What I experienced first-hand when I started my company, which I actually started in the US, was the fact, that a lot more people in the US invest in startups professionally. They assess investment opportunities with a different eye and invest their capital to help businesses grow in the long run.
In Europe, the barriers to enter the space as an investor are very low. In the UK, there is a number of crowdfunding platforms based on the equity crowdfunding model, which means any individual can invest as little as 10 pounds into a company and acquire shares of this business. It is amazing because it democratizes access to capital for entrepreneurs as you can literally raise from your family and friends.
The flip side of this is that you have a very diverse group of people as investors. The difference is crucial: professional investors support the business along its entire development journey. Passive investors who invest 10 pounds and forget about it are not going to provide resources and support, they just aim to get their money back as soon as possible.
In other words, this system broadens access to capital but doesn’t necessarily help to raise the money from the right people who will support you as an entrepreneur in developing your business.
In my personal opinion, US corporates felt this need of working more closely with startups earlier than most of the European food corporates. The reason behind it is that the US as a market is a lot more competitive. Therefore, American corporates have started cooperating with entrepreneurs a while ago, tried more things, made mistakes, identified what works for them and what doesn’t, set up corporate accelerators, invested into funds. In the meantime, lots of large players in Europe are just trying to figure out where to start.
There is also a legislative challenge in place. American states are actually united from the regulation standpoint: Although there are some federal laws in the US that are specific for particular regions, many regulatory laws apply to the entire country.
The regulatory framework in Europe, on the other hand, varies from country to country. Setting up a business in the UK it is relatively easy: you pay 15 GBP to open it online, in 24 hours you’ve got a company. Operational costs can probably be covered with 2 000 – 3000 GBP per year.
The same entrepreneur in Greece would have to pay 100 000 EUR per year to run a business.
Where does all this money go?
First of all, you won’t find a decent accountant for less than 2 000 EUR a month. Then, consider 40 000 EUR for the notary to set up the business. Pay an accountant to put together your legal entity. What I am trying to say is that you cannot run a business anywhere in Europe that can be comparable to American businesses in terms of regulations and operations.