Friday, February 16, 2007

Y Europe can seed growth of its new stars

Europe has so far under-delivered in terms of globally successful technology startups.

But we're starting to turn a corner in Europe as we start to leverage some of our emerging assets. We've always had great talent (especially in academia & research institutions), but now we also successful entrepreneurial role models, sophisticated early-stage financing and the ability to start and test businesses at low-cost as well.

We should stop worrying about why we're not Silicon Valley and start thinking about what we can do with the great advantages we have. So this is really a call to arms: for first-time European entrepreneurs to let us know what they need to improve their chances of global success and for serial entrepreneurs and investors to figure out how we can better support the best ideas and talent.

We have a real chance to improve how we find, develop and accelerate the growth of our best European ideas - we need to work together to figure it out.

London's emerging young entrepreneurial scene
This issue has really come into focus for me as I've started to spend time with some of the rare people who are coming straight out of university to start Internet businesses. Some are staying in the UK and some have headed off to Silicon Valley - but I've been really impressed by the appetite for building startups by this group drawn primarily from Oxford and Imperial universities.

For the London startup community, Imperial and its talent pool must be one of our best hidden secrets. It's rated 1st in Europe and 4th in the world for technology by the Times Higher Education Supplement. Imperial's Computer Science department has around 600 undergrads and 400 PhDs, so it's great to see some of these people begin to start companies. In fact the student body has created Imperial Entrepreneurs (disclosure: I'm one of the founding patrons) to help potential student entrepreneurs reach out to London's established entrepreneurial and venture community to kick start opportunities.

How they've been doing it in the New World
Here in the old world, this is new news but in the US of course this is an old story. Schools like Stanford, MIT and Berkeley have long been known for producing great teams who come straight out of school and start significant businesses.

In fact in the last five years, this phenomenon has spread beyond this technical trio to encompass even liberal arts schools like Harvard (Facebook) and the amazing alumni like Scott Banister and Max Levchin of University of Illinois at Urbana-Champaign who have been behind great businesses in the last 10 years (LinkExchange, Ironport, Overture, PayPal and Slide).

Stanford with Google and Yahoo! to its name is the benchmark by which all other schools are measured. At Stanford, talented students not only have a faculty that encourages innovation, but of course they have Sand Hill Rd (and developed angel networks) on their doorstep for funding plus an MBA program and hundreds of technology businesses in the area to draw from for hiring.

These networks become self-perpetuating and are replicate anywhere. Silicon Valley is unlikely to ever be equaled as a magnet for innovation unless something very fundamental changes, but there is no reason why London in particular and Europe in general can't start to really compete in the creation of global success stories.

So how can Europe start to compete?
  1. Availability of Talent

    Europe has incredible depth and breadth of talent. Skype is perhaps one of Europe's first global Internet success stories and it has exposed me to some of the most amazing developers and product people working in technology today -- these are people who are from Estonia, Denmark, Russia and Sweden.

    We think of these markets (like India) as being a source of cheap talent, but this misses the point entirely - this talent is world-class. Check out the stats on Topcoder and you'll see that Russia, Poland not just holding their own with the US but ahead in competitions - and Ukraine and Slovakia not far behind. Given the web was developed at CERN and some of the great successes of the open source market like Linux and mySQL were both born in Europe we shouldn't be surprised.

    Somehow we have persuaded ourselves in Europe that the US has all the talent, but if you look at the chart from Eurostat below you'll see that in 10 European countries including Lithuania, Ireland, Belgium and Switzerland have more science & technology graduates per head of population than in the US.

    Now of course you need more than just great engineers, mathematicians or biologists to make great disruptive companies but this mix and diversity of talent is actually something where London and many other major European cities are blessed. There are plenty of experienced commercial marketers, product managers and financial types around to help build out a business once it starts to take hold.

    Critically, we still don't have a deep pool of experienced startup talent in Europe, but one positive from the bubble of the late 90s is that it bloodied a generation of employees who know what it's like to ride the roller coaster of success and failure in a startup. Of course Silicon Valley and Boston has several generations of this kind of employee but tasting and learning from startup failure (as well as success) is something which Europe needs more time and experience to compete.

    Many would argue Europe also needs a major change of attitude (and possibly legislation) here. Failure or bankruptcy is not culturally accepted in Europe, but if we want to encourage the abundance of talent to start and join early-stage companies trying to change the world, we need to accept there will be many many more flops than hits.

    If we want European talent to stop feeling disheartened and start saying "I don't have to go to Silicon Valley to do this", we need to support failure and encourage people to take the risks you need to think and succeed big.

  2. Sophisticated Funding

    A major part of supporting success or failure is funding. Library House have just conducted some very interesting research which breaks down venture capital investment into geographic clusters which takes an analysis of the US market beyond the national level. In this view, California and Boston are way ahead of the game but the UK is #3 worldwide in terms of investment.

    Funding is only one piece of the jigsaw. It's not just the access to capital, but it's access to investors who have ambitions to build big global businesses, not just local players.

    Ambitious entrepreneurs have been educated to believe that you need to have a US investor to build a global business, but there is certainly a much more developed and competitive market for backing European entrepreneurs today than there was even 5 years ago. When I started Video Island (now Lovefilm International) in 2002, there were very few Silicon Valley style, top-tier VCs ( Index and Benchmark) willing to back consumer Internet businesses but now there are several in the game (including Accel and Atlas). These established firms and very strong local players like Mangrove, Northzone (Scandinavia), Gemini (Israel), Wellington (Germany) and others, are all looking for and prepared to back teams that want to take on and change the world.

    There are also now a significant network of serial seed-investors and entrepreneurs - who are lending both their capital and experience to build and back European start-ups. These include Niklas Zennstrom (FON), Martin Varvasky (Netvibes), Stefan Glanzer (Last.fm), Pierre Chappaz (Netvibes, Wikio), the Samwers (Hitflip, Wunderloop), Simon Murdoch (Lovefilm, Viagogo), Klaus Hommels (Stardoll, OpenBC) and Brent Hoberman (WAYN, Moveme). At TAG alone, we have invested in around 10 European start-ups in the last four years.

    There has been quite an active discussion recently about the funding gap for European start-ups, but in funding terms, I don't think there has been a better time to get a start-up funded in Europe. Index has just closed a €350m fund.

  3. Role Models & Ecosystem

    The same can be said for the availability of both companies and people are can provide role models to first time entrepreneurs about what can be done.

    Larry & Sergey at Google and Jerry & David at Yahoo! needed there to have been Jobs & Wozniak at Apple or Gates & Allen at Microsoft. In Europe, we are only just beginning to recognize that if Niklas & Janus can do it with Skype, then why not others?

    Why not indeed. There is nowhere near as many examples of people creating global technology businesses in Europe as in the US, but you just need a few examples. Skype was a watershed moment in how European entrepreneurs can think about their potential, both in terms of exit and global footprint (only around 20% of the business comes from the US).

    We now have several businesses born in Europe that have the potential to make a global impact and they are spread across the Continent: including last.fm (London), Netvibes (Paris), Habbo (Helsinki), FON (Madrid), Skype (Tallin & London) and Rebtel & Stardoll (Stockholm). We also have a generation of second and third time entrepreneurs who are not only helping to seed the next generation but are also now focussed on building their own new businesses.

    There is also now a growing ecosystem of support services -- lawyers, communication agencies and recruiters -- that have experience working with startups and helping them scale.

  4. Globalization

    Perhaps one of the key factors that is swinging into Europe's favour is the changing dynamics of the Internet and globalization. Ten years ago, in fact even five, you could not consider building a global technology business without starting in the US but that is not true today.

    The Internet outside the US is bigger than the inside and that trend is only accelerating. Google, eBay and Yahoo all know this and the fact that YouTube is already over 65% international in less than two years from launch shows that the US in no longer an island.

    Against many important measures -- broadband penetration, % online advertising spend and mobile phone adoption -- the US is no longer the world's most important market. This is not for one minute to say that the US shouldn't part a major part of every ambitious startup's plans but if for example you want to be in the market with the largest share of online advertising as part of the marketing mix, you want to be in the UK.

    Skype again is a great case study of a business that did well to look East before it looked West. Today Asia is a major part of its community and several developing country markets like Poland, Brazil and Turkey are very significant as well. European companies are ideally placed to take advantages of these globalizing trends and not just because of their location.

    Location is important, but in this case, an attitude which is attuned to being open to other cultures is actually more important. No European market is big enough to sustain a single-market player, so no ambitious European technology business thinks either single geography or language. Where Netflix could create a major player by thinking US only, that is not an option for Lovefilm. If you start your business in Tel Aviv, Stockholm or Tallin you can bet you're thinking from day 1 about how you can take your products to a global market - if you start your business in Palo Alto, international is probably an after thought.

  5. Start Up Costs

    Open source technologies have evolved to a level of maturity and popularity that if you are a talented developer with a great idea for an Internet application your only really significant costs are your time. Amazon's web services have even started to push bandwidth and storage into an area of affordability.

    The barriers are now incredibly low for creating software applications which you can get out onto the Web, expose to a global audience, get feedback and iterate.

    Starting small doesn't mean that you're not going to need funding to hire and scale up if you have a real business to pursue, but what it does mean is that you can find out very quickly and cheaply if your idea has traction. There is a big difference between an idea (which is easy to discard) and a business that has taken on people, costs and commitments (which is very hard to discard both rationally and emotionally).

    We have a great opportunity today to test more ideas, which we can do very quickly and cheaply, and start businesses which have a better chance of succeeding.
So what can we do about it?

Well, not surprisingly there are already some models looking to help encourage young talent to start businesses in the US like YCombinator startup schools in Boston & San Francisco and the new Techstar summer program in Boulder.

Both these models are similar in terms of their approach:
  • invite smart first-time entrepreneurs to apply for an intensive course on developing their idea into a business
  • surround them with experienced entrepreneurs and investors who have been their before
  • invest small amounts of capital ($5-15K) to take small equity stakes (5-10%) in a limited number of the entrepreneurs
  • support these entrepreneurs for a limited period (say 3 months) on site in SF, Boston or Boulder
  • give the successful teams the chance to pitch to VCs and experienced investors
If you agree with some of the success factors above, there is a lot to like about these approaches: they are open to anyone, they give people access to experienced role models and an ecosystem of support from entrepreneurs and investors.

What I really like about YCombinator though is the focus they have on the developer, especially young developers. Paul Graham writes really eloquently about today's hackers being like the Renaissance artists of our generation. The democratization of the tools needed to create great software means that anyone with the talent and an idea can try to start a business. The same will become true for the creative arts and is to some extent already the case on YouTube and Amie Street but for now the focus should be on the hacker and the giving talented software developers the chance to turn their ideas into businesses.

I think Paul Graham has it right. Not every great hacker will be able to create a business, but today's world gives them a better than average chance and giving them access to the right support networks, advice and capital is the right way to do it.

The jury is still out in terms of the commercial payback of the YCombinator crop but I think regardless of how many businesses come out and get funded, acquired or become sustainable - the educational benefit that accrues to talent from the support they receive and the networks they form is the biggest payoff. It's basically a cheap and very compressed MBA, because anyone who has done a startup knows, you only learn by doing and making mistakes.

We can do this. We should take this model
(perhaps with Paul Graham to help!) and make it work for Europe -- I suspect it needs significant tweaking and I've seen some interesting riffs on the model starting to emerge, but it's really a service for the entrepreneurs - so you should let us know.

Seeding Europe's Potential

We compete with the rest of the world in being able to leverage open source and the growing ubiquity of the Internet.

But in Europe we now have some advantages of our own:
  • world-class talent within the EU and in our orbit including Israel, Russia and South Africa
  • proportionally more 20-29 year old science & technology graduates in 10 European countries than the US
  • available startup capital like never before and experienced investors keen to back daring ideas to create global businesses
  • a generation of experienced European entrepreneurs ready to offer a support network
  • successful role model companies in capitals across Europe
  • cultures that are attuned to thinking global and acting local
So what next? This summer we will aim to bring together some of Europe's best entrepreneurs and investors to start supporting and seeding talented developers who have ideas that they think they can turn into world beating businesses.

Right now, I've love your feedback.

Let me know;
  • what you think,
  • who you'd want to be involved,
  • how we should go about finding the right talent,
  • who should we be telling about it,
  • how should the model work best,
  • if your an entrepreneur what you would need,
You might feel it's a bit of a cop out having this be a conversation, rather than locked down and launched but I think that the conversation in Europe is maybe as important and getting a seed-camp off the ground.

(Note: thanks to everyone who gave great comments on this tirade and to Sam Sethi for a great title)

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54 Comments:

At 2/16/2007 12:55:00 pm, Blogger Peter Nixey said...

Saul,

It's really good that you guys are thinking about this and I've every confidence that it'll do both you and the industry good to lay down a bit of fertiliser.

As a developer working to get a product out, the things that would make a huge amount of difference are:

1. A place to work - it's difficult and lonely working alone

2. A way to support ones self - London's an expensive place to be. It's all very well saying that software's cheap to develop but it's not cheap to live and like it people's friends are living on Lawyer / Banker/ Consultant/ Accounant salaries - it's a sad day when you have compromise your friends because you can't afford to drink with them.

3. Designers and other IT pros available in the same building - one/two people aren't going to be an expert on everything and someone's who's great on interface may need someone else who can plug them on to Amazon S3, someone who's great on image processing might need someone who can build a usable interface to it etc.

Either a bad backend or a bad interface can kill an app and seldom can a small team deliver both effectively.

4. marketeers / PR people in the same building who can start to help formulate a strategy for the product at the same time as development.

This is critical and for anyone has a great idea but no network, building that network is one of the most important first steps for an app. Tarik was already running several sites when he released netvibes, Craig Newmark was running a huge bulletin board before craigslist, Ryan build Carson Workshops and Vitamin before launching dropsend etc. etc.

5. Status associated with the project. Kulveer commented on this recently in a BBC article but it's no fun telling people you're doing a startup in London. That might seem like a small thing but it can be pretty oppressive. Telling people you're part of a top-flight incubator is a whole different story.

6. To be able to trust that the people running the programme have the same objectives as the entrepreneurs. Is everyone looking for a 2/3 year exit or are they building for an IPO? Is the entrepreneur fully aware that an exit is going to be required / is an exit going to be required. What's the pressure going to be from on top if Yahoo come in with an early £10M offer - does the incubator and the entrepreneur have the same views on which way to go.

In summary, the main things (and I think most of the guys I know would agree with this) that would change things are:
1. A Decent place to work with other smart people
2. Enough money to be able to develop the idea full time
3. *Smart* support services (not just Business Link)
4. Status
5. Trust.

Good luck, I hope you guys do something in this space, you could make a world of difference.

Peter

 
At 2/16/2007 05:40:00 pm, Anonymous Anonymous said...

Peter, thanks! but I wasn't running a bulletin board before craigslist, the board and craigslist are the same thing.

thanks!

Craig
craig@craigslist.org

 
At 2/16/2007 06:08:00 pm, Anonymous Fergus Burns said...

Hi Saul

Great post - and its good that you/Index are thinking about the whole ecosystem.

I'm a big fan of "startup schools" - and from an Irish context I did a previous post on the subject - http://www.web2ireland.org/?p=232

For Y Europe some "must haves"

- educational opportunities - listen/engage/network with others in the ecosystem

- "pitch camp" - one of the common weakness European entrepreneurs face is "Pitching"

- "location" - a central hothouse. Peter has a great point on location/London/etc - but thanks to Ryanair anybody travel to London frequently and cheaply.

- Access to early "focus groups". The valley has a built in "focus group" - the 100k people who operate in the sector - and feed back into the product loop.

I look forward to Y Europe happening.

Best Regards
Fergus

 
At 2/16/2007 06:31:00 pm, Anonymous Anonymous said...

I think you hit all the right notes on this: Europe really does have some unmatched assets.

The biggest issue for me is a culture of risk. I think one of the reasons Silicon Valley works so well is not only are entrepreneurs risk-seeking and VC's risk-tolerant, but the local culture is hugely accepting of it. We laud the people who are successful and amazingly forgiving to the people that have augured their startups far into the ground.

It does feel like things are heading this way in Europe but I would love to see something of a marketing campaign from the VC's there to educate the public.

The other issue that is very tactical is hiring. Even though there's an enormous amount of talent in Europe, finding them is a challenge because you need to have a networks in multiple countries. Not sure what the best solve is for that.

 
At 2/16/2007 09:47:00 pm, Anonymous Ivan Pope said...

I guess issues worth taking a look at in this part of the world are:
risk - do investors in the UK really understand what risk is - I'm fed up with VCs who say 'We work on the west coast model' and in the next breath say 'we can't consider anything that is pre-revenue'
introductions - no VC in the UK has ever introduced me to a lawyer and no lawyer has ever introduced me to a VC, etc
education - until VCs started blogging, I had no idea what they did, how they did it and what they thought about. Now I do, but mainly from US VCs
mentoring - maybe I'm just naturally prickly, but I've always yearned for someone with more experience than me to take me under their wing - doesn't happen
feedback - one of the worst things that happens to me is to go and have a great meeting with a VC and then to hear, nothing, nada, no feedback, deathly silence
honesty - I hate going to meetings where it becomes very clear halfway through that some fairly obvious issue, like we're pre revenue, means there never could be a deal, so why am I in there in the first place.

I mean, I find it flattering to go meet VCs and I always enjoy it and it is an iterative and learning process and there are some great people around who generally have time for me and whatever I've got kicking around at the time.

 
At 2/16/2007 10:32:00 pm, Anonymous Berislav Lopac said...

Very early-phase capital is even more difficult to come by in Eastern European countries, and I applaud Index's recent focus on that area. I think that such a "startup school" program would work perfectly in this area, which has a lot of talented developers with product ideas, but is lacking in general business and entrepreneurial skills and experience.

 
At 2/16/2007 11:49:00 pm, Blogger Meme chose said...

Also missing in London is the cheap, do-what-you-want-with-it garage space which was so important to HP, Apple and Google!

And the sunshine.

Maybe this will all happen eventually in Barcelona, but that's at least another generation away, largely because of lack of English skills.

 
At 2/17/2007 12:03:00 am, Anonymous Anonymous said...

I disagree not everyone can get to london on the cheap. I live in devon and to go to any event in london would put me in debt. Train tickets are over 100 pounds and then you have to pay for somewhere to stay.

I think the answer to a lot of this would be a decent UK/Europe based networking site where people could hook up with other people.

I have had several demos for different projects but living in Devon makes it impossible to find any angel funding. The network is not there to get the contacts and take these things further.

 
At 2/17/2007 03:07:00 am, Blogger Dimitar Vesselinov said...

1. Saul, I live in Bulgaria and I'm happy that Index Ventures will pay more attention to Eastern Europe.
2. I support your idea. There are lots of interesting ideas and entrepreneurs in Europe. We should be more aggressive.

 
At 2/17/2007 03:59:00 am, Anonymous Harj said...

Saul,

This is a very interesting post. As co-founder of the first Uk company to be funded by Y Combinator here are my thoughts based on my experience so far:

1) If Europe is really going to compete with the US the changes need to happen at the true grassroots level. As an example - Kulveer and I made it to the final of "The Pitch" - essentially a Dragons Dens for students in the UK. On the actual night we were made to feel vastly inferior to the "VIP's" on the night i.e. corporate sponsors of the event. This is of course just one situation and generalisations can't be made but what I can say is that since I've been out here in the Valley, not once have I ever been made to feel that I'm too young to run a startup. Here my youth is seen as a positive asset and we need to adopt the same mentality in Europe if we ever want to see a company like Facebook built there. Unless we make people in university believe they can do this, they never will - otherwise it's far too easy to hide behind the "I'll work as a consultant for a few years and then launch my own company" argument.

2) I've written about this before but part of the magic of Y Combinator are the people involved (everyone knows about Paul Graham but the other partners, Jessica Livingston and Trevor Blackwell, should also be mentioned because they are both incredibly smart and fantastic people to be around). It won't be as easy as simply replicating the YC setup in Europe and expecting it to work - there must be a real investment vetting the people involved and having the right chemistry and balance to make it all fit together.

3) There is a real philanthropic feel to Y Combinator - of course the end goal for everyone is to make money but that pressure isn't driven into us every day. YC are well aware that the majority of the companies they invest in will fail (most startups do) but they keep running the programme anyway.

4) I can't emphasize enough just how important the third point Peter made is. Right now if I have a question about anything - be it how to integrate Amazon S3 right through to how to open negotiations with a VC - the answer is never more than an email away. It feels as though I could email my YC peers anything and someone would know the answer. That's an incredibly powerful resource to have when running your first startup.

I have plenty more experiences to share and I blog about them weekly at http://mealticket.wordpress.com

I do believe Europe can act as a real hub for tech innovation and I completely agree with the general message of your post - while it may never reach the ecosystem possessed by Silicon Valley, it can go far beyond where it is at the moment.

 
At 2/17/2007 12:31:00 pm, Blogger Peter Nixey said...

Apologies Craig, I thought I'd heard you say that when you were speaking in Oxford a couple of years ago but I must have gotten the wrong end of the stick.

I certainly didn't mean any slight by the comment either. It's much stronger to build tools around a community than try to build a community around tools.

I think that many startups assume they'll get a community and a thousands of sign-ups to their app on the basis that those were the numbers that flooded into Netvibes or Dropsend during their first weeks.

It's easy to forget is that many of the most successful sites we see around were often the "next gear" for a previously hard-fought for and well-serviced, pre-existing community. The chasm-crossing application seems to often be the second or third app.

 
At 2/17/2007 01:19:00 pm, Blogger Xavier said...

Saul,

There is a huge confidence problem in Europe. Lots of people here are talented, skilled and on their way to have great ideas. But they lack confidence and often prefer to go for the security of a job.

I am just about to launch myself in the adventure of entrepreneurship and must admit it scares me. When I talk about my project, people around me have this strange look at me and I can hear them thinking: "poor guy, he does not know what he is doing really".

I was born in the French middle-class where unemployment is considered a great danger and you should not leave the security of a well paid job. Living abroad is a crazy thing and speaking English a rare asset. It is a long and painful process to get rid of such a cultural load.

By living three years in Amsterdam I discovered a new way to think about business: Dutch people are more daring and willing to go forward. They might be a good example to look at when committing into business. (they have this American-ish self confidence thing)

I am now about to move to the UK, near by Ryan Carson, and I am glad to see he succeeded in such an area which, to me, looks a bit lost ;) (no offence)
So I really believe (hope) geographic location does not matter much when you are serious about your business.

I see another issue for European start-ups. Talents are spread around without a focus point to join in. In the US, wannabe founders directly aim to California. We do not have such a meeting point (or to many of them). This is probably because Europe is still a mix of countries where each is trying to create such a meeting point. Although it is strange today we still need to physically concentrate when we can exchange so easily through internet.

Keep talking about it. We might be about to wake up.

 
At 2/17/2007 03:06:00 pm, Anonymous Dan W said...

This looks like a great scheme. As a final year student I've been looking for an UK/EU equivelant of Y-Combinator for a while an this sounds like just the ticket.

A possible way of finding the right people is via the universities. Take the list of the EUs top 50 and contact the computer science/engineering departments in each. All these unis should also have student enterprise societies, careers advisories and departments for spinning out companies. Talk to all of these and you should be able to get to the right talent.

Where is this incubator going to take place? Europes startups are all scatter around geographically and trying to fund a lot of seedlings in several locations would be impractical. A possibility is to pair seedlings with already succesful startups. Just place the founders in some spare office space at the twinned startup and when they run into trouble they can ask the shelter company for advice and help.

 
At 2/17/2007 06:57:00 pm, Anonymous jamescoops said...

The main thing Silicon Valley in general and Y Combinator in particular seem to do well is the mentoring aspect. People who have built successful tech startups before giving advice, helping to push things along, bridging the gap between idea and "a business". A good example of this is Jay Adelson and Digg - scaling a prototype with a bit of traction into a proper company.

 
At 2/18/2007 11:36:00 am, Anonymous Sara Murray said...

Hi Saul
This could potentially be a great debate, but doing it this way is going to take a lot of sifting!
There is unquestionably a need to improve the help available for entrepreneurs, and i believe a potential increase in opportunity as a result.
I am on my 4th small business. What I need as an entrepreneur has changed. However, there are some basic things about Europe which make a US comparison an uneasy one.
The prinicipal difference is language. Were we to have a market the size of Europe, truly accessible to us, there would be a different story.
One of my key skills is my ability to build contacts - I am a natural networker, and that has helped me.
Yet approaching other European countries, I am often confounded - where do I start? I can't even speak the language.
If some form of incubator could provide a contact network across Europe, that would be amazing.
Accessing distribution is a major key to success in any market. Sharing contacts would be great.
Apart from that, access to money is not easy for entrepreneurs. Many have a good idea but no idea how to start the fund-raising process. Negotiations with investors are only lengthy and complicated and not focussed on the business, but on legal detail.
Bank support is virtually non-existent!
.. and we brits, like many of our European counterparts, are conservative. It's a dangerous world out there on your own...!
It doesn't need to be.

Hope this ramble helps!
Sara

 
At 2/18/2007 12:14:00 pm, Anonymous Alain Marsily said...

I'm involved in several companies (US, Europe,..). I can see a strong trend: US companies are going to luxemburg because of tax heaven but also because others are coming, creating a cluster of IT companies (Apple, Skype, Cisco...). With so many coming in the last few months, you could expect new services and new communities coming along (lawyers, cheap broadband, VC, programmers, executives, multilingual employees...). Ireland was previous heaven because of close US/UK connexions but now Lux offers a more global/international profile.

 
At 2/18/2007 08:24:00 pm, Anonymous Conor O'Neill said...

Saul,

You make a lot of very strong points which resonate even more strongly with our start-up as we are based in South-West Ireland. Fergus already mentioned that the conversations around start-up schools have started over here.

We have been making some grass-roots efforts here mainly concentrated on strengthening the tech-community so that we can build those critical relationships and support networks. It is starting to work with the likes of BarCamps and ShareIT but, despite some good government funded incubation centres, we are still missing that hot-house effect. More importantly, we are also missing a vibrant tech-savvy investment community.

The property bubble here makes it incredibly challenging to attract investors to higher risk ventures. Institutional investment is still stuck in an asset-backed mode and early stage tech VC is only nascent.

One of our jobs as entrepreneurs is to keep building the links across the Irish Sea and further into mainland Europe. A concept like Y Europe would gain a very attentive audience over here.

 
At 2/18/2007 08:43:00 pm, Anonymous Anonymous said...

I'd like to see more support ofr remote groups. IE no need to be all in one place going to the office everyday -- why not use second life for meetings, demonstrations and other types of communications you might normally do face to face and start leveraging the thousands of busy, creative people that simply wont or cant up and move home to start a new company.

nick@clickinfluence.com

 
At 2/18/2007 10:11:00 pm, Anonymous Abel Flint said...

We're a London based start-up, but will be opening our first office in Second Life. Our service is simple, we represent start-ups hooking them up with receptive VC's, innovative interface designers and skilled marketeers.

The developing metaverse is exactly the environment in which diverse European entrepreneurs can gather and create a similar and positive working ethos to that of Silicon Valley.

Europe can compete, it just needs the contacts and confidence to do so... drink more lattes, think more virtual, create some pretend sunshine and avatar smiles...

If you're interested in learning more get in touch, abelflint@gmail.com, website and non-orange, non-Web2.0 logo on it's way!!

 
At 2/19/2007 12:01:00 am, Anonymous Philip Wilkinson said...

Saul - this is definitely the way to go and I applaud you taking the lead on this.

I've just got back from doing some business in San Francisco and while I'm now sitting in the airport - this is the perfect time to add some comments to this post:

1: Let's forget about European VC's until much later funding rounds. They don't want the risk, and a start-up doesn't need to waste their time. Stop thinking about going to VC's until the business is more mature - they can take less risk and pay the premium price for getting involved

2: Instead - let us foster the internet angel community in Europe - not just at a financial level but on a mentoring and community level. Let's bring in our US friends too - they will be more than happy to help. Help angels by filtering a lot of businesses before they reach them and prepare them correctly - angels don't want to be sent rubbish.

3: The googleplex was a great place and shows that the university, flexible, collaborative way of doing things can work really well for a business too. Bring people together, let them work on their individual projects, and give them access to any expert / person / project / cash fund - they need to explore their goals

4: Openness - everyone I met over here in Silicon Valley is willing to meet over a coffee and discuss things. In fact, the whole place is full of chance meetings and adhoc "bumping into people" that leads to great opportunities. No more "stealth mode" businesses, no more "working in silo's". Face it - every idea you ever have will have been thought of by at least 10 people before you - so work with them!

5: Extend beyond formal network meetings and web events. These are great but also a bit forced. Why wait until someone puts one of these events on before people get together and talk? I was at Kevin's Diggnation event on tuesday which is run every week in a bar. People watch the show, have some beers, talk amongst themselves, and meet Kevin and the team for a chat afterwards. Informal, social, fun, and a regular event


My Y Europe Vision
We make a better name for starters :-) Why don't we have a Europlex - a single location where internet entrepreneurs (european and US) come and go whenever they want. It can be used to mingle, to drink coffee, share ideas, use as temp office space as hotdesks, and access mentors and angel / successful entrepreneurs.

We can have fixed events like a university calendar which people can come too - workshops, lectures, guest speakers..

Also - we can build the "core" start-ups team that have really made the grade and considered Europe's best hopes in going down the "accelerated route" to building something unique and global.

Personally - it's a very exciting prospect.

 
At 2/19/2007 01:45:00 am, Anonymous Dan W said...

After a great weekend at barcamp I have a suggestion for Y-EU's office space. Instead of offering a typical central office or getting the teams to find their own space, Y-EU could offer a Co-Working space. I've heard coworking descibed as "barcamp everyday" or a "coffee shop style collabarative shared space for". Essentialy it's a drop in office. There would be no need for teams to be in the office at any time, they could just use it any time they feel. They could go there knowing that theres a high chance theres someone else going to be there to collaborate with or just take a break for a while. It could provide a physical core to the Y-EU project and could be used for weekly talks/demo day/group meals etc. What do people think?

Also I would love to see this project well documented. Get all the teams to blog about all their experiences. Possibly even give teams a video camera each so they can record everything and it could be stitched together to make either a video blog or a documentary, similar to what Joel Spolsky did with Project Aardvark. This would also give you great marketing material to use for any future Y-EU's.

 
At 2/19/2007 03:24:00 am, Blogger kul said...

I'm happy that this dialogue has started. The response I got to my Beeb Viewpoint piece definitely suggested that I was not alone in what I'd experienced.

I genuinely think the risk appetite in the UK (and Europe) is too low, it's as simple as that. Also, everyone talks about Skype as a great example of a European startup, but word out here is that no European VC would touch them until the Americans (Draper Co in Sept 2002) got involved. And even then, they sold to an American company.

Anyhow, I'm glad that this debate is taking place. You should check out what just happened in Oxford with the Idea Idol stuff (mentioned on CNN), so things are changing.

I'll remain a skeptic until I see hard cash being given to first time entrepreneurs for equity, no convertible notes or any of that.

 
At 2/19/2007 07:54:00 am, Anonymous Matteo La Rosa said...

Well, Saul, thank you for your post.
We are a small Internet Company in Italy and we have a (we hope...) very good idea for a web 2.0 application to be launched in the next few months.
Here in Italy the situation is worst than in northern europe, in fact there are very few 2.0 agencies and projects and someone already went out to California to do his business.
But we still believe in the opportunity that internet could give to a good idea and good developers.
We have a plan, and we do know that, should our idea go fast, we will need some funders. We believe that there is the opportunity even here to have funders, and we hope we will need them!
On my point of view one of the problems is also the maturity of the european internet user: it is not like the american one as for the willing to share contents produced by itself, for now. But the scenery is going to change, we trust this.
Thank you so for your post, that give us more faith in going on with our project and try to demonstrate that good things are not only US-based, looking also to the few (but impressive) web 2.0 european applications you listed.

 
At 2/19/2007 09:39:00 am, Blogger Gabor said...

Hey Saul, great post! I've thought about cloning YCombinator in Europe as well. My general impressions of European entrepreneurship are a bit less optimistic, though. Gabor

 
At 2/19/2007 09:57:00 pm, Blogger Saul said...

Thanks for the great comments so far everyone. I'm trying to process the feedback so far -- see next post -- and also looking forward to meeting some of you over the next few days at FOWA to hear more. Keep the ideas coming and thanks for the conversation.

Saul

 
At 2/19/2007 10:34:00 pm, Blogger Paul Sweeney said...

One of the things the valley has is Geographical proximity. People can meet people and ideas can generate. Older proven entrepreneurs, can meet and be impressed by young talent and vice versa. My friend Ken Thompson over at www.bioteams.com has a lot of research done on how to make virtual teams work, and how to build ICT Clusters from an economic standpoint (Ken has done this in the UK as well). If you are looking at generating a hot bed of innovation, you could do worse than drop Ken a line for some of his thoughts.

 
At 2/19/2007 10:44:00 pm, Anonymous Anonymous said...

Interesting post!
Question of location is vexing. For this plan to work good location must exist. London too expensive. Cost of living unworkable. Need to be able to exist on shoestring. Not gonna happen in London. Forget it!
UK IT industry currently around boring cr*p places like Reading or Cambridge which is weird. Answer lies somewhere funky, north of London, but not too far north.
South west discarded due to retirees pushing up cost of living. Bristol a maybe... but a bit too southern /well-heeled perhaps. Scotland - great, but too far, sorry.
West Midlands.. hmm, not exactly inspiring is it? People don't really want to move to Birmingham or Coventry.
Newcastle very happening indeed these days but too far north and still "too white" (in ethnicity). Manchester an obvious choice but also a depressing crime-infested sprawl. Leeds very promising but still too far north maybe. Sheffield deserves a thoroughly good look (good coders love rock-climbing at weekends!). Nottingham the ideal as its "as far south as northerners will live and as far north as southerners will live". Very cosmopolitan while a manageable size, has a decent uni, cheap accomodation, easy to live without a car. Ticks the shoestring box! Very creative too. A lot of fun to go out in, something for everyone. E Mids served by Ryanair, EasyJet & BMIBaby. Nottingham's complete downfall however is the media calling it "gun-crime capital of the UK". ;-) Maybe it can recover from that 'cos I don't know where else in the UK to locate!
But this question has to be resolved.
Thoughts?

 
At 2/20/2007 08:27:00 am, Anonymous Philip Wilkinson said...

It definitely has to be London. Nothing else is so easily accessible for Europe and the US, plus it makes sense to act as that perfect bridge between Europe and Silicon Valley.

Personally - I think the talks on location and name can come later. First thing is to really define the challenges and what needs to be done.

 
At 2/20/2007 11:18:00 am, Blogger shin said...

"Europe has so far under-delivered in terms of globally successful technology startups."

Really? If that was the case, pretty much every other geography could probably be said to be "underperforming" as well, save for the US.

I certainly think all the other non-US geographies should and could be doing more, but it is the US overperforming (and even there the performance is less than evenly distributed) rather than the rest of the world underperforming, at least in my opinion. When was the last time you heard of a globally sucessful Japanese startup? Some Chinese startups are similarly wildly successful on their home turf, but globally? I suspect you could put most countries in place of Japan or China above and would get the same blank response.

 
At 2/20/2007 03:46:00 pm, Blogger techpreneur said...

Saul, great post.

I believe Europe has sometimes a real advantage over the US. In the US startups spend loads of money on enormous teams and marketing.

Take a look at ebuddy (a Dutch company with more than 30 million users). They work with 15 people ,while meebo has about 30 people on their payroll!
To me it seems like European companies are better at spending their money on things that matter.

What we miss in Europe is a "Wired Magazine" a true European techmagazine with the same impact as the Wired.

Fortunately, with conferences like FOWA (London) and The Next Web (Amsterdam) Europe is closing the the gap with the American Tech conferences (as DEMO and Web2.0 Expo and Summit).

 
At 2/20/2007 10:46:00 pm, Anonymous Paul Elosegui said...

Saul

UK and continental Europe are different environments.

Paul Graham gave a good overview of Europe's shortcomings.

Here are some economics numbers of the higher cost of starting up in Europe.
Top European Countries for Doing Business

The area that hinders me most is the inflexible staffing.

 
At 2/21/2007 05:07:00 am, Anonymous Anonymous said...

Europe needs to mend its archaic immigration policies. A vibrant startup scene is the result of many cultures, ideas and energies coming together. Sadly the European xenophobia will be a hindrance to startups from happening.

 
At 2/21/2007 07:48:00 am, Blogger Saul said...

I wasn't going to publish the last comment from anon, I really think blog comments are one of the places on the web you really need to show your identity. Opinions need identity behind them to give some context, especially when they make claims like the one above.

I'm not saying Europe is free from xenophobia, like most places it has its fair share of intolerance. But I think one of Europe's great strengths is actually the fact that people from 25 countries can wrok anywhere -- and London is certainly one of (if not the most) multi-cultrual city in the world right now.

I'm not sure who anon is, nevermind where they come from - but I suggest at a minimum they visit London.

At Skype we had over 30 different nationalities working together in our London office -- didn't feel xenophobic to me.

 
At 2/22/2007 09:57:00 am, Anonymous Simon Brocklehurst said...

Hi Saul,

First - *really* great to see a UK-based VC blogging!

Second - you ask what European entrepreneurs need.

Well... there's one big (and difficult) issue that needs to be tackled if we really want Europe to shine. And that's the issue of equity participation (for founders, CEOs, management teams, other employees).

As I'm sure you know, there are big differences between the US and Europe. With US getting it more "right" than Europe does.

There's a whole bunch of reasons (some are obvious, some are not so) why equity participation affects the way companies develop and accelerate the growth of the best ideas...

I'm not saying this issue is trivial to sort out, but I think it's a challenge that needs to be addressed if we are to deliver on the vision of Europe as "over-delivering" in terms of globally successful start-ups.

Third - and finally - something a bit more off-the-wall than the subject of equity! There are two important areas in high-tech start-ups: IT and Life Sciences. Sometimes, these feel a lot more separate than they should be. I suspect more cross-fertilization of ideas between these fields - both among entrepreneurs and VCs - could prove rather valuable.

As an entrepreneur who works in both fields, I know how valuable I find thinking in "IT terms" about "life science" problems; and vice versa... I suspect others might too...

Phew! That's a long comment! I'll shut up now ;-)

 
At 2/23/2007 01:50:00 pm, Anonymous Sara Murray said...

just had coffee with a mentor, who happened to mention the age-old debate - why do great inventions happen in Europe but not get commercialised here?
I asked his view.
He replied, and with several illustrations, here (could mean UK - not Europe) we have a problem of "founderitis".
He said, often, inventors are not the right people to make the business happen, but here, inventors want to do it anyway and can't let go.
I have seen evidence of this a few times.
How can we help inventors to let go?

 
At 2/24/2007 06:15:00 am, Blogger Robert Loch said...

I think that you massively over hype the contribution to industry by senior players, which I consider to be very poor.

The last 3 years has witnessed a shameful lack of support from those who should and could have contributed.

 
At 2/25/2007 03:54:00 pm, Anonymous rodrigo madanes said...

Hi Saul,

So let me see if I can organize my thoughts. I'll couch this from a personal experience viewpoint, having come from California and experienced the SF life and now the London tech life.

Mostly I want to highlight two things you said and annotate them with my own experience to reinforce these problems and recommend solutions.

1. More role models in Europe
The first thing I noticed when I moved to London in 2002 is the dearth of deep role models then. What do i mean by that... Well, I remember in SF (where I was from 89-99) there was a feeling that so many people had followed a vision and created great companies, that it was very realistic for one to pursue one's vision too. I was working at Oracle in 89, and there were great companies there already which were built by entrepreneurs, Oracle being one of them (founded by Larry Ellison and Bob Miner).

Of course, Oracle is a second generation company in silicon valley, like Apple and Sun. First gen companies like HP and Intel created part of the DNA, and all the stalwarts from the post Fairchild semiconductor days which started the valley in the 60's. (Fairchild is arguably the first VC backed tech company in the valley, founded by 8 technologists from Shockley labs that included Moore and Noyce, that later founded Intel, and Kleiner, who later founded the VC firm Kleiner Perkins).

Back in 1990, I remember friends of mine migrating to companies that were doing cutting edge stuff. I remember two people who left... one to work at a startup called Cisco, and another at one called Go, which made a penpoint OS. We all know Cisco, but relatively few of us know of Go (VC was John Doerr). But this is the culture of the valley, you go and pursue an idea you think is fantastic with people you think are extremely talented. Whether it grows to become a giant company or fails is hard to anticipate. (btw, my friend at Go founded his own company afterwards and did very well... happy ending after all).

Now, why do I go into such detail about silicon valley? Because I think these people provide the backdrop to a spirit that permeates the valley about everything being possible and one being the one to do it. And of course, the idea that through great ideas and powerful technology advances, one can construct companies that can change the world (for the better).

So how do we go about building this culture and spirit here in Europe? Well, to start with, we need to have patience. Rome wasn't built in a day, as they say. And it's easier to build stuff if you're standing on the shoulders of giants. (yes, I enjoy aphorisms).

Also, I think there is a problem with thinking too broadly (to be inclusive) and not locally enough (to be realistic). Much innovation is in silicon valley in the US (nowadays there a few other smaller spots... aside from Boston). In Europe, one is hard pressed to focalize. Is it London, Paris, Berlin, Munich, Barcelona? Critical mass counts, and social relationships count, and being so distributed here makes things difficult. I'm not sure how to solve it, but this is a problem.

Maybe this can be resolved as it was in the US through evolution and survival of the fittest (a center WILL emerge, so let's be patient). But I'm not sure whether social networks that are so heavily distributed can develop the kind of speed and agility you find in SF because of dinner parties, coffee shop meetings, and napkin-writing lunches over burritos or sushi.

2. You have to think BIG
The second thing that impressed me about tech in London was the dearth of ideas that would change the world. I remember seeing a startup competition at a local business school and every idea was modest, with very limited investment needs and a very "realistic" growing of a company to a size of $10-30M. Where were the billion dollar wondrous ideas you see in the premier business school comptitions in the US (which by the way often have teams that include graduates of the engineering schools; multidisciplinary teams is the rule, I would say, not the exception).

So I think people need to start thinking globally and radically transforming the world. That is happening a lot more these days (the thinking big) with the recent successes we've had on this side of the Atlantic, and the encouragement from a few VCs for ideas that have vision.

I don't know what role to give PARC to the genesis of silicon valley, but it's not a minor role. At its heyday it had maybe 25% of the greatest talent in computer science in the world. Many of the great ideas for the next 2 decades came from there, with people like Charles Simonyi (invented WISYWIG word processor, later headed MS apps division), Bob Metcalfe (invented ethernet, then founded 3com), Gary Starkweather (invented the laser printer), Alan Kay (invented OO programming), Alvy Ray Smith (computer effects, later founded Pixar), John Warnock and Charles Geschke (invented postscript, later founded Adobe), and a group there that invented the Desktop GUI (the Alto and the Star). I know this list seems unrealistic... are you telling me the ethernet, the desktop computer, the laser printer, the word processor, OO programming, postscript, computer effects all were invented in one place by a single group of people? Yes. The right group of people convened in one place at the right time to kickstart an industry.

This wasn't random by the way. Bob Taylor, who previously headed the DARPA project that created the internet (ARPANET) was recruited to PARC in order to bring these people there.

Maybe Europe needs to create a center (maybe government funded?), like PARC, to kickstart the genesis for the next 30 years. Their focus will not be to focus on commercializable products, but rather on getting the most brilliant scientists to dream up stuff that won't be real for at least 5-10 years. And I know this is almost the exact opposite of what you suggest... to bring people together to focus on agile opportunities using off the shelf utility software and services. But maybe there is room for both projects. One for the present and one for the future.

 
At 2/25/2007 05:06:00 pm, Anonymous Nicole Simon said...

Oh the usual "it has to be London!"

No, it does not have to be London; and yes, the UK and continental Europe are *quite* different in mentality - and it starts with having different languages.

(Having just spend a week in London I am farely sure to stress the argument more than usual ...)

As far as continental Europe grows - at least in Germany there seems to have grown a much better scene in Berlin over the last year not so much in funded biz mind you but in gathering together of talent.

One of the reason surely is the book "we call it work" which talks about ways and possibilites of the digital boheme.

If I look at the last two years, I have seen much effort going into connection people in Europe - and with LCC available (yes, to other places than just Stansted) it is easier to get around Europe.

 
At 2/25/2007 07:28:00 pm, Anonymous Shantanu said...

Great post Saul. I have put some excerpts on my blog here:

http://global-themes.com/no-longer-catching-up-with-silicon-valley/

 
At 2/26/2007 01:32:00 pm, Blogger Paul Walsh said...

I think one of Fergus' points is one of the biggest prohibiting factors for Europe when competing with the Valley

- "location" - a central hothouse. Peter has a great point on location/London/etc - but thanks to Ryanair anybody travel to London frequently and cheaply.

Europe is a much bigger place than the Valley. It is therefore much more difficult for all the smart guys to collaborate in one place. If we were talking about comparing Dublin or London with the valley, it would be much easier to compare apples with apples.

 
At 3/01/2007 09:07:00 am, Blogger Rahul said...

I take particular offense to the fact that India is just another place of cheap talent. India faces the same kind of problems that Europe does. Job Security is still prized over everything else and students coming out of middle class family have to support their families first and then get on to building world class companies.But things are changing. I think it won't be long before we see real software products coming out of India. It is dismissal that India is running the worlds IT systems but haven't been able to crack the product space. However, India suffers a problem that it is designing and developing for a world that is unlike theirs. As more product manager and marketing manager start a reverse migration to India, we will see more things from India than just services.

 
At 3/01/2007 04:27:00 pm, Blogger Garry E Hunt said...

The suggestion that Europe has underperformed in the generation of start up companies cannot denied. While the article suggests that some improvements are apparent with more new technology companies being created in the UK and Europe as a whole, there are some basic issues and challenges that need to be overcome in order for this region to achieve its full potential.

I write these comments from the viewpoint of a unique range of experiences. I “brain drained” to California from UCL and Oxford in the 70s to be part of the NASA space programme, held senior positions as a physicist at Universities in the UK (UCL, Imperial College) and visiting Professorships in the US, before moving to business as a CEO (Logica) and Board Director (ICL) and now becoming a Non Executive Chairman of technology, media, HR, Conference companies for the past 15 years, while also holding visiting Professorships at Business Schools in the UK and USA (California). From these decades of experience I consider there is gulf, far wider than the Atlantic Ocean, between the American and European entrepreneurial approach, which may not be able to be completely removed as is certainly restrictions the European potential.

The key issue is culture. In the USA, failure is not an option. Indeed to have failed is an indication of trying and this is generally applauded as many lessons are learnt which can benefit the next imaginative idea. But certainly in the UK, failure is still considered a certain death and frowned upon, which therefore makes people less likely to take risks.

When teaching at Business Schools in the USA, I find my students want to run their own companies and implement their ideas. They are keen, dedicated and determined to succeed, accepting there are some risks involved. Compare this with the recent survey in the UK, which found the top three careers from graduates were Accountancy, Management Consultancy and the Civil Service. Hardly ingredients for wealth creation. But this does underlie that many people, even with the intellectual talents, talking a risk is not an option. Until we can make this basic cultural change, there will always be a significant different between the USA and UK (Europe) in the growth of new entrepreneurial businesses.

The Universities are a key element in the generation of talent and ideas. As a Research Professor I had the time and opportunity to devote to my creative ideas, which resulted in the late 70s to the development of a world class image processing system which became a cornerstone for NASA Deep Planetary Missions, a wide range of remote sensing and medical image processing activities and the provision of material to support television weather broadcasts. I believe the manner in which USA Universities are structured helps the generation and executive of new ideas. Staff members are paid for nine rather than twelve months and encouraged to seek industrial partnerships and generate new ideas and companies, without the detriment to the students. Although the same philosophy is being encouraged in the UK, these activities are in conflict with teaching, student interactions and “basic” research publications on which their careers depend. This is almost the worst of all worlds. The Universities require additional income to support the growing student numbers, encourage the staff to be more entrepreneurial but while providing them with annual salaries, and not allowing them the time to devote to these wealth creating activities. We need more industrial interaction with the UK Universities. Oxford, Cambridge, UCL and Imperial College have many external links and industry sponsored activities, but the majority of other institutions have few if any “real” connections.

But slowly the tide is changing. Investment opportunities are increasing in the UK, and in this context AIM has been an excellent springboard for many new organisations. But there will only be a success when we have a pool of talent with a hunger to succeed with their company, exploiting their ideas rather than being just another cog in the corporate wheel. The UK and Europe as a whole will benefit from a culture change and quickly too. A culture change which accepts risk taking, develops a University system which has strong two way interactions with industry, allows the talented staff to explore and exploit new ideas and rewards them through a more encouraging tax regime that we have at present.

Some years ago, the then President of Sony said, “…..too many UK companies were run by accountants, and this was stifling imagination and the entrepreneurial culture….” In Germany about 80% of companies are run by executives with PhDs and science/engineering skills. We need the leadership talent which recognizes the business opportunities from the ever advancing technological ideas which Europe keeps generates but sadly does not exploit as fully as it should.

These basic changes are crucial for Europe to exploit the many stars generated in this fertile region.

 
At 3/01/2007 11:10:00 pm, Blogger Saul said...

Thanks for the continuing great dialog.

We are making great progress towards organizing Seedcamp this summer -- more details to follow in coming weeks.

Rahul - I completely agree with you re: India, that was my point. People assume that markets like Eastern Europe & India are just about cheap talent - I think the talent is exceptional and agree that in the next 5-10 years we'll see great, wolrd-beating product coming direct from these markets.

 
At 4/04/2007 11:38:00 am, Blogger alain said...

Saul,

All the reasons you mention show how appauling our track record is in Europe. So few exits with all this?!

The honest truth is that many people speak about Silicon Valley without ever having set foot or worked in it. They've maybe read a few books but have otherwise no clue.

My essential point is Europe will not be able to compete with Silicon Valley until serial successful entrepreneurs turn VCs and back serial entrepreneurs.

VCs that are ex-bankers and have never been in the entrepreneurs' shoes backing first time entrepreneurs is what is wrong in Europe. You gotta start somewhere, I agree.

With their risk averse backgrounds most VCs in Europe are trying to take on as little risk as possible. Who can blame them when the entrepreneur sitting accross the table has never built a startup before?

In conclusion, when serial entrepreneurs will become VCs and invest in first time entrepreneurs, things will be better. We are almost there. It will take a few more rounds of successful young serial entrepreneurs to get there. Some will take their dough and head to a villa in the South of France. Some will stay and invest.

So we are working hard to get to serial entrepreneurs backing serial entrepreneurs. Morten Lund and Soren Kenner are backing 30+ start ups including some very real successes: Skype, Maxthon etc.

In the mean time, let's just continue working without hailing our massive failure despite all of the great capabilities you mentioned.

 
At 4/09/2007 05:55:00 pm, Blogger JeremyC said...

Hi Saul,

really interesting. I could, and may yet, write an article length response... Though this turned out pretty long, even after pruning.

Some credentials first. I'm an ex-academic, turned programmer, co-founded two US based startups (one sold on, one still running), worked in one US hypergrowth business (Dell, at HQ in Austin, when it was barely three years old) and I've been working on my own or other people's startups in the UK since I returned in 2000.

The problems of business startup here are manifold so there's no single answer, but a collection of different things to tackle. The basic problem is attitude. IME, most UK businesses (can't speak for Europe) just hate to try anything different, even if there's limited downside and a great upside potential.

It's so much more difficult to make a business here. There's a risk-averse culture that spreads from board to shop floor. Walk into a company and offer services from a startup and the question is "why should I buy from an unknown startup, when I could buy from a big existing company - then I won't be blamed if it goes wrong". Walk into a US business and the question is "what's the upside, the downside, the risk factors and the cost to try it, at least for a pilot".

I've always come up with ideas for different ways to do things. If I go to a US manager and suggest that I have an idea, he walks to a whiteboard and grabs a team to come listen and see if there's mileage. I was *coached* to develop my first business plan, in a US company.

Approach a UK manager and the first response is that "well, this idea is clearly not going to work - if it was any good there'd be another business out there doing it. We'll wait and see if someone else makes this a success and then we'll perhaps reconsider". Push the idea and it will be suggested that you leave the company because your interests have clearly diverged.

So, how might you tackle this enthusiasm damping bias?

You probably need boards for the startups that have members in the target market - so that the ideas are recognised down the management chain as being something that, if board members will take a punt, it isn't so risky for managers to try something a little risky.

You probably *also* need board members that have done risky stuff. I'd be looking at people like Dyson, Peter Dawe, Prof Alan Barrell.

This cross connectivity with the target market gives you an in to target businesses, plus advice from people who aren't trying to treat the P&L of a nascent business as if it was already a major business.

Next up - labour laws over here are wayyyy different. In the US "right to work states", I can hire staff when I can, and lose them on a downturn. It means that I don't need a big chunk of cash in the bank - just a few months. I don't like the social conditions that causes, but the laws here have been framed with much larger businesses in mind - the burden on a small business is vast. The economics of hiring in consultants are also painful.

Is there a way to provide an incubation facility that will rip through dozens of ideas and expose them to the market? I think so, but it's a radically different approach. Or at least, it's an approach that I haven't seen, even over at incubators like St Johns Innovation Centre. There may be reasons why it won't work... but if you want a way to expose new ideas and show the inventors how to get an idea to market, this might work...

You need a small "business innovators team". Probably mostly out of marketing, these guys will take the idea and work out who the likely buyers are, what the likely price should be and give it a yes/no decision in a few days. Anything that takes longer than that, you should probably try, until you have enough experience in the team to spot the stinkers. You need a couple of tech savvy people who can spot the perpetual motion machines (or the equivalent - stuff like compression algorithms that can be re-invoked to further improve the compression).

Ideas that pass the market and first pass technical scrutiny, get sent on to develop. This stage is intended to develop a PoC, or if small enough, the first customer sales. I expect that most ideas should be built to first customer sale.

Staff up an R&D centre. Something around 20 people, including project managers, QA staff, core sys admins and DBA, graphic designer, programmers and a business analyst. Bring in the prospective entrepreneurs with the marketing approval. Build the idea. Build a sales team around each product - that means a relationship with local headhunters and some cash for marketing each idea - depends on what the ideas are, though.

I've had one team like this (inside another startup business). You can build around 30 to 40 business ideas in about six months, enough to get first sales, with security and scalability designed in. Ideas that work, you build a team around. Ideas that fail, you use as a learning tool and write off to experience.

Every week or two, you release a new product. You haven't had to crew up each idea. You haven't got to bankroll the staff for months of less productive work. You get to test a lot of stuff and the core team gets to build a lot of experience in making things that work and dispensing with the baroque details that often bog down the inexperienced.

Costs? You want top notch staff. You'll incentivise them with a small shareholding in everything they touch. Some of them will grow to love the stuff they work on, so there's a constant turnover. Think of around £40k to £60k/team member (plus overheads)... that's about £750k, to test 30 ideas in the market. Add some set up time, putting the organisation together and a basic framework of DB's, test systems, development systems, etc, you can still do it for less than a million, or so.

If you haven't found something worth that much, in 30 ideas, the prospectors have been doing something horribly wrong. :)

This should overcome the barrier of attracting staff (they have a stable job - they just can't predict what they'll work on, is all). It overcomes the problems of needing to build a big enough cashpot to hire the staff for each business (you amortise the costs of each set of hiring). You can even have pension schemes... If it works, you don't scale it by making it bigger, you set up another centre, in another location.

They'll attract support businesses around them. No need to site them in boomtowns. Put them where it is nice to live, with decent schools and some universities nearby.

Well, a pipedream, perhaps. But this, I think, stands a chance of overcoming the inertia, and provides a way to make the risks seem more acceptable, both to customers, investors, and entrepreneurs.

If I had that facility available, I'd forgo a chunk of my equity to have my stuff built faster, and the support to get it to market. Yeah. I would. I'd feel it was more valuable than cash and advice. An experienced implementation team... that's really valuable.

Cheers, JeremyC.

 
At 4/11/2007 01:19:00 pm, Blogger enki said...

Interesting!

We’re actually building a non-profit startup center here in Vienna:
http://metalab.at/wiki/Folder:V5a-en

Maybe y’all are interested in what we’re up to here.

paul

 
At 7/02/2007 07:57:00 am, Anonymous John said...

Thank you very much for sharing your thoughts. It is always great pleasure to read your posts.

 
At 7/07/2007 04:13:00 pm, Anonymous Anonymous said...

Just to avoid confusion for me: I take it this post has nothing to do with Y Europe ( http://beta.yeurope.net/ ), the Austrian early-stage VC group?

 
At 7/19/2007 01:39:00 pm, Blogger Johan said...

Got here via TechCrunch's announcement of SeedCamp Europe. Interesting discussion going on here and I wholeheartedly agree there's plenty of potential in Europe. I too have been wondering why, in comparison to the Bay Area, so little has come from 'this side of the pond'.

As far as the spatial diversity is concerned, I think there is such a geographical place which can fuel this sense of tech entrepreneurship. However, as most of you have mentioned, it's not actually in Europe. I'm thinking Dubai Internet Village.

London/UK (where I live) suffers from cost pressure and indeed a lack of the right mentality.

Amsterdam could be a good alternative to London but it's not quite 'it' either. Barcelona even better if they can get up to speed with the English language.

So for the lack of a true on-stop European tech-minded entrepreneurial spot, I believe we have to think a little outside the box and have a look at what's going on in Dubai.

Tax advantages are one thing, it has the weather of California, the property cost a third that of London, plenty of skilled people in the right age bracket and it's a hub between Europe and Asia (more talent, growing market) too.

If none of the European cities can be bothered and the E.E.G. can't be asked to fuel this industry either with government influences, I say let's go where the 'can do' attitude is, in Dubai. With all the expats there and the relatively short flight, it's pretty much Europe anyway.

 
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At 9/16/2009 03:11:00 pm, Anonymous JB said...

With a greater influx of tech and entrepreneurial mixed conventions, I think that Europe is now well placed to start explioting the wealth of academic resources it has - and spin this into sucessful tech start up businesses.

 
At 3/18/2010 08:10:00 pm, Blogger Juan said...

Hi Saul,

Loved the post! And I know I'm making a comment for an article that might be pretty "old", but it is not old information for me.

Right now I'm working on my thesis, trying to find the possibility of creating a "SeedCamp" in Buenos Aires, Argentina. You can find more info here: http://southcombinator.com and http://southcombinator.wordpress.com - so if you thought is was difficult to make it in Europe, let's find out in South America. :)

If you ever plan to visit Buenos Aires, please, let me know, I'll be happy to meet you.

Best!

Juan

 

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