What's the best startup model for Europe?

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I recently met with Yoav Andrew Leitersdorf, managing partner with YL Ventures. YL is a VC with offices in the Netherlands, Israel and Silicon Valley. Leitersdorf thinks his business model of ‘flipping’ tech companies faster is better applied in Europe than trying to create a massive startup in the way US firms do.

Here’s how the idea goes: YL looks for tech companies with seed investment, say a million euros, and which show growth. They then put in a Series A funding round – say around two million euros – but then soon after look to sell the company, often to a Silicon Valley player. They don’t try to carry on pumping in cash but to enable the founders to exit quickly for a good price. So, no Series B. The idea then is to create lots of successful entrepreneurs who can then go on to their next startup, which might in turn be bigger the second time around. “Most funds want big exits but this contradicts what most European entrepreneurs want,” he says. His catch phrase is “Series A then M&A”.

His view contrasts markedly with Nic Brisbourne, partner at DFJEsprit, who says on his blog recently that “Adopting a home-run mentality is the best way forward”. He bases this view on figures from the latest Go4Venture report which said that the market is increasingly driven by larger deals, with 22 transactions of more than EUR 20mn in 2007, compared to 15 in 2006 and 2005, and only 5 in 2004. Go4Venture says this reflects European VCs growing taste for high risk/high reward transactions, which is closer to the behavior of their Silicon Valley brethren.

So who is right? Should European startups set their sights lower but try and create some early wins so we can really kick-start the market? Or should people aim to become the next Facebook/Google etc?