In our conversations with venture investors, a striking pattern emerged around risk and innovation. U.S. venture capitalists, especially in Silicon Valley, often embrace a “go big or go home” philosophy – they’ll back audacious, outlier ideas with massive payoff potential (and massive risk). This trend has grown even more, with VCs now shying away from unicorns (1B+) ideas and looking for 10B+ potential. European investors, historically, have been more conservative, preferring proven models or incremental innovation. This innovation risk paradox means a startup deemed “too risky” in Europe might find enthusiasm in California, and vice versa. After taking a look at the network effect of Silicon Valley, and the capital gap existing between Europe and the U.S. in previous parts of our series, in this third part, we explore these cultural and strategic differences, illustrating what kinds of bets U.S. VCs are willing to make that many European VCs shy away from.
Go Big or Go Home: The Silicon Valley Mindset
One Silicon Valley investor in our discussions put it bluntly: “We’d rather ride a company to a $0 outcome than have it sell early for $300M.” This wasn’t bravado – it’s baked into the venture model. U.S. VCs often swing for grand slams, knowing that a few huge winners pay for a multitude of failures. At Alumni Ventures, for example, the partners noted that they aim to find the outliers and are comfortable with most portfolio companies not making it, as long as a few hit it out of the park. They recounted scenarios where turning down a decent $200–300 million acquisition offer was the expectation – both investors and founders aligned on holding out for a billion-dollar outcome or bust. This can be challenging for founders, that might get trapped in a “zombie” company or see their startup go down to zero. Indeed, without follow-up funding or an M&A, many startups might not be able to sustain. Culturally, Silicon Valley celebrates these moonshot outcomes (think of how many times you’ve heard “unicorn”) and accepts failure as a necessary byproduct. High risk, high reward is the name of the game.
This mindset leads U.S. VCs to back ideas that might seem crazy elsewhere. Investing in a company trying to launch rockets, or a biotech startup with no revenue that’s years from regulatory approval, or an AI company building something completely unproven – these are not unusual in California. In fact, a quick look at where U.S. VC dollars go shows heavy investment in frontier technologies (AI, space, deep biotech, etc.) and in bold business models (high-growth consumer apps, gig economy platforms that burn cash to gain scale, etc.). The attitude is, if the upside is enormous, the venture world will race to fund it.
It’s not that U.S. investors are cowboys ignoring all data – they do rigorous diligence – but they often prioritize market size (TAM) and founder vision over immediate traction. If the founders have a credible story about changing the world (and the credentials or early signals to back it up), a Silicon Valley firm might write a large check before the product even finds market fit. We heard of cases where firms passed on startups in the “hot new thing” category (say, a trendy AI application) not because it was risky, but because it was not risky enough – i.e., too incremental or “another one of those.” Paradoxically, U.S. VCs sometimes prefer a wilder, more ambitious plan that could 100x, rather than a safer bet that might “only” 5x. Despite this risk taking, VCs are looking at an overall 3x increase for their investors (LPs). This means that an investment of an individual should yield 3x over the course of the investment period (typically about 5-7 years), resulting in a yearly increase of 25%+. For most early-stage VCs, this means they are looking for a 10-20x increase in valuation for their investments, as many of them will go broke, or yield much less. The few highfliers make the fund. Later-stage investors like WestCap typically are more careful with their investments and can achieve 2-3x with a higher success rate.
The U.S. also boasts a deeper pool of later-stage capital. If a startup shows promise, there’s usually no shortage of Series B, C, or growth funds ready to pour fuel on the fire. With VCs like WestCap, also operational support can be brought to bear, allowing the startup to focus on growing the customer base and move through to the next round. This abundant capital enables U.S. startups to scale aggressively. WestCap was special in a sense that it really focuses on supporting their scaleups in this critical phase, where they move from a typical startup to a large, multi-billion dollar company. However, it comes with a trade-off: U.S. VCs often push for hyper-growth and “go big or bust” outcomes. From a founder’s perspective, the benefit is clear – you can raise more money at earlier stages, potentially outpacing competitors. The challenge is ensuring that you don’t dilute yourself too much and that you can actually deliver the aggressive growth your investors expect with that capital. On the dilution front, U.S. norms have trended founder-friendly in recent years. It’s not uncommon for founders to still own ~80% combined after a seed round, and many top VCs explicitly state they want founders to retain significant equity for the journey. For instance, one Silicon Valley fund we encountered won’t invest if the founding team owns less than ~60% post-round – a policy meant to avoid over-diluted teams. This aligns with broader data: median dilution for seed rounds in the U.S. has hovered around 20% (Dilution is on the decline – Carta), meaning investors take a fifth or less of the company in exchange for those multi-million-dollar seed checks. For some lucky startups with super high growth at this stage, or an excellent founding team, dilution figures can even trend to 10%. The net effect is U.S. founders often end up with more cash and similar or greater ownership percentages compared to their European counterparts who raised smaller sums.
European Caution and the Demand for Proof
On the other hand, European venture capital has traditionally been more cautious. A phrase that came up in one discussion was that Europe’s VCs are “risk-averse number-crunchers”. Stereotype or not, there’s some truth to it. European investors often want to see more evidence before taking a leap. Traction, revenue, positive unit economics, a clear path to profitability – these carry a lot of weight in Europe. It’s not coincidental that European pitches tend to emphasize how a startup will make money and mitigate downside risk, whereas U.S. pitches often focus on how insanely big it could become. An American VC might ask “How can this become a $1B company?” while a European VC might ask “How do we know this won’t fail in the next 12 months?”
This difference is rooted in multiple factors: cultural attitudes toward failure (which in many European societies historically carried more stigma), the smaller average fund sizes (a European VC with a €100M fund can’t afford too many complete wipeouts if they hope to return the fund, whereas a U.S. VC with a $1B fund can take more big swings), and the backgrounds of investors (more ex-bankers and consultants in Europe, more ex-founders and tech execs in the U.S., though this is slowly changing (Does Europe Need More ‘Founder-VCs’?)). One Forbes analysis noted, “A lot of European founders and capital allocators had less risk appetite in the past and that held back companies,” reflecting how a cautious approach permeated both sides of the table in Europe.
As a result, European VCs have been known to pass on or underfund ideas that later turned into huge successes elsewhere (think of Skype and Spotify, biotech innovators, …). While the landscape is improving with newer funds in Europe willing to take more risk, the generalization holds: if your startup is extremely novel, unproven, or requires heavy upfront investment before revenues, you’ll likely find fundraising easier in the U.S. than in Europe. A deep-tech hardware startup, for instance, might struggle to find many European VCs who have the mandate or stomach to invest pre-revenue, whereas in Silicon Valley there are entire firms dedicated to that.
Regulation can also make European VCs skittish. Take AI and data startups: Europe’s stricter regulatory environment (think GDPR and upcoming AI regulations) means that a business model seen as acceptable in the U.S. might be viewed as legally fraught in Europe. In our meetings, one AI-focused investor commented that GDPR and other EU regulations are a “major friction” that could stifle certain AI innovations in Europe. U.S. investors, in contrast, focus on capturing the market first and worry about regulation later (for better or worse). This means American VCs might back, say, a data-heavy startup or a fintech idea that operates in a gray area, whereas European investors hesitate because they foresee regulatory hurdles. European founders often feel they must fight not just market risk but also institutional skepticism if their idea doesn’t fit neatly into established boxes.
To be fair, Europe has its risk-takers and the U.S. has its cautious investors; it’s not black and white. And the gap is narrowing: European funds today are more aggressive than a decade ago, and U.S. investors have become somewhat more measured after the exuberance of 2021. Indeed, our chats with VCs have shown that their risk taking has taken a hit, due to higher cost of capital, higher competition amongst VCs and bigger uncertainty due to seismic shifts because of AI. In our meeting with Acrew Capital’s team, @AsadKhaliq observed that “you cannot just invest in software only anymore; some industries need hardware and it gives a defensible moat”, mentioning drones and physical AI as areas becoming interesting. This dynamic also means that VCs do not require ARR as a sole source of income. Indeed many of the funds we spoke only have about 25% invested in ARR focused startups. This means that many startups get income from other sources like Deep tech, patents, M&A, services, … Furthermore, as one of the VCs told us, AI companies with proprietary data and infrastructure get attention, but a flurry of “AI applied to X industry” pitches were being passed on as not backable. In the U.S. they are filtering for truly defensible AI tech, resulting in lower funding chances for “GPT wrappers”.
Interestingly, data suggests European venture funds have had competitive if not slightly better returns in some periods, possibly because avoiding the worst excesses prevented losses. This introduces an “innovation paradox” for founders: the place with the crazier bets (U.S.) produces the Googles and Facebooks, but also many flops; the place with caution (EU) produces more steady growers and maybe better median outcomes, but fewer breakouts.
As an example of a funding round, let’s consider a Bay Area startup that raises $5M at a $20M pre-money valuation, a similar-stage startup in, say, Paris might raise €2.5M at a €8–10M pre-money. Both founders might end up ceding ~20-25% of their company in the round – but one ends up with double the capital to spend. This means European founders often face the tough choice of either living with a shorter runway (and planning for another raise sooner) or accepting heavier dilution to get equivalent funding. Often, they end up doing a bit of both: taking a smaller round now and expecting to top up later (bridge rounds, convertible notes, or seeking government grants to extend the runway). The result can be a cap table that gets crowded more quickly and founders owning less by the time they reach Series B than a comparable U.S. company’s founders would.
Why are European rounds smaller? Partly it’s due to fewer large funds – Europe’s VC industry, while growing, has traditionally had smaller fund sizes and less capital under management than the U.S. Also, investor mindset plays a role. European VCs have often been more conservative on valuations, wanting to see more traction before pricing a company like its Silicon Valley peers. One investor remarked that in Europe there’s still a penchant for “number crunching” and ensuring the valuation is justified by revenues or KPIs, whereas a U.S. VC might price more on potential and team. The availability of public funding in Europe also factors in: many European startups get grants or subsidized loans (e.g., Horizon Europe grants, national innovation programs). While this non-dilutive capital is great for founders, it can lead private VCs to commit less – expecting the startup to piece together funding from multiple sources. Interestingly, several U.S. VCs told us they discount these government funds when evaluating a company. One bluntly stated that direct state investment “is not an added benefit” to impress a Silicon Valley fund; in fact, it can raise questions. This is an interesting dynamic as such grants are seen as “free money” but they have strings attached (administration, loss of focus, lower ambition). They’d rather see a founder who convinced private investors of their vision (or even bootstrapped to MVP) than one relying heavily on government money.
Navigating the Divide as a Founder
For founders, recognizing these differing appetites is crucial:
- Pitch to Fit the Investor Mindset: If you are pitching a U.S. VC, don’t be shy about the bold vision. Lead with the big picture of what your company could become if everything goes right. Traction and monetization are still important, but U.S. investors will often mentally discount present-day hiccups if the future potential looms large. Conversely, with European VCs, make sure to address risk mitigation and concrete plans. They will want to know how you navigate the next 12-24 months of execution. A savvy founder can tailor their pitch accordingly without changing the essence of the business.
- Know Who to Approach: If your startup is an outlier – say you’re doing something like quantum computing, or a radically new business model – consider spending time in Silicon Valley or tapping U.S. networks to find aligned investors. You may save a lot of time by going straight to those who “get it” rather than trying to convince a reluctant audience. We heard from multiple European founders that knocking on doors in the Bay Area yielded far more interest for their cutting-edge ideas than at home. On the flip side, if your startup is more incremental or locally focused (e.g., a proven business model adapted for an underserved European market), you might actually find European VCs to be very receptive, sometimes more so than U.S. investors who prefer something novel. It’s about fit. Some European funds explicitly specialize in areas like fintech, marketplaces, or SaaS and will have just as much risk appetite in those domains as any U.S. firm – they just might avoid the “far-out” stuff.
- Find the right fund for your size: Also ensure that you entertain the right fund for the stage of your startup. With 1000’s of VCs in the Bay area, it might be challenging to navigate the area. Some funds entertain Seed to Series A, while others only go Series B+. Funds like Andreessen Horowitz only entertain 10B+ valuations. Pitching and accepting funding from to “lofty” funds might even hurt you down the line, as they might not fund the next round (you are not achieving their huge growth rates). This in turn will scare off other investors as they wonder why these big boys are not investing anymore.
- Find the right fund for your theme: Conversely, it also is important to find those funds that are expert in your field. Especially in early stage (Seed, Series A), expert funding can help open doors, find new sources of income and generally help find funding as they better understand your type of business. Later-stage, you often can find more generalist funds to support further growth. On the other hand, however, as one VC stated, it might be beneficial to broaden the scope of your startup to align with more VC funds’ mission. This will help open the market for your funding needs and provide additional sources of income once you approach the customers.
- Use Data and Story Together: To win over a skeptical investor (often the case in Europe), bring as much real data as you can – early revenue, user growth, technical validation, etc. – to back your claims. Every bit of traction reduces perceived risk. However, don’t lose the narrative. European entrepreneurs sometimes undersell their vision to seem prudent, which can backfire. You still need to paint the exciting endgame, especially as more U.S. investors are attending European pitch days and expecting the same ambitious storytelling. The ideal pitch marries European diligence with U.S.-style vision: “Here’s our solid evidence that this works, and here’s how that small proof could transform into a company that changes an industry.”
- Leverage Grants and Academia (but Strategically): One advantage in Europe is the availability of research grants and a close tie between academia and startups in fields like biotech, AI, and cleantech. European founders can often get initial R&D funding from EU programs or national grants. Use that to de-risk the technology. But be aware: when you go to VCs, especially American ones, they want to see that you’re not just a research project – you have a path to commercialization. It’s beneficial to have that cutting-edge tech (often out of European universities) but pair it with a strong go-to-market plan, possibly a seasoned industry co-founder or advisor to vouch for the market need. That combination can be golden: you have the breakthrough innovation (thanks to a bit of non-dilutive funding), and you have the business chops to execute – a mix that can attract U.S. capital.
- Cultural Resilience: Be mentally prepared for differing feedback. A U.S. VC might say, “We love the vision, come back when you’ve 10x’d your user base,” whereas a European VC might say, “We’re not comfortable until you have paying customers and a positive unit economics model.” It can be frustrating hearing conflicting advice. The key is to synthesize it for your strategy. Often, the right path is raising money from the place that best suits your stage and ambition (maybe start in Europe for seed, then go U.S. for scaling rounds), all while methodically proving out your concept to convert the skeptics over time.
