Europe is not the good land for VC

 Ilja Laurs is CEO and founder of GetJar. He submitted this story to VentureBeat.

I had become certain that the VC model — the economic paradigm I had learned was far and away best for IT companies — could not be implemented effectively in Europe thanks to two factors: Europe’s heavily government-controlled business environment and lack of VC experience.

I’ll explain. First off, the long work hours required to jump start a new tech company under the VC model are not permitted by European laws, which usually only allow employees to work 40 hours per week. Those already scarce hours are often consumed by another aspect of the strictly controlled European work environment: report filing, certification courses and tax inspections — all of which are conducted with much more rigor than in the U.S.

During the startup phase, a European company is subjected to a stringent level of control. In addition to endless paperwork, a full-time accountant must be hired immediately. If, for example, form 140B-3.6 isn’t filled out by a certain time on a certain day, a company owner can be fined or even jailed.

To say the least, these rules are not VC-model friendly. They take attention away from a startup’s main objectives, add a level of stress not conducive to creative thinking and actually discourage the formation of IT startups.

Europe’s controlled business environment prohibits the level of experimentation necessary for VC-backed enterprises, particularly in regards to hiring and firing. While American employees who don’t work well in furthering the company’s goals may be terminated without warning, European employees, once hired, can rest safely in their jobs for an extended period.

While this is a benefit to the employee, the inability of employers to view a newly hired employee as participating in an audition of sorts hinders the creative freedom of the company and can lead to long-term stagnation, both consequences that operate in direct opposition to the VC model.

In addition to the issues stemming from a strictly controlled workplace, Europe’s efforts in VC suffer from an extreme naiveté. As the birthplace of the VC model, the U.S. has considerably more experience in VC enterprises, and, as such, operates with a more mature view. In the most intimate way, American VCs have seen the rise of Google, Twitter and Facebook. They know the ins and outs of their formation, they are familiar with the risks they took and they know the intricacies of their success.

Also, thanks to their experience, VCs in the U.S. understand that the parameters of the classic business model do not apply to the businesses they back. While European boards are focused on profits and revenue from the get-go, their U.S. counterparts realize that money often takes its time coming. In fact, I have noted time and time again that European valuations of IT companies are two to three times lower than those in the U.S.

The best opportunity for vc funding