! The ones who shout the loudest. To bring this back to Bitcoin, the loudest are often Crypto projects or some BS on a Blockchain that promises to be faster, cheaper, or insert any marketing claim here.
VCs are being played by the system and must always be ready to pump a sketchy business because this is their livelihood. Just like the regular Bitcoiner, they also have bills to pay and tummies to fill and want to enjoy life.
They’re in the never-ending spiral of finding the next best thing. Ironically, they’re going down deeper that spiral the minute they have their first successful exit. The only option for them to stay out of this is to either invest in very conservative businesses and wait it out or spread their investments into multiple high-risk businesses. Most fail, but if even one takes off, they make all the returns.
Europe Is Talented but Lacks Financial Support
To get back to the topic at hand. Europe is struggling. Not only politically, let me tell you, there is always something going on in any of the roughly 50 European countries, but also from a business perspective.
Europe is known for outstanding innovation, fantastic engineering, and a sense of cooperation between different countries. Guess what? This is how we get along! If we don’t do this, every country on this continent is in trouble.
If you also look at the success rate of European companies, you would be surprised how many of them are actually from here. The likes of Spotify, Revolut, N26, eToro, and many tech-oriented businesses have their bases here.
However, with all that success, one might ask why we haven’t seen more of them on the world map and why the focus is always on the U.S. Obviously, there are many different business sectors and models in which we Europeans are miles ahead, but the main focus for this article is on technology. I also have a straightforward answer as to why the European technology businesses are lagging.
It’s a combination of extreme regulation; look at the past actions by the EU in terms of regulating new and emerging markets and the lack of funding. Because most European companies have to hold up to a much higher regulation standard, they inevitably move slower and face more problems early on.
If you want to start a business in Europe, you must engage with regulators and bureaucracy early on. Now, that might be the same in the U.S. as well, but the slight difference is that U.S. businesses have more growth stage capital. This is largely down to the amount of money invested into these businesses. Granted, most of the VCs have double the amount of money in their funds compared to Europe.
Therefore, European businesses have to be either twice as fast in implementing their goals or do more work with less money, which is more challenging because this is where the regulatory scrutiny kicks in. I can’t tell you how much money I’ve seen being wasted on GDPR lawyers back in 2017 and 2018 for some small-scale startup here in Europe.
That money was wasted because, just two years later, most of those rules didn’t apply anymore, or companies flat-out ignored it, and nothing happened. This fits in with the lack of advancement in future-proof businesses as well.
Historically speaking, the EU has been very punishing with technology and even goes as far as flat-out banning companies or imposing heavy fines for them to operate. Don’t get me wrong, I think it’s good to punish Meta for selling user data, but guess what they do next year? They either get out of Europe or manage to generate less revenue to pay a smaller fine.
It’s a double-edged sword, and these more prominent companies often win over the small ones because they have more possibilities, often with their main base in the U.S. This is a big ask for small European companies to go up against this. Not only because it takes a hell of an effort but also because you have to allocate the little capital you have early on.
There is a shift happening where you see European VCs reach out to U.S. companies instead of European ones because they can minimize risk and get faster out with a return. This is a shame that leaves a lot of potential out there. Most of these VCs become European offices for big VCs in America and are here to scout potential investments.
Fix the Money, Fix Europe!
Now, I know this article seems pretty dark, but there are a few options out there, how Europe and Bitcoin especially get over that hump.
First, we must be more direct when asking for help and acknowledge that we need it. So many Bitcoin startups especially have an extreme idealism they brought over from past experiences. I’m not telling you to accept shitcoins but be more open in your business decisions.
The best-case example is the amount of budget allocated to marketing campaigns. It’s beautiful if you start to engage in the Bitcoin community and spend a lot of effort there to grow. If you do it right, you’ll see a tremendous impact on the community.
However, after a while, that growth slows down. There are only so many Bitcoiners you can reach organically. Eventually, you must invest in other marketing channels or find ways to attract people outside the Bitcoin bubble.
This is where you start thinking of engaging with FinTech companies or mentors in other businesses, or you reach out to VCs and raise funds to have enough cash in the bank to pay for that.
I don’t know if this is because of hate towards central banks or something else, but the Bitcoin community doesn’t like VCs. They choose to decline VC money in the bull runs when most of them throw it at them and cry if they don’t have any money left in the bear market.
I’m not saying that all of these VCs are great, but you start seeing individual funds to support most Bitcoin companies in the early stages of their business journey. This is when most of these businesses need money the most! Instead of being purist and only bootstrapping, it would be ideal for fast-growing startups to accept money and get out there.
This is a complete shift in the ecosystem and requires new perspectives from founders, teams, and companies alike. It’s not easy, but you see it happening. Granted, it will take time because there are just a handful of Bitcoin-only companies in the world, and of those, a minority is based in Europe.
As soon as these companies start changing their perspective and accepting more money earlier on, the broader VC landscape surrounding them will also change. They will invest when they see that a small portion of the market is taking money earlier and going head first into a new and exciting business sector.
The more companies do this, and I’m also talking outside of the Bitcoin ecosystem, the quicker the European VC landscape will change because this is where we can play into our strengths in Europe. So many countries with different cultures clash here and talk to each other. If Fund A talks to Fund B and both see immense potential, they will inevitably invest and move the needle.
Like Bitcoin, this can only be done gradually and will take a couple of pioneers. But once we get going, there is no stopping! It’s time for Europe and Bitcoin to take their rightful place in the world and help people break free from the barriers set up by the legacy financial system!
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