Entrepreneurship In Europe

I spent last week in Europe meeting with entrepreneurs in Amsterdam and Paris (it is a tough job but someone has got to do it). I met with some very smart people who are working on interesting projects. They are absolutely committed to their startups and are, in varying degrees, having some success in their respective markets. But I was once again reminded of the powerful impact the right ecosystem has on company building.

Starting a company is by its very nature a Herculean task. The odds are very much against you. As a general matter, people don't like working for startups, companies don't like buying from startups, building owners don't like renting to startups, banks don't like lending to startups, press don't like talking with startups, integrators don't like partnering with startups, lawyers don't like representing startups, and investors don't like funding startups. In Europe, each of these is more than a little true.

Despite some relatively recent efforts by U.S. venture capital firms like Benchmark Capital abroad and the notable recent success of Index Ventures out of Switzerland (driven largely by the spectacularly successful outcome of Skype), Europe remains more or less devoid of risk capital. It is extremely difficult to find angel investors to get a company off the ground and perhaps equally difficult to find professional investors willing to engage in venture financing. I had dinner with one of Europe's most successful tech entrepreneurs, Michiel Frackers, while in Amsterdam and he lamented the challenges faced by European startups. His answer to these challenges has been to create an incubator (Boost Digital) that provides the requisite infrastructure while focusing upon getting his sponsored companies cash flow positive in a short period of time. The advantage for Fracker's companies is that they aggregate infrastructure, publicity, administration, legal, etc. without requiring huge amounts of money to create self-sustaining businesses. But Michiel himself acknowledges the role venture finance plays in growing scale and velocity, something that is difficult to overcome in Europe.

In contrast to Europe, the San Francisco Bay Area and other startup centers throughout the United States (Boston, Austin, Seattle, DC, etc.) have strong institutions that support company building. For example, in the Bay Area, along with a robust angel community and Venture Capital industry, there are law firms that actually like representing startups (Fenwick, Gunderson, Orrick, Perkins, Wilson), banks and venture debt firms that actually like lending to startups (Silicon Valley Bank, WTI, Lighthouse), building owners that actually like renting to startups (all of South of Market seems geared towards startups today), accounting firms that actually like auditing startups (nearly any Big 5 Bay Area branch), PR firms, Integrators, staffing firms, etc. etc.

Starting a successful company in the Bay Area remains a Herculean task but at least you get a little bit of help along the way. The first city in Europe that can nurture that same ecosystem will become the region's center of entrepreneurship. Amsterdam is working hard to become that center and they may just succeed while London isn't looking.

Comments

[shel israel]

Excellent piece, Dave. As you may know, I leave in a short while for a world tour in research for my next book, Global Neighborhoods. Do you know of any entrepreneurs in Europe we could meet up with to discuss the impact of web 2.0 and social media on business and the world over the next few years? You can reach me via email at [email protected] .

[Harm]

Also the region of Eindhoven is a good place for innovation and start-ups; perhaps better than Amsterdam.
Look at the Brainport programme that aims to in part accomplish a better climate for innovation. One the successes in this region is the High Tech Campus set up by Philips around the Open Innovation concept.

Links: www.brainport.nl and www.hightechcampus.nl

[John]

Discussed here: http://etrading.wordpress.com/2006/08/01/entrepreneurship-in-europe/

[mlocker]

Good info.

Michael Locker MD

[Roupen Nahabedian]

The other part that I have found Europe doesn't get when it comes to startups is upside and options. Maybe this is caused by tax laws. But my experience has been that people generally don't understand options; workers don't ask for it; and the bosses don't offer it. It takes the fun out of being an entreprenour.

Silicon Valley is truly a very unique place.

[Matthias Zeller]

Good to hear you enjoyed your trip to the old world. I posted some more thought on this topic here: http://matthiaszeller.com/blog/2006/08/01/2nd-web-montag-in-silicon-valley-unite-german-and-american-techies/
If you are interested in discussion this topic with German entrepreneurs I suggest you participate in Web Montag (http://www.webmontag.de/doku.php?id=silicon_valley&DokuWiki=66ec443b59f703025c2831d5a94123eb).

[David Mantripp]

Amazing we can walk & chew gum at the same time here in Europe, really...

It would be interesting to discover if the higher barrier to entry results in a lower proportion of early failures. Having been involved in 2 myself so far, I hope it does :-)

[FredDestin]

What a post! Whilst we are nowhere near being as efficient as the valley (which has been going for 40 years now), there are sweeping generalisations and exagerations that do much to maintain a common misconception about European innovation markets, that have matured so much since the bubble. I think Dave ventured too far from the Valley ;-) and posted a fuller answer at http://fredd.typepad.com/blog/2006/08/dave_hornik_too.html

[Shantanu]

Some good points Dave. But I think you are being a little unfair. Here's why http://global-themes.com/entrepreneurship-in-europe/

[Jeremy Fain]

Mmm, I would tend to agree with you article: I �m currently in Barcelona, Spain, and to my knowledge, there is no entrepreneurial ecosystem. One other thing that �s true is the lack of angel financing in Europe.

However, there are exceptions to the rule: Paris for instance has a fantastic entrepreneurial ecosystem. I �m describing it in this very post on my blog:
http://itaddict.blogspot.com/2006/07/innovation-clusters-south-west-paris.html#links

[Didier]

A lot is happening in Europe nowadays. To start with the ecosystem issue there are several ones emerging all over Europe. It is not that you just find them in Europe's major cities like Amsterdam and Paris and that is why they're sometimes harder to find. Todays emerging innovative regions can be found in the regions around Leuven (BE), Cambridge (UK), Heidelberg (DE), Nice (FR) or Tampere (FIN).

more on http://trendidier.wordpress.com/

[Jeremy Silver]

David, makes some very acute observations. There is one major and obvious factor that has not been mentioned in this discussion. Europe is not a single market the way that the US is. As a startup one's greatest challenge is to scale dramatically and rapidly to a point where the user base (and ideally the revenues;)) represent a value disproportionate to the initial investment and indicative of the ultimate scale the business could achieve. In the US market it is feasible from a small base to achieve this kind of scale. In Europe, currency differences and language differences instantly and significantly mitigate against this. So the comment which was made here that Euro start ups tend more towards b2b solutions and to working in verticals is correct and understandably pragmatic. The big consumer play that gets a VC's blood running is much less easy to comtemplate in Europe. That's why English language sites that address themselves to the US market are the few that manage the trick (eg LastFM). One interesting question however might be to explore what opportunities there are which make an asset out of the fragmented Euro scene. For example, there's much less Euro arbitrage going on than we all predicted would be the case six years ago...

[massimo moruzzi]

Paris has a scene, and its fair share of grumpy cheap places to live in and rent out for office space, and so does Berlin, which is still far cheaper - not to mention more hip - than any 'western' German city. The Swedish university town of Uppsala, just north of Stockholm and formerly home to pharmaceutical giant Pharmacia, is also an interesting case of private and public money (Scandinavians do it better) helping estabilish many new small pharmaceutical hi-tech companies after Pharmacia was acquired by Pfizer.

Then there's what was once referred to as 'eastern' Europe - one of the few positive legacies of the Soviet system being that they were strong on the sciences. Skype was technically based in Tallinn, Estonia, and its sale to the tune of up to 4.1 billion USD to eBay is equal to half that small country's GPD in 2003! Given the amount of technical talent, I'm really surprised that in the age of web2.0 (and AdSense!) we still haven't seen a slew of small companies springing out of the former Soviet bloc. But then again, as you state, an entrepreneurial climate does matter.

[network23]

Investors should examine the N3P school in Sweden

http://n3p.se/en.php

They generate a lot of new entrepreneurs in Open Source, Omni Communication and Web 2.0.

[Jon]

Part of the problem with Europe, I think, is that angel (and venture) capitalists don't find a niche like they do in the U.S. I read one comment about Spain, and while it's probably true that there are no angel capitalists there, it must also be true that they would not find any worthwhile investments on that turf, and are therefore floating around the U.S. (most likely) where worthwhile investments actually exist. Lets fact it, if 5-10% of a venture capitalist's projects succeed, that is an overall success. Well, this percentage is EXTREMELY difficult to attain even in the U.S. where there is basically no limit to one's possibilities. Imagine how much more difficult it would be to do so in a country like Spain. France is a different story because it is the face of industries like fashion, wine, home decor, and so much more... In general, I strongly believe that venture capital is not for everyone to begin with. In fact, I believe it was through www.lammazing.com that I found a whole article, "Is Venture Capital for You?" If you really want to know, go to Lammazing, and click on Business Services. There should be a section there on Venture Capital.

[Jon]

Part of the problem with Europe, I think, is that angel (and venture) capitalists don't find a niche like they do in the U.S. I read one comment about Spain, and while it's probably true that there are no angel capitalists there, it must also be true that they would not find any worthwhile investments on that turf, and are therefore floating around the U.S. (most likely) where worthwhile investments actually exist. Lets fact it, if 5-10% of a venture capitalist's projects succeed, that is an overall success. Well, this percentage is EXTREMELY difficult to attain even in the U.S. where there is basically no limit to one's possibilities. Imagine how much more difficult it would be to do so in a country like Spain. France is a different story because it is the face of industries like fashion, wine, home decor, and so much more... In general, I strongly believe that venture capital is not for everyone to begin with. In fact, I believe it was through www.lammazing.com that I found a whole article, "Is Venture Capital for You?" If you really want to know, go to Lammazing, and click on Business Services. There should be a section there on Venture Capital.

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