Venture Capital: Investing In The European Marketplace
Venture Capital: Investing In The European Marketplace
By Stephen McLaughlin
As anyone who has ever tried it knows, As anyone who has ever tried it knows, venture capital investing is not a game for the weak of heart. While it is certainly true that some venture capitalists have accumulated massive investing is not a game for the weak of heart. While it is certainly true that some venture capitalists have accumulated massive fortunes and reaped mega profits on their investments, it is also true that billions of dollars are lost every year on bad investments. The formula, of course, is quite simple: the same element of risk that allows the venture capitalist to expect an increased return on their investment when successful can also prove disastrous. As one quite successful venture capitalist told me recently: “There are really only three things you need to do when you are looking for a company to invest in successfully: research, research, research.” In other words – know what you are getting into before committing your resources.
This principle is particularly true for those investors seeking to increase their profits by taking advantage of both the overall boom of the economies and the generally favorable exchange rates on the currencies in the European marketplace. Increasingly since the advent of the European Union, American venture capitalists are finding extraordinary opportunities for profit investing in both EU and non-EU companies. Whether searching for established companies seeking a capital boost for funding expansion or start-up companies in search of seed money, the market for American investment dollars throughout Europe has never been healthier. However, as stated above, the investor needs to know what they are getting into – and needs to understand that venture capital investing in Europe can be quite different from what it is in the United States.
Unless you or your company has years of experience transacting business within Europe you will in all likelihood need help in both identifying good, solid companies to invest in and in circumventing some of the challenges presented by doing business in a foreign land. Some of these challenges include:
• Cross-border Investment Restrictions – Unlike the completely open market which exists within the United States for investors, it is necessary to keep in mind that when investing in “Europe” you are actually dealing with dozens of different nations – each with its own culture, laws and regulations. These laws can make it extremely difficult to invest in companies based in particular countries. Even if you establish a company in one European country for the purposes of European investing you can still run into trouble getting money across borders due to cultural, religious, ethnic or political differences and rivalries that may exist – some of them going back many centuries. It is crucial that the investor either know or have a qualified adviser available who knows – and can help circumvent – these restrictions.
• Resistance to American investment – While political relationships between the United States and most European nations are quite good (and have been for years), a certain amount of cultural resistance towards doing business with American venture capitalists exists within the European business community – and within the European banking community specifically which has been a source of venture capital funds. Rightly or wrongly, some European business people view American investors as predatory in nature, and distrust many generally accepted American business and investment practices. While this doesn’t necessarily mean that they won’t do business with you, it can negatively impact both the deal the company you are interested in will make with you and the amount of control they are willing to give you regarding how your investment capital is used. In most cases, using a third party trusted by the company you are looking to invest in as a go-between to broker your deal will save you time and energy, and in many cases increase your bottom line return on investment.
• Lack of accessible information – In the United States, a few clicks of your computer’s mouse and a couple of phone calls can get you essentially all the information you need to be able start the process of making an informed decision about whether or not to invest in an established company. The same holds true when checking the backgrounds of the principles of any start-up company you might be looking to invest in. This is not the case with European companies and citizens. Privacy laws through out Europe are usually much stricter then they are in the United States and as a consequence the access to information is limited – often times quite severely. It isn’t a question of the information you need not existing: it does. However, in many European nations the channels through which you need to go to actually get the information are quite convoluted and complicated. In most cases, having a firm familiar with getting information in these countries by your side will save you time, effort, and help you make a more informed decision as to where your investment dollars go.
• Identifying companies to invest in – Always a challenge even when investing at home, finding exactly the right company or companies in Europe for investment purposes can be perhaps the most daunting task any American investor will face. It is true that you can follow the trends of successful European investors (investors from the Scandinavian countries currently have been the most aggressive and successful), however these investors tend to be rather conservative in choosing companies to invest in, and as a consequence many top markets are currently being almost totally ignored. Identifying these ignored markets can reap huge profits but can also be extremely difficult given the information constrictions cited above, as well as them being half a world away and, in many cases, speaking a different language! When searching for the best investments in the European marketplace, it is usually prudent and most of the time cost effective to get expert advice and counsel from someone who knows the territory.
There is a notion – and not a totally undeserved one – of the American venture capitalist being a kind of a financial gunslinger going it alone, pitting his or her skill against the marketplace and trying to out draw the competition. While the same willingness to take risk, courage and entrepreneurial spirit that is crucial for successful venture investment in the United States is certainly needed for investing overseas, the idea of going it alone is usually not as practical as it can be in the United States. The markets for investment are certainly there in Europe – and the potential for profit as great as or even greater than what can be found in the US – but the terrain will be unfamiliar to most American investors. To successfully compete in a foreign marketplace, it is crucial that you have someone with you to guide you along unfamiliar paths, and help you avoid the pitfalls. By doing this, you level the playing field, and increase both your chances of success and your profits!
Steve McLaughlin founded Global Market Insights, with offices in Europe and the U.S., with his vision of giving clients two synergistic competencies: knowledge of the global marketplace and industry expertise in manufacturing, finance and information technology. Steve has over twelve years of international experience in three continents, having started in executive search as a Beckett-Rogers Associate.
We hope you found this article about “Venture Capital: Investing In The European Marketplace” helpful. If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page or our website at www.GROCO.com. Unfortunately, we no longer give advice to other tax professionals gratis.
To receive our free newsletter, contact us here.
Subscribe our YouTube Channel for more updates.
Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com. GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.
Alan L. Olsen, CPA, Wikipedia Bio
GROCO.com is a proud sponsor of The American Dreams Show.
The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business.
Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.
The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most.
They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..
American Dreams discusses many topics from some of the world’s most successful individuals about their secrets to life’s success. Topics from guest have included:
Creating purpose in life / Building a foundation for their life / Solving problems / Finding fulfillment through philanthropy and service / Becoming self-reliant / Enhancing effective leadership / Balancing family and work…
MyPaths.com (Also sponsored by GROCO) provides free access to content and world-class entrepreneurs, influencers and thought leaders’ personal success stories. To help you find your path in life to true, sustainable success & happiness. It’s mission statement:
In an increasingly complex and difficult world, we hope to help you find your personal path in life and build a strong foundation by learning how others found success and happiness. True and sustainable success and happiness are different for each one of us but possible, often despite significant challenges.
Our mission at MyPaths.com is to provide resources and firsthand accounts of how others found their paths in life, so you can do the same.
Will Taxing the Rich Even More Improve Inequality?
Will Taxing the Rich Even More Improve Inequality? It’s been the cry of democratic lawmakers and many of the less fortunate for years: “We need to tax the wealthy even more.” “The rich have to pay their fair share of taxes, too.” The problem is the rich already pay a huge portion of the country’s…
It Pays to Be Rich for These Five Tax Breaks
It Pays to Be Rich for These Five Tax Breaks Although it’s true that the ultra-wealthy are heavily taxed, and in many cases unfairly, there are also some tax break advantages that favor the upper class more than those in the middle. Let’s take a look at some of these breaks. Most common and first…
New Jersey Governor Says Enough is Enough on Taxing the Wealthy
New Jersey Governor Says Enough is Enough on Taxing the Wealthy It seems that no tax is a bad tax when it comes to the “left” side of the government. It’s a well-known fact that the wealthiest Americans pay the largest portion of the country’s taxes. However, there are some government leaders that lean “right”…
Clinton’s Using Careful Strategies to Avoid Tax They Support
Clinton’s Using Careful Strategies to Avoid Tax They Support Have you ever wondered what wealthy democrats do when tax laws they support and vote for come back to apply to them? Although people typically associate being wealthy with republicans, there are plenty of rich democrats in the nations’ capitol as well. So just what do…