Toogether was a good enough idea. But the Dutch ridesharing and carpooling startup announced today that it’s shutting its doors. There are a number of reasons why: an imperfect business model, stiff competition, and the uphill battle of getting users to change their behavior. But there’s also the issue of funding. Toogether’s failure to raise cash should serve as a reminder to those with access to U.S. venture capital: You’re damn lucky.
Toogether’s funding came from a combination of various Dutch foundations and a tax credit available to startups based in the Netherlands. Despite watching a French competitor nab a $100 million investment, Toogether couldn’t secure VC money of its own. In an unusually candid blog post about the company’s failure, its founders explain why:
It has become clear to us, that Dutch investors have a completely different view on investments then the praised VCs from the US. One investor even said to me: in the Netherlands, Blablacar would not have received funding. In some cases it was us not [being] interested pursuing a deal, as quite often the conditions were horrible. One investor even asked us if he could join as director, and pay him an hourly fee. In the end, we are happy not to have a VC deal. We have no debts, nor VCs that need to explain to their informal investors or funds that the investment sucked.
The issue isn’t unique to the Netherlands. As active as Europe’s tech scene is, the investment going on there is nowhere near as big as in the United States. According to the Wall Street Journal, the gap is enormous:
Firstly the sheer size of U.S. investment is staggering. Just taking the second quarter of 2013, U.S. tech investments totaled $4,674 million. That is more than the entire amount invested in Europe in 2012 ($3,905 million). U.S. VCs completed 563 deals compared to 229 in Europe (which together were worth $999 million).
Of the VC investments that do happen in Europe, they are much more heavily directly at later-stage companies than startups looking for their first or second round of funding. Seed investments are the tiniest pie slice of all. By comparison, American investors are not only more generous, but more willing to take risks on companies in their earliest stages.
An idea like Toogether, as firmly rooted as it is in the “sharing economy” ethos now taking the tech industry by storm, has its share of pitfalls. As the founders point out in their post, the Netherlands already has pretty solid transportation options and erecting “multi-sided marketplaces” is a huge challenge. And then there’s the very core of the product itself:
Carpooling requires behavioral change from both the driver and the passenger. A carpool ride to a festival is a whole lot different from having a frequent ride together. The benefits (such as cost reduction) simply do not outweigh the fear of being dependent on someone else. Furthermore, it is not on people’s radar; we don’t rely for our commutes on other people. Rather, we prefer, as human beings, to be in control or to be dependent on a public transport company with a clear schedule.
Factors like these can make a startup a tough sell to any investor. But it doesn’t help when there’s much less cash flowing through the marketplace. If it seems like companies in the Silicon Valley are able to drum up cash for just about any inane idea, it’s probably because comparatively speaking, they totally can.