Startups in Europe, faced with an ongoing economic slowdown in the region, continue to struggle on the fundraising front. Meanwhile, European VC firms hedging their bets by increasing their focus on startups that either have a global/US play in mind — or are already in the US — are seeing a lot of interest from LPs. TechCrunch has learned exclusively that Frontline Ventures has raised $200 million in two funds, called Frontline Growth and Frontline Seed, to continue its bets opposite the lake.
That’s not all: Giant Ventures in January closed two new funds totaling $250 million to invest in startups on both sides of the Atlantic.
Frontline already had a reputation for investing in both Europe and North America. Its new funds will continue to follow this strategy, focusing specifically on B2B software companies. Following broader trend lines among other VCs in the region, the new seed fund will favor European businesses, while the growth fund will focus on US startups.
Frontline believes that US scalers, in general, have a much better chance of success when expanding their operations on the other side of the Atlantic. “Although a traditionally undervalued market, Europe accounts for more than 30% of the global revenue of the top-performing B2B software companies at IPO,” Brennan O’Donnell — Frontline Growth’s co-head with Stephen McIntyre — said in a statement .
“Traditionally undervalued” is a well-worn phrase applied to Europe’s business landscape. And the stats detailing how funding has been cut since 2021 don’t help. However, things are not as bad as the headlines seem to suggest when you stop to compare recent investment trends with the boom periods of 2021 and early 2022. Startups on the continent still raised more capital last year than the 2019, according to a report by the Orrick Law Firm. And Europe was the only major region to see investment levels remain above pre-pandemic levels – Asia and North America fared poorly by that metric.
O’Donnell and his colleagues at Frontline have expressed the value of Europe as a market for some time and have even confirmed it with some research by themselves. Frontline wants to make sure its US companies don’t leave money on the table by expanding into Europe when they should.
Expansion Roadmap
O’Donnell told TechCrunch that when Frontline helps portfolio companies navigate expansion into another market, it focuses on timing, go-to-market strategy, talent and organizational planning, and location.
This is in order of importance, and a company’s location should be a derivative of the previous three aspects, O’Donnell said. “Ultimately, location comes down to where your customers are and where the talent base you need to effectively support those customers is.”
Frontline has already put this framework in place in recent years, supporting portfolio companies such as HR software company Lattice and compliance platform Vanta with expansion into Europe.
“The grid was extended at a time when it wasn’t obvious,” O’Donnell explained. Although the company put its plan in place during the pandemic, when people were still not actively boarding planes, there was also a sense that the 2020 downturn would not last, he said, adding that there were some headwinds for the technology HR. After a few years, this decision also proved to be “very successful”.
One of the pitfalls Frontline warns against is “success amnesia”: Just because a company enjoys a certain level of success in the US doesn’t mean it will do well in Europe without careful strategy.
“Vanta has grown as quickly as it has in its first 18 months in Europe thanks to Frontline’s guidance,” said Christina Cacioppo, co-founder and CEO of Vanta. “We’ve tripled our customer base, quadrupled our team and established Vanta as a global market leader thanks to Brennan, Stephen and the Frontline team.”
In addition to its partners and offices in London, Dublin, Palo Alto and New York, Frontline has also built a community of executives in the Europe and Middle East region to form a network that portfolio companies can tap into her. “Over the past couple of years, we’ve built a community for the top 200–250 EMEA VPs and GMs and hold regular events.”
Speaking about the company’s current portfolio, O’Donnell said he expects an IPO for one of its investments, possibly one of its mature, growth-stage startups — within the next 18 months, though he didn’t specify which.
Speaking about Frontline Seed, O’Donnell noted that the company has “a particularly strong track record of helping companies raise their Series A.” Considering that pre-seed and seed investments have not slowed as much as later stages, avoiding this bottleneck could be useful for European startups hoping to become transatlantic scale companies or perhaps even IPO candidates.
