Europe’s resilience and long-term prospects in the face of the global investment slowdown may likely explain why LPs are favoring transatlantic VC firms these days.
Giant Ventures in January closed two new funds totaling $250 million that it will invest in startups on both sides of the Atlantic, and today, TechCrunch has learned exclusively that Frontline Ventures has also raised $200 million across two funds, named Frontline Growth and Frontline Seed.
Frontline has historically invested in both Europe and North America, and its new funds will continue to follow that strategy, betting on B2B software companies.
The new seed fund will favor European ventures, while the growth fund will focus on U.S. startups.
The venture firm’s logic here is that U.S. scaleups have much better odds at succeeding when they expand their operations to the other side of the Atlantic. Brennan O’Donnell, who will co-lead Frontline Growth with fellow partner Stephen McIntyre, said in a statement, “Though it is a traditionally undervalued market, Europe accounts for over 30% of global revenues of top-performing B2B software companies at IPO.”
“Traditionally undervalued” is a popular descriptor for Europe’s venture landscape, but things aren’t as bad as the headlines seem to state once you stop comparing recent investment trends to the boom times of 2021 and early 2022. Europe, for example, has seen venture investment slow down significantly in the past couple of years, but startups on the continent still raised more capital last year than they did back in 2019, according to a report by law firm Orrick. Indeed, Europe was the only major region to see investment levels remain above pre-pandemic norms — Asia and North America both fared poorly by that metric.
O’Donnell and his partners at Frontline have been vocal about Europe’s value for some time, and have even corroborated it with some research of their own. Frontline essentially wants to ensure that its U.S. companies don’t leave money on the table by not expanding to Europe when they should.
“As a traditionally undervalued market, Europe represents a significant opportunity for top-performing B2B software companies to increase their global revenues,” says O’Donnell.
In order to facilitate this expansion, Frontline provides expertise and strategic support to its portfolio companies. O’Donnell explained, “When it helps portfolio companies navigate expansion to another market, Frontline focuses on four aspects: timing, go-to-market strategy, talent, and organizational design and location.”
That’s by 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 that you need to effectively support those customers is.”
Frontline has already put this framework into action over the last few years, supporting portfolio companies like HR software company Lattice and compliance platform Vanta with their expansions to Europe.
“Lattice expanded at a time when it wasn’t obvious,” O’Donnell explained. Despite making the decision amidst a pandemic, Lattice’s success proved that the timing was right. O’Donnell adds, “Fast-forward a few years, and that decision proved ‘very successful.’”
For Frontline, it’s important to avoid “success amnesia” as they help companies expand internationally. Just because a company is successful in the United States, doesn’t necessarily mean it will have the same level of success in Europe without a carefully crafted strategy.
Christina Cacioppo, co-founder and CEO of Vanta, praised Frontline’s guidance and support in their European expansion, stating, “Vanta grew as quickly as it did during our first 18 months in Europe thanks to Frontline’s guidance. We tripled our customer base, quadrupled our team, and cemented Vanta as the market leader globally thanks to Brennan, Stephen, and the Frontline team.”
Aside from its partners and offices in London, Dublin, Palo Alto, and New York City, Frontline has also built a network of executives in the Europe and Middle East region. This community of top-level executives offers valuable resources and connections for portfolio companies looking to expand into the European market.
“Over the last couple of years, we have pulled together a community for the top 200-250 VPs and GMs of EMEA, and we do regular events,” says O’Donnell.
Despite the current challenges of the pandemic, O’Donnell remains optimistic about Frontline’s current portfolio and their future prospects. He anticipates an IPO within the next 18 months, and Frontline is also dedicated to supporting their seed investments as they grow into later stages of development.
“As Europe’s venture landscape continues to demonstrate its resilience and potential, we are confident in our continued success in the region,” says O’Donnell.
With the current investment slowdown, Europe may be overlooked by some, but Frontline Ventures sees the value in transatlantic partnerships and the opportunities that can arise from them. With their experience and strategic support, Frontline is helping bridge the gap between the U.S. and European markets.
