Growth stage funding picks up in Europe | VentureBeat | Entrepreneur | by Tony Zappalà, Highland Europe

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Growth stage or growth equity tech investing is on the rise in Europe. According to Invest Europe, growth investments rose 11% year-on-year in 2015 to reach €6.5 billion ($7.3 billion), reflecting the increasing number of European companies leaving their startup years behind them to embark on the next stage of their life cycle. But unlike in the US, where — due to the maturity of the ecosystem — growth stage is seen as a key investment category in its own right, in Europe it is still widely considered a mere branch of venture capital, with little to distinguish it from Series A or B.

Part of the reason these categories are often confused in Europe is that historically, there have been far fewer growth investors here than in the US, while a large proportion of the growth investment that has been available on this side of the Atlantic has come from American funds, who saw the European opportunity but logistically could only cover the most visible of startups.

The other main reason for category confusion is that the funds that are active in Europe tend to define growth stage businesses slightly differently. Each firm will have its own particular benchmarks. But in general, a growth stage company has a number of clear markers. Typically, it has a product in the marketplace, which customers are starting to use and like. In all probability the product has yet to be perfected and the company may not be making much, if any, profit — but it will have decided on a business model and have demonstrably growing revenues.

Such companies will usually be on the brink of breaking through to the next level, in scaling terms, and while they may already be selling into one or two countries, they will need to expand rapidly into many more. Similarly, their headcount will be growing inexorably, from perhaps 30 to a few hundred people and rising, meaning that they need to put in new systems, covering everything from IT to HR.

While of course there’s a degree of overlap between growth equity and VC investing, there are fundamental differences too. As a rule, VCs invest from far earlier in the cycle, often focusing on companies that don’t yet have customers, or even a business model. Indeed, VC investing is a lot more about th

via venturebeat.com