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. “Though it is a traditionally undervalued market, Europe accounts for over 30% of global revenues of top-performing B2B software companies at IPO,” Brennan O’Donnell, who will co-lead Frontline Growth with fellow partner Stephen McIntyre, said in a statement.
“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, and, according to O’Donnell, aims to help startups straddle the pond by lending its expertise when they are ready to expand.
Expansion roadmap
O’Donnell told TechCrunch that 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 expanding to Europe.
“Lattice expanded at a time when it wasn’t obvious,” O’Donnell explained. Although the company put its plan into action during the pandemic, when people still weren’t actively getting on planes, there was also a sense that the 2020 dip wouldn’t last, he said, adding that there were some tailwinds for HR tech. Fast-forward a few years, and that decision proved “very successful.”
One of the pitfalls Frontline warns against is “success amnesia”: Just because a company enjoys a certain level of success in the U.S. doesn’t mean it will fare well in Europe, too, without a careful strategy.
“Vanta grew as quickly as it did during our first 18 months in Europe thanks to Frontline’s guidance,” said Christina Cacioppo, co-founder and CEO of Vanta. “We tripled our customer base, quadrupled our team, and cemented Vanta as the market leader globally thanks to Brennan, Stephen and the Frontline team.”
Besides its partners and offices in London, Dublin, Palo Alto and New York City, Frontline has also built a community of executives in the Europe and Middle East region to form a network that its portfolio companies can tap. “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.”
Speaking about the firm’s current portfolio, O’Donnell said that he anticipates an IPO within the next 18 months. Of course, it will take a lot longer for its seed bets to reach the exit stage, but Frontline is also keen to help them move from one stage to the next.
Talking of Frontline Seed, O’Donnell noted the firm has an “especially strong track record when it comes to helping companies raise their Series A.” Considering that pre-seed and seed investments haven’t slowed down as much as later stages, avoiding this bottleneck could be of value to European startups hoping to become transatlantic scaleups, or perhaps even IPO candidates.