Sequoia Capital’s London exit is not a sign U.S. funds are losing confidence in European startups. On the contrary, U.S. investment has been flooding into European AI ventures this year at a much faster clip than anticipated, in what could end up a near record year for deals.
Global equity markets have wobbled this week, but investment looks set to continue into what many view as a transformative technology, even if valuations correct lower.
U.S. firms such as Brighton Park Capital, Sixth Street Partners, FTV Capital and Lead Edge Capital have opened or expanded London offices in recent years. Others have opted for locations in mainland Europe. Riverside Acceleration Capital has focused its European activities in Cologne since 2022, while General Catalyst merged with Berlin-based La Famiglia in 2023.
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Sequoia said it does not “see [the] need for a local presence” and believes it can continue to focus on Europe from its home in the Bay Area. Andreessen Horowitz, another high-profile U.S. tech fund, made a similar call when it shut its London office last year. But the firm remains engaged in Europe. The direction of travel remains Europe-bound.
For Brighton Park Capital, which established its London presence last year, there was a distinct advantage in being close to European founders where the firm was seeking to invest. The firm made the move after missing out on European deals because of not having people on ground, said Tom Hussey, a partner at the firm’s London office.
“We were seeing great deal flow in Europe,” Hussey told Newsweek, explaining his firm’s move across the Atlantic. “The U.S. has been further ahead for a long time, but Europe is heading on the same trajectory of entrepreneurial innovation.” Hussey was hired last year to set up Brighton Park’s London office, where he runs the firm’s European investment strategy.
So far this year $58.7 billion of venture capital has flowed into European startups, with U.S. firms providing 70 percent of the total, according to data from PitchBook. If the pace is sustained, total investment could surpass record levels seen in 2021-22 when the market was distorted by a rush into technology companies, as the world moved online during the COVID-19 pandemic. Investment into AI companies accounts for 68 percent of the total so far this year, compared to PitchBook’s initial forecast of 50 percent.
Global equity markets have rattled investors this week. The tech-heavy Nasdaq plunged more than 5 percent on Thursday, sparking fears that valuations, driven by investment into AI-related companies, have become excessive. However, investors continue to see long-term potential in AI to transform large swaths of the economy.
Among Brighton Park’s European recent investments, Hussey highlights a joint $60 million investment in Orbital, a British AI native startup that automates real estate due diligence, and is targeting the U.S. market, as well as Person Centered Software, a UK provider of care management and intelligence software to care homes, for which terms were not disclosed. Brighton Park Capital, headquartered in New York, manages around $4.5 billion in assets.
US Investors ‘Swing for the Fences’
For European startups, it’s not just about capital. U.S. funds, which have often seen similar trends play out in the U.S. earlier, can apply that know-how to Europe, said Hussey. They can also offer guidance to startups expanding into the United States.
Gravitee, a company that helps firms manage and secure AI agents, raised $60 million last year from Riverside Acceleration Capital and Sixth Street Partners, among others, and is now planning to raise a further $150 million in the coming months. Gravitee has its roots in France but relocated to the United States in 2024.
“We’re looking for investors that are excited by that ambition,” Gravitee’s chief executive officer, Rory Blundell, told Newsweek. “And you find that there’s a lot of U.S. investors that want to—to quote a phrase—swing for the fences. And that’s the kind of investor that we’re looking for.”
Blundell’s remarks are a common refrain among European startups. For longstanding cultural and historical reasons, European capital has typically been more risk averse. Europe is good at incubating small startups or financing large, stable companies; but the funding that Blundell is looking for is often hard to access. “That pool of capital is easily there in Europe, but it’s not easily accessible for companies like ours,” he said.
So far, U.S. firms have been more than willing to pick up that slack.
“We remain very excited about the investment opportunities in the region and the companies being built there,” Jonathan Drillings, senior partner at Riverside Acceleration Capital, told Newsweek in emailed comments. “We believe we can be a valuable partner to European companies in general, and especially to those considering a move westward.”
AI Transformation Is a ‘Rich Vein’ of Opportunity
Riverside Acceleration Capital (RAC) is a part of The Riverside Company, which manages about $13 billion in assets from its New York and Cleveland, Ohio, headquarters. It has had a presence in Cologne since 2020. RAC was set up to invest in growing enterprise software companies and has so far invested in 29 startups across Europe.
It has $633 million in assets under management. The Riverside Company is the second largest private equity investor in Europe since 2020, according to PitchBook data.
“AI is one of those big technology waves that changes a lot of things. Investors are looking for opportunities as broadly as they can,” Christian Stein, RAC’s senior partner in Cologne, told Newsweek in emailed comments.
Navina Rajan, who tracks private capital investments across Europe for PitchBook, told Newsweek that complex factors are drawing U.S. investors. Valuations tend to be lower, especially among AI companies, while the level of investment into AI in Europe has yet to reach that of the United States, where it accounts for around 83 percent of the total.
In the United States, investment has focused on fintech, clean tech, health tech and life sciences, while in Europe the focus has been on software, Big Data, mobile, health tech, and robotics and drones.
“There are definitely trans-Atlantic opportunities between both regions, which is why you have seen U.S. investors making use of those areas that are perhaps more saturated in their home markets,” Rajan said.
For now the trend looks set to continue as AI is integrated across the economy. “Applying AI to specific markets and really deeply understanding your customers’ workflows—that’s yielding such a rich vein of investment opportunity that I think it will be a big driver for the next five or 10 years,” said Hussey.
Contact Newsweek editor on this story: Mike Hirst.
Source: www.newsweek.com
