Abstract

Venture capital has been argued to have a positive impact on the economy, particularly, job creation, and on young and innovative companies, also called startups. Many studies explored the role of venture capital on startups; however, no scientific literature is available on the dynamics of the portfolio of VCs across financing rounds. Some non-scientific literature is available for the United States, but nothing has been brought forward for Europe. Thus, in this paper we argue that understanding the funding lifecycle of startups is crucial.

This paper analyses a cohort of European-based companies that raised a Seed round between January 1, 2008 and December 31, 2010; consisting of a total of 1092 companies. The matriculation rate, which shows the percentage of venture capital-backed startups who have been able to guarantee investment after their Seed round, shows exponential decay. The model developed and used shows that the matriculation rate behaves the same in Europe and the US. Approximately 80% of European startups with a Seed round of investment fail to ensure subsequent rounds.

In parallel, the paper also analyzes attributes of the companies in the cohort. The United Kingdom, Germany and France are the European countries with most startups ensuring Seed rounds. The paper shows that more than 50% of venture capital-backed European startups have up to two founders. Finally, the paper reinforced that managing to gather a Seed round has been more common over the past years.