Alexander Fries is a seasoned businessman and venture capitalist. Having moved from his native Switzerland to Silicon Valley over a decade ago, Fries began helping other Europeans cross the Atlantic and become successes Stateside. Now he runs Ecosystem Ventures, a fund dedicated to just that – as well as being chief marketing officer for Mixed Dimensions, Inc., a 3D software company. Here Fries offers his thoughts on the differences between European and American investments; why it’s better to raise more than you initially thought; and why Europe needs to market itself a whole lot better.
How did you first become involved in VC?
I am Swiss but I’ve been living here for over ten years now, and I came with a startup I co-founded in Zurich, SVOX AG. I came over to open the U.S. office in California, and even before then I saw the difficulties that European companies had entering the U.S. market. First of all because there was a perception that Europe didn’t really have any success stories, and that software men in Europe didn’t really exist. After we exited another couple of companies I decided to switch to the investor side, and tried to help European entrepreneurs coming to America with funding.
What was your proudest early success?
We had a startup called Advanced Visual Communications (AVG) that was co-founded in Boston with the World Economic Forum, Klaus Schwab, and a Swiss venture capitalist. We sold AVG to USWeb really early. Then we sold the SVOX AG to Nuance, and then I switched sides.
What does a normal day look like?
When we invest we like to invest very early. The focus is still European entrepreneurs living in Europe, or here. So because of the time difference, in the morning I’m on the phone speaking to new deals or companies in which we’ve invested in Europe. Then during the day we spend a lot of time with the early-stage investment companies, which need the most help. We put a lot of time in helping them operationally and strategically. Most of the Europeans who try to start up a company, especially in the Germanic world, are very technical, so they need a lot of help on the business side.
Why is that?
Europe has the best technology in the world, the best engineers and the best innovation. But they’re so lousy at commercializing it and promoting it, no-one knows about it. I think it’s to do with a mentality of more technicality, no risk-taking – so they need a lot of support and push. Our model is mixing European technology with American management. If you mix those two worlds, it’s an amazing combination.
Our average investment is about $250,000. And we have 46 companies under our wing right now. We have a lot of exits and a very good track record. The amounts European companies raise are still quite low because they’re scared of raising $3m, $4m: they’re not used to those big numbers. Taking almost ten years to exit is very common in Europe because of this organic growth mentality, and the plan of being profitable as soon as possible. It’s very different to the U.S. where companies raise as much money as possible, forget profit and simply grow as fast as they can. We had one company that wanted to sell, and the figure they had in mind was about $40m. In the U.S. there was a competitor bought for $300 million, and we eventually got them to sell for $127 million. It was a big success but it took a long time.
Is there that much of a difference between the risk-taking mentalities of the U.S. and Europe?
Yes, it’s huge. You have younger guys coming here now who are eager to make it happen. And the beauty of that is they’re very diligent, they’re very careful with everything so they’re not sloppy. But on the other hand they’re slower because of that. So it’s a balance that you need to make, and if you mix both sides it meets in the middle, and you have a fantastic combination. We’ve experienced that quite often.
Are there any industries where Europe particularly lags behind the U.S.?
I don’t actually think they lag behind. Europe doesn’t have any ‘Googles’ or ‘Twitters’, so I would initially say the internet consumer space. But the reason Europe doesn’t have those companies is because they do such a lousy job promoting themselves that they never scale up like one of those giants, and they never raise enough money to go global. Technologically I still think Europe’s much stronger. There’s no core of that in the U.S., it’s just a bunch of foreigners and Americans in one place with a great ecosystem in Silicon Valley.
I don’t think Europeans think that those mega-companies are just for America – I think they would love to be like that. If you look at the level of unemployment in Europe right now, what would be better than having a Tesla-like invention in Europe? But it’s about how you proceed in creating and growing a company, that’s a problem. I present a lot to European companies, and when they look at investments they still think they’re loans. That’s why they don’t want to raise more than $1 million or $2 million, because they’re scared that they will have to repay it some day.
And then there’s profitability. To a European a company that doesn’t make a profit doesn’t make sense. Here it’s about forgetting profitability until year five, just become huge then deal with profit. Tesla’s a great example. With the huge car industry that Europe has, how can no-one come up with a huge idea like that?
Do Americans ask you for advice on European management techniques?
They do but they mostly ask me on a business development level. When it comes to expansions into Europe most of them land in Ireland or England because of the language. But I usually recommend opening two offices: one for the U.K. and one for continental Europe.
Is the ecosystem for startups lacking in Europe?
It’s growing – Germany, Switzerland and the U.K. are doing great. Governments have started to realize that venture capital, innovation and startups are important. But we need more mentors. A lot of mentors in Europe are former consultants who claim to know everything about startups. That’s crap. But really it just comes back to this idea of no-one knowing what there is in Europe. They don’t believe in marketing, they think it’s a waste of money. We go to companies and tell them to raise $5 million, not the $1 million they were after. Then they can expand and move faster.
Should VCs be specialized in the industry of their investments?
I think that at the seed stage of funding it doesn’t matter what kind of special knowledge you have, because to me starting up a company in any industry is always the same way. You build it up, you raise some early money and then you grow. I’m a marketeer at heart, so I never specialize in anything. I still don’t even know how software works, actually! What I do believe is that every VC should have started a company before they go into investment. That’s a must. And you don’t see it much in Europe.