Why Is Europe Failing to Create More $1B Startups?

http://000fff.org/why-europe-is-failing-to-create-more-unicorns/

by ThomPete • 11 years ago

154 308 11 years ago

000fff.org

veb• 11 years ago

Awesome read, but you write that Europe has no SV or NYC. I'd say that it does have a NYC: London.

London is the centre of finance in Europe. It utterly dominates.

Cthulhu_• 11 years ago

Plus I don't think location really matters that much; startups don't need an environment with thousands of hip enterpreneurs, all it takes is a small team with a good idea.

gaius2• 11 years ago

London actually has no "startup scene", the dirty little secret is there is no silicon in Silicon Roundabout. Lots of ad brokers, social media strategists, hairdressers and bakers with Twitter accounts, but no actual tech is developed there.

s73v3r4• 11 years ago

They don't need it, but it's much easier to build that team somewhere with that environment.

atmosx3• 11 years ago

Lack of investors. Simple as that. Companies that run on deficit for 5-10 years can not survive in Europe. Facebook, twitter, etc. Wouldn't be able to survive in Europe, simple as that.

ps. I hate the word 'unicorn'.

ThomPete19• 11 years ago

I hate the word unicorn too, but it's shorter than private market companies with a valuation of more than $1 billion :)

With regards to lack of investors I don't think it's as simple as that. If it was only a matter of investments then surely US investors or Asian investors could just come in with the money. There is something that makes European VCs risk averse and keep american investors out of Europe IMO.

atmosx3• 11 years ago

First, thanks for ghostnote. It's an awesome app, worth every penny.

I hate the word unicorn too, but it's shorter than private market companies with a valuation of more than $1 billion :)

Ah, is 1 billion the limit for the 'unicorn' definition? In what amount of time? :-) We have 7-year old companies, with 50+ employees posing around as startups everywhere these days. It's not related, but you know... Everyone is playing with words here :-P

With regards to lack of investors I don't think it's as simple as that.

Of course you don't, otherwise you wouldn't have written a blog post... You could tweet! But, unfortunately, as most social phenomena is not that complex :-)

The reason we can't have a "unicorn" in Europe is that no one is going to support a company that it's expenses outsize it's turn-over even if this is because of extremely high growth rate.

If you're lucky enough, you might land some millions from some startup event. But even they, ask to see growth (in terms of users) and (hehe) immediate ROI.

In startup Istanbul 2014 the no1 startup which received investment was the only company who didn't actually need it... It was already generating way more than it could burn. So it was a very easy bet.

copsarebastards• 11 years ago

I hate the word unicorn too, but it's shorter than private market companies with a valuation of more than $1 billion :)

Small-cap companies is shorter than that too and it actually means something. Don't give excuses for using stupid terminology.

Vexs2• 11 years ago

Unicorn just pokes my brain the wrong way, like bad kerning. On the other hand, it does describe how rare these things are, which I feel does make it an accurate term- it also explains how companies like this are essentially legends.

It's an annoying term, but it works (unfortunately)

logicallee• 11 years ago

"If it was only a matter of investments then surely US investors or Asian investors could just come in with the money" - grand-parent is saying they don't, you're saying they could.

You're both right.

s73v3r4• 11 years ago

I dunno, because if it was as simple as that, then those American VCs would be investing all over the US already. As is, most of them are just staying in their little bubble.

EdiX• 11 years ago

If it was only a matter of investments then surely US investors or Asian investors could just come in with the money

Apparently US investors don't even like going out of Silicon Valley, why would they go all the way to Europe?

happyscrappy3• 11 years ago

Unicorn does sound silly but probably accurately reflects your likelihood of creating such a company.

nakedrobot2• 11 years ago

Because investors in Europe are a bunch of pathetic spineless banker types.

robk4• 11 years ago

Not all but there are indeed a disproportionate # of ex-financiers vs the composition of Valley firms. I did this analysis a while ago and it was pretty striking when graphed. The only consistency was MBAs in VC roles across the board.

bildung• 11 years ago

Because investors in Europe are a bunch of pathetic spineless banker types.

Or investors in Europe have enough opportunities to generate more than the typical return on investment of VC? The average VC ROI is really low, it gets outperformed even by passive index funds IIRC.

Edit: Found the source.

"Yet 2013 annual industry performance data from Cambridge Associates shows that venture capital continues to underperform the S&P 500, NASDAQ and Russell 2000."

https://hbr.org/2014/08/venture-capitalists-get-paid-well-to...

dovereconomics2• 11 years ago

or they just didn't have as much 'help' from the government

afsina2• 11 years ago

State intervention on innovation is considered harmful.

atmosx3• 11 years ago

What about gun control? Does that stop innovation too?

atemerev3• 11 years ago

Sure. More gun control -> more police expenses -> more taxes -> less innovation.

Try opening a company in, say, France. (This was a cruel joke. Please don't, for the sake of your sanity).

Vexs2• 11 years ago

I mean, one could claim it hampers gun innovation. Not sure the laws about that though- I wonder if they have laws that allow the creation of guns that would normally be illegal..

Not sure what afsina's point is though.

wpietri3• 11 years ago

Yes, I'm so upset that the government funded all the initial development of the Internet, crushing things like Compuserve and AOL and AT&T's videotex offering. Who knows where we could be today if only those had been allowed to flower. (Well, I know the planet would be 3 inches deep in AOL promotional mailers. But besides that.)

EliRivers• 11 years ago

Don't forget digital computers :)

No gubbermint funding and directing innovation then, no digital computer in your pocket now.

wildmusings• 11 years ago

One example of successful state investment doesn't really say anything about what the ideal level of overall state economic intervention is. Research spending like DARPA isn't even representative of how Western governments regulate and tax.

afsina2• 11 years ago

We will never know the opposite wont we? It is not that state is not capable of investment on innovation. They are just terrible at it. There are many rebuttals on the issue of "government is necessary for innovation". Here is one of them: https://www.youtube.com/watch?v=tbR4cjA-Few

scrollaway• 11 years ago

Site is struggling.

Mirror: https://archive.is/qBEfh

rubidium• 11 years ago

first thought: not enough horns to go around and add to the horses. second thought: europe=continent. US = country. third thought: what good does this question do us?

fennecfoxen2• 11 years ago

Since you bring it up: the US is a $18-trillion economy. Europe is a $19-trillion economy, of which about $18 trillion is from states in the EU. In that respect, it's the only comparison that makes sense. (Well, maybe that and something like the UK and Germany vs California and Texas, roughly $3T vs $2T each).

jleyank• 11 years ago

I would think that the (mandatory) benefits required for companies in Europe (or even outside the US) raise the bar for startups. More $$ is required, more paperwork to ensure compliance, ... On the good side, this might/should act as a filter. On the bad side, money flows along the path of least resistance.

I guess this is an argument for accepting remote work. There are lots of talented people in places where they like living. How (new) companies deal with this will determine how the talent pool is used. As everybody argues there's insufficient talent, by definition there's insufficient talent wherever you are.

wpietri3• 11 years ago

In Paris a few years back I met an entrepreneur whose business was in California. He liked living in Paris, and really wanted more of his team there, but the regulations around hiring employees were a big issue for him. If I recall rightly, it wasn't so much the paperwork or the benefits, but the extra burdens around firing. So he was hiring all his new people in CA.

Here in California, most employment is at will, meaning that either party can end the relationship immediately. I can quit without notice; I can be fired without notice. (In practice, notice is generally given, but that's custom, not a legal right. One can also write an employment contract with other terms.) But from what he said, it was very difficult to get rid of underperforming employees, and also hard to reduce staffing levels if the business needed fewer people.

vorador• 11 years ago

To contrast with what you said, it’s very common in french contracts to be able to fire an employee in the first 8 month of her employment. This isn’t really « at-will » employment but it’s pretty close, especially for Europe.

adaml_623• 11 years ago

A more interesting question is: 'Are unicorns good for the economy and good for society'?

adventured4• 11 years ago

Of course they are. Dramatically so.

Are: eBay, Amazon, Google, Facebook, Uber, Priceline, Expedia, SpaceX, Tesla, PayPal, FirstSolar, GoPro, Salesforce, Workday, FireEye, Splunk, Netflix, Yahoo, Twitter, DropBox, Palantir, Pandora, etc. good for the US?

They were all the equivalent of small unicorns once. So the question is: as opposed to what? All of those companies existing somewhere else, and most of the benefits going to other nations instead (jobs, taxes, investment, innovation)?

atemerev3• 11 years ago

Why everybody is so obsessed about unicorns? You can get your own in a few minutes: http://unicornify.me/

neuronic• 11 years ago

German law makes the "out of the garage + Angel investor" start-up culture impossible. The only possible way is to make money AND start out with a huge amount of cash. I can't speak for other Euro countries.

jdimov9• 11 years ago

How so?

SyneRyder• 11 years ago

Berlin seems to be bursting with startup culture, between all the co-working locations & Soundcloud & 6Wunderkinder acquisition. Are the German startups focusing more on profit & bootstrapping approaches rather than Angel funding then?

smcl2• 11 years ago

What part? Is the incorporation of a company complicated\bureacratic? I know here in Czech Rep you pretty much need to have a local Czech speaker setup\registered\licensed with a certain status before you can create a new company. Or is there some capital requirements ("you must have €x,000 in the company accts to operate"), or lawyers fees that make it either tough\impossible for the early "ramen" stage?

kuschku7• 11 years ago

In Germany, only very few legal types of incorporation allow the owners to be free of risk. Usually they require a high amount of money to start such a limited (so, in case of bankruptcy, all debt can be paid).

There is now a mini-GmbH, essentially a type of Ltd. that can only handle a limited (pun not intended) amount of assets, but does not require you to have enough assets to pay back the debts.

Then there are GbR, etc, a lot of nice incorporation types, but these, while effective for a normal company, are not useful for a silicon-valley type of company, as the silicon valley relies on an investment bubble - and a GbR and similar place the liability completely with the owners of the company.

Then there are consumer cooperatives and so on, but while these, again, are useful for the normal economy, you can’t use them to make profit by scamming people (as they are effectively profit-less).

cronjobber3• 11 years ago

If you want to be a cynic: German law is optimized for protecting the public from investment scams.

If you don't want to be a cynic: German law is optimized for protecting the public from investment scams---which makes it hard for startups that aren't investment scams but become victims of false positive identification by german law as possible investment scams.

Asbostos• 11 years ago

He mentions the multiple languages. I don't understand why Europeans stick to their local languages when they all know English anyway. Are they trying to keep foreigners out? Surely they realize there's a huge social cost of having your own minority language. This problem exists in China too but most people recognize the need to learn the standard Mandarin so they're largely bilingual. Dialect at home and Mandarin talking to everyone else even if it comes with a funny accent.

atemerev3• 11 years ago

No, not everybody in Europe speaks English. Not in France, not in Germany, not in Spain, not in Italy.

cosarara97• 11 years ago

And even if we did, we wouldn't just let an essential part of our culture die like that.

vixen99• 11 years ago

Anecdotal of course but for what's it's worth on the basis of around twenty cross-Europe trips by car I would say very few speak English. We live in bubbles and tend to believe they're shared by all.

donkeyd3• 11 years ago

they all know English anyway

Not all of us speak English.

pluma9• 11 years ago

I haven't seen any serious tech companies in Germany that don't require at least basic English skills.

bnkd• 11 years ago

"I don't understand why Europeans stick to their local languages when they all know English anyway. Are they trying to keep foreigners out?" So many things wrong with this sentence.

dang3• 11 years ago

I agree with you, but your comment doesn't add information. It would be better to reply with one or more of the things that are wrong with that sentence. Then we all learn something.

For a splendid example, see https://news.ycombinator.com/item?id=10220679.

louhike• 11 years ago

English is not useful for everybody outside of UK/Ireland so most people do not speak it or are really bad at it.

theoh• 11 years ago

That's not true of the Netherlands, for example. Maybe Europe as a whole, but as time goes on English is becoming much more widely understood.

jakozaur2• 11 years ago

Almost all European countries have high level proficiency in English: http://www.ef.pl/epi/

The challenge is that still a lot of things are distributed (you are vastly more likely to read your national news, shop at national ecommerce shop, shipping rates are much higher if you do that oversees, etc.).

roelvanhintum• 11 years ago

The languages are also a problem for Europeans, because it's a big threshold for finding a job outside your own country. For example The Netherlands is very small, but German or French are to hard to speak. It's Dutch or you'll have to move to an English speaking country. Most Dutch people speak English, so there is that.

minikites• 11 years ago

Not everyone in the USA speaks English either.

weland• 11 years ago

I speak English very well. I have spoken it in professional environments for so long that, in a regular conversation, even accent barely reveals that I'm a non-native speaker anymore. However, my own native language is part of my cultural heritage, a heritage that I deeply appreciate, which is very dear to me and which cannot be adequately rendered in English any more than The Canterbury Tales can be adequately rendered in my own language.

We stick to our local languages because they're part of who we are. Europe would probably have a little more money if we stopped doing that, but it would be a lot poorer.

eyeinthepyramid• 11 years ago

A big difference in China is that the writing system is the same regardless of spoken language, so that works pretty well for the Internet. I think you also overestimate how many and how well people speak Mandarin in China. According to the Internet only about half of people in China can speak Mandarin: http://news.xinhuanet.com/english/2007-03/07/content_5812838...

mraison• 11 years ago

Once again, state in the US != country in the EU, and Europe != China. Those are not "local" languages (or "minority" languages), they are "national" languages, no matter how ridiculously small you may think those nations are. There are "regional" (or "local") languages too, but they are rarely used in a professional environment, and thus more akin to dialects in China. This has strong cultural implications.

ithkuil• 11 years ago

"a shprakh iz a dialekt mit an armey un flot"

(A language is a dialect with an army and a navy)

https://en.wikipedia.org/wiki/A_language_is_a_dialect_with_a...

flohofwoe• 11 years ago

English (or rather, some sort of English-like pidgin dialect) is the lingua franca in most or even all IT companies at least in Germany and I would guess also Scandinavia. It is true though that a lot of subtleties are lost if you don't communicate in your native language. Also the downvotes for you are completely justified. Languages and dialects are a cultural treasure, not a disadvantage.

ild• 11 years ago

huge social cost of having your own minority language.

Scandinavians are some of the most successful societies, despite of small languages. Languages have cultural baggage to them; every time I hear English, I see high inequality, poor worker rights, obsession with money, yet excellence in science and higher education. No one wants to abandon their own and assume English identity.

notNow3• 11 years ago

and I thought that Europeans were bit more insular than their US peers but wait till you see an ethnocentric/lingocentric American voices their opinions on the English language and its perceived supreme status over other languages of the globe.

No wonder Jeb Bush is taking a lot of flack for speaking Spanish in public when you got crowd like this.

venomsnake• 11 years ago

Lets start that since that since the Cromwell times Britain has not been a part of Europe by its own choosing. The whole balance of power. Even today UK is a different beast than all the rest of Europe.

Also one of the huge benefits of post WWII order was the creation of homogeneous national countries. Which explains the abnormally long peace period. So nationalism and national identity are extremely strong in europe.

pluma9• 11 years ago

If Scotland were to secede, I have no doubts Scotland would join the EU and the UK would leave.

England does not see itself as part of Europe. If anything, England sees Europe as an extension of France. And England hates France with a vengeance. Geography and history aside, the UK is not a European country at heart.

notNow3• 11 years ago

It's worth mentioning that Italians also exhibit diglossia as well not only the Chinese. They speak in dialect at home or with friends and family within the community but in the official Italian in public.

We Arabic speakers also enjoy or suffer , it depends on your perspective, from this phenomenon as we mostly speak in dialect all the time but in formal contexts esp. in writing, we use the Modern Standard Arabic instead. However, writing in dialect or MSA derived languages is becoming more acceptable in literature and the press at least where I come from, that's Egypt.

xacaxulu3• 11 years ago

^ This is the most american thing I've seen all day, and earlier I saw a Chevy with an eagle and the US Flag painted all over it with a rifle on the inside. (not uncommon in North Carolina)

aianus6• 11 years ago

I'm with you. I speak Romanian but it's totally worthless compared to English. It's a shame that European countries (especially poor ones) don't switch to English immersion schooling to give their students a chance in life.

userulluipeste• 11 years ago

I also speak Romanian and I am NOT with you. You're free to emigrate if you don't appreciate your country or cultural heritage, this way you'll do yourself and to the rest of us a great service!

Călătorie sprâncenată, frățâne!

ionised2• 11 years ago

I don't understand why Europeans stick to their local languages when they all know English anyway.

Because they don't all know English and even if they did, why the fuck should they?

dragonwriter• 11 years ago

I don't understand why Europeans stick to their local languages when they all know English anyway.

Because the local language is a majority language where it is the local language, and, globally, every language is a minority language (and English isn't even the biggest minority -- its #2, far behind Mandarin, for total speakers, and #3, behind Spanish which is far behind Mandarin, for native speakers.)

Shivetya• 11 years ago

Over regulation. He talks all around that word but its key to why. The barrier to entry becomes much more difficult to surmount.

fennecfoxen2• 11 years ago

Europe historically had a problem where powerful nobility owned massive portions of the economy outright. Competition? Maybe with an army.

Today, it's a lot better than it was, but in many places the powerful noblility have been replaced by other powerful interests and some industries still operate like they have the God-given right to supply automobile tires to the French people and all good men must express solidarity to expel these upstart invaders... :(

kuschku7• 11 years ago

Over regulation is not really a thing – the US has under regulation, especially in regards to data safety.

Over regulation is what the US does with taxis. Which is why in Germany companies that do essentially the same as Uber (but legal[1]) already existed before Uber was even founded.

What I see the "issue" is that as soon as some size is reached, we don't really care about expanding further. Why take a risk when you already have a pretty nice market?

[1] In Germany, where UberPop is currently banned, you can start a taxi company if your drivers are insured with commercial insurance. To make profit, your drivers need to have a 55€ license as taxi driver. Simple as that. UberPop is only banned because they did not want to insure the drivers (the license is less of an issue).

aianus6• 11 years ago

UberPop is only banned because they did not want to insure the drivers.

Do you have a source for this? Uber insures its UberX drivers in both Canada and the U.S. so I don't see why they would be opposed in Germany. There must be something else.

lumberjack2• 11 years ago

Please give one example of a company that couldn't be setup in a European country because of over regulation but was successful setup in the US.

ericmarcos• 11 years ago

I agree with that. And I would add: over regulation "imposed" by the old unicorns this article mentions. They don't want new, disruptive players enter their well stablished monopolies / oligopolies. In EU they have lots of administration levels they can lobby and it's easy to increase barriers to entry. I can assure this is absolutely true in Spain.

travisp• 11 years ago

This is very variable across Europe (of course that could be an issue on its own). The Heritage Foundation's Economic Freedom indexes consistently place some European countries higher than the US (e.g. Switzerland and Denmark rank higher overall). In many areas, many European countries have less regulation than the United States.

ksherlock• 11 years ago

Those that don't remember history are doomed to repeat it. Maybe you guys learned something from that tulip episode?

donkeyd3• 11 years ago

I've posted this before, but since I think it's relevant here:

People seem to forget that Europe is not a country. Europe does not have a single uniting language. What happens, is that every country starts their own smaller versions and they stay mostly within that country. If they want to move to another country, there's often already a major player there, and they might not have the means to kick them out.

I think the reason that silicon valley is so powerful, is that the initial market is 325 million people who all speak the same language. Once you get the US market, you have the size, name and means to easily start conquering European countries. It's always about scale...

ThomPete19• 11 years ago

I really hope that I am actually addressing that in my essay.

donkeyd3• 11 years ago

I commented before reading the article, as I was having trouble loading it.

I've managed to read it and I see you did mention it. You other points do add some interesting ideas that I haven't considered before. Especially #3 is interesting.

pinaceae2• 11 years ago

you're absolutely right.

successful examples that started in europe soon moved to the us to take off. qliktech/qlikview as a swedish example. intercom being spread across ireland and SF. etc.

the one market that could rival the US will be china. it is harmful to non-chinese investors though, but once they open it up a huge, homogenic market will pop up. wechat, baidu, alibaba already show what is possible there. apple and uber coming in with mature(rer) businesses. wonder when we'll see a mixed-background startup emerge in china.

as someone from austria that moved to the bay area - you must be bonkers to try ramping up a startup in most of europe. if your desire/plan is unicorn-scale of course.

mattmanser• 11 years ago

More like 450 million when you include the UK, Canada and Australia.

bane• 11 years ago

So what, other than language, prevents somebody from starting only European-wide initiatives and reaping the benefits of the entire European market?

I don't mean to sound like I'm minimizing the language issue, but it is surmountable.

To contradict my devil's advocate question above:

My guess and observation is that the ROI on certain localizations isn't good enough to justify the work needed to make a pan-European go at something. So people pick markets where the ROI will be good: England, Germany, France....maybe Italy, and then it all stops there. Neighboring countries with high ROI demographics usually have speakers of those major languages as a second language and can get by well enough with those offerings. And nobody really targets minor dialects for big offerings.

mfoy_• 11 years ago

Well there are also different laws and different cultures to work around. The differences between the laws between states in the U.S. and between countries in Europe are probably orders of magnitude different. Trying to understand all those differences would probably be a lot of overhead that could crush a startup trying to tackle the broader market from the get go.

jedrek• 11 years ago

But it's not only language, there are real legal, logistical and cultural differences between countries. You negotiate for content rights in the US, and you have them in the US.

Also, by the time you've gotten enough traction in your country, there's a me-too (or a dozen) in your other markets.

Look, you're a start up, you're running lean, you're cranking out a MVP - are you really going to invest an extra 40% into trying to get into 3 other markets before you're able to get your head above water?

olavgg• 11 years ago

I absolutely agree with you.

Currently I have a business where I import used computer and network components from US and sell them in the Norwegian market. (I can import pallets of equipment for less than what the total cost is for local shipping in Norway).

While I do make some money on it, the market in Norway is so small that its just a few sales every week. But it's fun, and I'm learning a lot so I still think its worth it.

I would love to sell to the rest of Europe, but I can't solve the logistic problem of transportation of heavy packages. It's hard enough inside Norway.

Doing business in Europe is hard, you have currency issues, language issues, culture differences and then you have all the bureaucracy. All the paperwork, for every minor detail.. :(

kuschku7• 11 years ago

And that’s why Germany has it so easy: DHL makes shipping out of Germany or to Germany insanely cheap, DB Schenker ships per rail even from Norway whole containers cheaply, etc.

Germany has here the advantage of a low valued currency, extremely well done infrastructure, good interconnection, and easy access to other markets. Same with BeNeLux, France and Italy. In some regards, even Spain.

JamesBarney• 11 years ago

Most unicorns get so big from network effects so I suspect they play a similar role to language. The social connected graph is a lot less connected across Europe than across the U.S.

Imagine starting a Facebook in Germany versus the U.S. Spreading from state to state is easy because there is a large amount of media and social overlap. If you have a successful startup in California its much easier to spread to Texas, New York, Florida, and Illinois than to spread from Germany to England, France, Italy, and Russia.

dheera3• 11 years ago

About a quarter of the world speaks reasonably fluent English, so SV's initial market is even bigger than that.

Having access to a similarly large initial market is also part of the reason China has a rapidly expanding and flourishing startup environment and culture.

threatofrain3• 11 years ago

China's largest businesses are extremely state-connected, and it's hard to imagine any successful business in China not being deeply connected to the government. I basically consider those entities as extensions of the Chinese state.

I don't know if China would look the same if they allowed western companies to just swoop in to extend monopolies.

cronjobber3• 11 years ago

Europe had a crippling diversity deficit and so the US easily took the lead in tech, but under the guise of the so-called "refugee crisis" Europe is now executing a cunning Blitzkrieg assault on America's former advantage. D is for diversity, E is for EUgle!

cronjobber3• 11 years ago

Addendum: Note that I honestly think that it is basically true: Europe's capitalists will not only profit from the refugee crisis, but they will do so for precisely the same reasons US capitalists profited from diversity. I'm deeply sorry I can't discuss mechanism on this forum; it takes too much hard boiled cynicism to fully grok. Yet I'm serious: The refugee immigration will ultimately boost Europe's tech competitiveness.

mamon2• 11 years ago

"The refugee immigration will ultimately boost Europe's tech competitiveness"

I don't think so. Most of the immigrants are uneducated people, with no willingnes of finding a job. They want to go to Germany because that's the country with highest benefits for unemployed. How would we benefit from THAT ?

bsaul2• 11 years ago

"The third reason I hear is that the US market is bigger and therefore it’s easier to get traction. Yet there are 503 million Europeans living inside the EU vs. 319 million US living in the US"

Stopped reading after this line. So to this guy, a market is a geographic definition. Well, we're not in the 19th century anymore. We're not defined by hills and roads and river access.

IT startups identify markets from culture and language first and foremost. And you obviously won't market a product the same way in germany, france, or greece. It's the biggest issue with euro so far: same currency, 25 different cultures.

realusername• 11 years ago

It's indeed difficult to explain how diverse the countries are in Europe, you have the same kind of cultural differences that you have in the whole United States in just a single European country from one side to the other, it's pretty dense.

bsaul2• 11 years ago

Yes, yet i would hope that someone that tries to address the fundamental flaws in parts of Europe economy has at least a minimal knowledge of that fact.

To make such a fundamental mistake in an analysis, one has to have never had even one single business relation with two different european countries.

ThomPete19• 11 years ago

You should have continued reading cause I am actually addressing this :)

andreamazz4• 11 years ago

Unicorns? Ha! It's hard to survive, let alone be successful. No investors, convoluted laws, high taxes and complete lack of startup mentality. I'm a cofounder of an italian startup, and the road is on an unbearably steep slope. The bureaucracy is insane, the cost of running a small business is daunting. Other companies refuse to work with you because in their eyes you're a scrub (I heard so many times bullshit like "I don't know if you'll be alive in a year or two, so I can't adopt your technology"). You can't hire someone else because you simply can't afford it, and the best people go to the USA anyway. It's immensely frustrating, the only thing that keeps us going is passion, but passion won't pay the bills. Before talking about unicorns we should talk about creating an healthier business environment.

IndianAstronaut2• 11 years ago

I'm a cofounder of an italian startup, and the road is on an unbearably steep

Pardon the question, but I have read that organized crime is making a strong resurgence in Italy. Does this factor into your startup or affect it in any way?

hobo_mark• 11 years ago

And where did you hear that?

andreamazz4• 11 years ago

Luckily no, organized crime is spread mostly on other regions, and as far as I know it doesn't seem involved in the ICT field. At least I hope :)

npizzolato• 11 years ago

I heard so many times bullshit like "I don't know if you'll be alive in a year or two, so I can't adopt your technology"

I'm not sure why you think this is bullshit. Most startups fail. It seems like good sense to be wary of taking a dependency on another business that might not be around in the near future instead of an alternative that has already proven itself in the market.

andreamazz4• 11 years ago

Yeah, the problem is that with this line of reasoning a startup is destined to fail. If I don't get clients, I can't keep my business open. That's what irks me. How can I prove myself in the market if I don't get a chance?

xacaxulu3• 11 years ago

That's why I always get pumped when I think about @antirez killing it building Redis from Sicilia!

rdancer• 11 years ago

Would you considered moving to another EU country? The opportunities are different, but the bureaucracy definitely more friendly in the UK for example.

noelsusman2• 11 years ago

I heard so many times bullshit like "I don't know if you'll be alive in a year or two, so I can't adopt your technology")

That's a completely valid reason to not take your business, and it's a problem that US startups face just as much. Personally I don't touch products from startups with a ten foot pole unless the benefit is overwhelmingly massive (very rare) or it's designed as a one time purchase with little necessary long term support.

If you're selling to businesses then longevity is going to be a top concern no matter where you go. Whatever benefit they get over your mainstream competitor is likely not worth it compared to the risk of incurring the cost of switching technologies twice in a short amount of time.

brc2• 11 years ago

People sometimes fails to realise that sometimes little things stand in the way of big things.

A small startup has no momentum and little power.

The smallest obstacle can block progress.

Having to file endless forms and being unable to take on staff due to restrictive hiring regulations can stop a small company dead, unless they cheat at the regulations.

Most people don't understand that, and just say 'why can't they just submit the forms?'.

Sure, some companies have enough momentum and funding they roll right over those things. Those were always going to succeed.

What people don't see is all the promising ideas that stop dead at little blockages, and either die or go elsewhere. Maybe 1/10th of startups are destined for success, no matter what. Maybe 8/10ths are destined for failure, no matter what. The remaining 1/10th is a fragile new thing, and needs help to get rolling. Killing that 1/10th through bad regulation is enough.

Many people talk about the SV advantage being the networks of people and the can-do attitude towards building things. Just that little bit more fertile ground for startups has a big flow-on effect.

tajen• 11 years ago

I confirm. The "autoentrepreneur" status in France is quite paperless, but there are still about 12 applications to lodge.

I'd also like to say that the cost of earning money is higher here. €10k takes one year to save for a very good employee. There are so many taxes when you earn something... I've once calculated that adding 10€ in my LTD sales provides me 3.20€ for personal spendings. So it's just much harder to reach a Unicorn valuation when it takes that much to gather money.

pinaceae2• 11 years ago

on the legal argument - remember that is easier for a wealthy US citizen to break the law internationally and even at home than say a German trying to break the law in Germany.

get a local conviction on your personal record and you're toast.

dovereconomics2• 11 years ago

Okay, everybody will hate me.

But, why are more unicorns a good thing? Yes, there are less VCs willing to throw money at 'SOCIAL APP n', but most startups will tend to have something more concrete.

Plus, assuming unicorns are 'natural forces of free market' is ignorance and hurts the economy in the long-term. These 'natural monopolies' use/abuse a financial system created by government. In a free market(no government intervention), they'd never be able to raise as much money and takeover as much market cap as they currently do.

Less monopolies is not a signal of a interventionist economy. Quite the opposite.

lumberjack2• 11 years ago

These are of course mostly older companies and not part of the Unicorn category, but at the end of the day that’s just semantics.

No, it's not just semantics. Look at the history of Siemens or any other of these old European companies. There's one aspect that is present all their history and that's government involvement. One could even say that their first venture capitalist that gave them a chance was the government. They all pretty much started out by getting contracts for building infrastructure or military hardware.

ThomPete19• 11 years ago

You bring on a good point, but thats not what I meant with that so sorry if that was imprecise.

My point is that in the historical context most large companies made it big with or without government help both in the EU and in the US.

So whats changed and thats what I am trying to explore and one of my conclusions is that it might have to do with how Europe is implementing laws. Keep in mind that the EU still have many government supported companies so if thats all it takes then there might be more.

But it's a complex issue which is why I wrote it because I was hoping for discussion like these and points like yours to surface. So thanks.

kavabean• 11 years ago

I wonder if the following could be relevant.

1. In my experience, Europeans are less dominated by the "newer is better" desire to constantly get the latest gadget/technology. I wonder if others agree.

2. European money appears to be more dominated by old money / aristocracy and that these people like to invest within that network. Engineers are less likely to be part of the aristocracy and are treated more like commodities than the enabling superstar athletes they are (at least the kind that make unicorns). I know quite a few engineers that make over $200k in SV but only one who makes over 100k GBP.

andreamazz4• 11 years ago

As far as gadget goes, "newer is better" is a dominant factor in Europe too. The problem lays in the enterprise world. One time a client told me "you call this Visual Basic application old, but it's not. It's consolidated". Can't argue with that logic. As for the second point, you're right on the money. I can't count the amount of engineers that make less than 25/30k€ here.

pluma9• 11 years ago

It's 2015 and I'm happy I finally have clients that let me set the baseline of Internet Explorer support to IE 8. Not long ago I still had to support IE 6.

I have no idea how American start ups can get away with demanding users live on the bleeding edge but apparently cultures can be very different.

timonv• 11 years ago

It's not a single country. There's different ideas, ideologies and beliefs all around. Conservative Dutch versus conservative Italian is quite different.

2. European money appears to be more dominated by old money / aristocracy and that these people like to invest within that network. Engineers are less likely to be part of the aristocracy and are treated more like commodities than the enabling superstar athletes they are (at least the kind that make unicorns). I know quite a few engineers that make over $200k in SV but only one who makes over 100k GBP.

At least here in the Netherlands that seems to be pretty common. Generally, investors are more conservative, and rarely take major risk. Salaries are also just slightly above working for a consultancy, but not always.

pluma9• 11 years ago

Here in Germany a lot of the public debate is still about "new media". The Internet largely gets thrown in a single bin with telco and TV. The most well-known startups are in e-commerce.

Good luck founding GitHub in 2008 Germany.

dang3• 11 years ago

Since there's much evidence we're not the only ones here who cringe at this use of "unicorns", we replaced it with "successful startups" in the title. If anyone thinks of a better substitution, we can change it again. (Edit: we changed it again.)

harperlee• 11 years ago

But OP makes an interesting case for it in https://news.ycombinator.com/item?id=10220546 : this is more specific than "successful startups". Perhaps we should coin a new term in HN. Something with cosmic rays in it might be appropriate.

dang3• 11 years ago

Ok, we replaced "successful" with "$1B". I forgot that we'd used that in the past.

waterlesscloud• 11 years ago

Regardless of how it makes anyone "cringe", unicorn is a jargon term with a common understanding and that is in growing usage.

It also carries a subtextual reminder of just how rare $1B startups are. No substitution does this.

It's just jargon with a useful subtext. There's absolutely no need whatsoever to cringe, and even less to censor the word from titles.

oldmanjay• 11 years ago

If you develop a culture of risk-averse comfort that you feel needs legal barriers to protect, you can't be surprised that you have a population addicted to risk-averse comfort.

Scarblac• 11 years ago

You say that as it risk-averse comfort is a bad thing. I'd much rather have comfort than a unicorn that happened to start in my country.

vonnik• 11 years ago

Not sure that the premise of this article is even correct.

I can think of a lot of successful European startups -- Minecraft, Spotify, Skype, DeepMind, the list goes on... -- and just as many startups led by Europeans that have succeeded in America (Lending Club, etc.).

But if Europe has trouble supporting "unicorns", there are probably a couple reasons: 1) Gaps in the funding ladder. 2) Talent flight. 3) A preference for regulation. 4) Countries, like France, that combine technological conservativism with social rigidity.

stretchwithme• 11 years ago

Its number two, the ability to move to somewhere where you can keep more of what you create.

briandear3• 11 years ago

Why is this downvoted? It is exceptionally valid. Starting a company in France subjects you to almost punitive labor laws, horrible taxes and regulation about almost very aspect of your business. Even doing something as simple as buying a rental property and leasing it out in France is loaded with difficulty. For example, an eviction can take years. Leases are standard for three years with the tenant being able to exit the lease with one month notice with no penalty. Capital gains taxes discourage the free movement of capital. If I want to sell a building and invest the proceeds, I am hit with an insane tax which provides a huge disincentive to moving capital from fixed assets to potentially more risky but higher return startup investments. France shuts down during August. I was in mid deal with some equity investors in July and pretty much the entire process was suspended until now. The French are also in love with paper. To get business class internet in a residence requires me actually registering and forming a French company. In the U.S., I can call any provider and with days have whatever services I want without having to "prove" I have a business 'need.' I certainly can't speak for all of the EU, but France is high on the list as a difficult place to get anything done quickly. In the UK, even opening a business bank account for a non-UK resident with a UK registered company is literally impossible. They are so paranoid over money laundering that essentially the banking industry is not accessible to anyone who wants to do business in the UK but isn't a resident. The regulatory environment in the EU is harsh. Investors are not necessarily risk adverse but they do have to be much more deliberate because every transaction is regulated and thus incurs a cost or a tax. For example, to buy any property in France, you have to pay a Notaire 8% of the purchase price just to legalize the sale. This is exclusive of normal agent commissions and closing costs. Imagine adding 8% to every asset sale on top of VAT of 20%. You're looking at a transaction cost of 28% to just pay the government! There is no such thing as a 1031 exchange either. Taxes and regulation is the surest way to crush innovation.

Combining that with the violence-filled reaction to Uber, the hysterical response to AirBnB and the obsession with physical paper and it's no wonder that France is a horrible startup environment. Also, let's not forget the billion+ dollar exit for Daily Motion that was blocked by the French government. If if you were to build a unicorn you wouldn't be able to do anything with it except maybe cut it up and cook it in a sous vide: provided it wasn't imported from Spain or Poland in which case the farmers would drive tractors into Paris and set piles of shit on fire in protest.

I am not making a judgement on is European Socialism a good thing or not; I am merely stating reasons that it is difficult to expect high returns in such an environment.

skimpycompiler• 11 years ago

Yep, also Outfit7 is definitely a good example how even in smaller countries one can achieve great success, I believe that founder became the richest man in Slovenia due to the success of his apps.

It's quite weird that Europe can be considered a bad place to succeed. Slovenia is a cheaper country than US, talent pool is still large enough, a startup in European countries like Serbia, Slovenia, Croatia and similar can last way longer and employ more people for the same millions that US startups burn through incredibly fast. Not to mention the expensive standards of living in silicon valley.

qiqing• 11 years ago

The article also doesn't mention an obvious bias, that is, if a startup starts in Europe, there are a lot of incentives for that startup to move to the U.S. early in its life cycle.

In that scenario, the startups who become successful (and who originated elsewhere) all get counted as U.S. successes. This would vastly undercount both the total number of startups elsewhere as well as the number of successful startups.

ThomPete19• 11 years ago

This is entirely correct and I know several founders who did so, but thats not really the point I am trying to make (which admittedly I didn't make well)

The question that still stands is why they are moving the the US.

ThomPete19• 11 years ago

Not sure exactly what you mean.

I both mention that there are European startups and that there are popular european startup founders in the US.

Not sure how much more clear I could make it.

jacquesm• 11 years ago

Teamviewer to add to your list and here are a couple more:

https://techberlin.com/articles/16-biggest-exits-so-far/

robk4• 11 years ago

Those lists are often incomplete sadly because the actual underlying data on startups is much worse here in Europe. For whatever reason people don't submit data to places like Crunchbase and the media channels here are far less consistent covering things, particularly outside the English-speaking domain. My partner has been compiling his own list here. Feel free to edit. https://docs.google.com/spreadsheets/u/1/d/1cWhizlf_KU7KOsw8...

ThomPete19• 11 years ago

Thanks for the list!

bitL2• 11 years ago

There is no Delaware. Taxes are paid regardless of whether the company hits $1M revenue or not, salary taxes are high, health/social insurance is mandatory and paid for the most part by the employer, there is a minimal salary, extensive bureaucracy and you can't sign away most of your rights if necessary for company survival. Moreover, some countries impose rules which make starting up with little to no money impossible (Germany).

robk4• 11 years ago

Plenty of companies can incorporate offshore though. That's probably easier than in the US.

briandear3• 11 years ago

You could incorporate offshore but good luck getting a local bank account or even an offshore one. To do anything in France you have to be incorporated in France and pay French taxes.

s73v3r4• 11 years ago

"and you can't sign away most of your rights if necessary for company survival. "

I don't believe for a second that someone signing away their rights is necessary for company survival. Maybe you as a company leader need to do a better job so you don't come to that point, and if you have, then maybe you aren't fit to run a company.

bitL2• 11 years ago

This doesn't have anything to do with my preferences; frankly I am disgusted by it, but it's a common practice in the US to sign away the rights if you want to get funded by many VCs. So those VCs obviously prefer US as they can't (if "necessary") do the same shady moves in Europe (yet).

caskance2• 11 years ago

The end result being that fewer people are fit to run companies in Europe, so they run them in the US instead.

pluma9• 11 years ago

some countries impose rules which make starting up with little to no money impossible

You mean the € 25k required to found a German LLC (GmbH)? As of a few years ago it's possible to found one with a single euro as long as you use a certain fixed percentage of the profits to built the company's capital (the company remains "UG (haftungsbeschränkt)" until you accumulate the € 25k, then you can transform it into a "proper" GmbH).

The paperwork involved (including notary and lawyer/accountant fees) still mean you should have about € 2k disposable before you incorporate, though -- not to mention the ~ € 500 you may accidentally pay scammers if you're not careful.

That said, Facebook and similar startups couldn't have started in Germany simply because of German privacy laws. At least once a week I hear of a new US product or start up that simply wouldn't pass basic privacy checks in Germany.

paulsutter• 11 years ago

Exits are the key to a successful startup ecosystem. Scarce exits at low valuations means scarce venture capital, and less enthusiasm among potential employees and even founders.

Silicon Valley is dense with natural acquirers. China has a market for exits. Other aspiring startups hubs around the world just do not. I realized this from spending time in Tokyo and Singapore. People commonly think "everything would be different if we just had a few more VCs", or some such. But really, it's not complicated. Investors want exits, and when they dream, they dream of big exits. They're not in the business to lend a helping hand, or reward the deserving.

OJFord4• 11 years ago

    > The third reason I hear is that the US market is bigger and therefore it’s easier to get traction.
    > Yet there are 503 million Europeans living inside the EU vs. 319 million US living in the US.

That's a really dodgy reason to discount the "third reason".

Britons are not to Belgians what New Yorkers are to Californians!

ThomPete19• 11 years ago

And if you read on you will realize that I am adressing it :)

OJFord4• 11 years ago

Whoops, sorry. I didn't realise that was your "people think the answer is .." - I skipped over your response to it because of the subheading "What is the European market?" :p

OJFord4• 11 years ago

I certainly agree that "Europe has no Silicon Valley", but I'm not so sure about "or New York".

What part of "the full stack entrepreneurial ecosystem and access to funding" does London lack that New York has?

(Genuine question - I don't know NY well)

raverbashing2• 11 years ago

Or you know: Paris, Amsterdam, Berlin.

caskance2• 11 years ago

AKA Los Angeles, Oakland, and Detroit.

OJFord4• 11 years ago

Sure, sorry - I wasn't trying to add London to a very exclusive list, I'm just not as familiar with others.

ThomPete19• 11 years ago

I was trying to explain that.

New York and SV have been accumulating talent, knowledge about the US in general, lobbyism, transfer of knowledge and so on. London have a lot of that but it's doesn't have enough to counter the power of the political system of the EU.

laurencerowe• 11 years ago

In terms of tech activity, London is much closer to New York than New York is to Silicon Valley. Their dominant industry is finance not tech.

By number of 'unicorns':

69 Silicon Valley 16 New York City 10 London 9 Beijing 8 Boston

http://tech.co/top-global-startup-scenes-vc-firm-2015-08

jamisteven• 11 years ago

Because they understand the definition of the word "Bubble"

csomar• 11 years ago

The third reason I hear is that the US market is bigger and therefore it’s easier to get traction. Yet there are 503 million Europeans living inside the EU vs. 319 million US living in the US. If the size of the market was any indication of how many unicorns a market could create, Europe would be in the lead. So size of the market alone isn’t an explanation either at least not by comparing the numbers.

I really don't find the EU market to be bigger than the USA market. The US already has tech giants that no other country has (China is starting to have some). So if we are starting from here, the US market is much bigger since it's usually these big/giant companies that drive the VC/Startup market.

The tech industry in the US took the lead. Why? It's complicated to tell. Countries emerge from poverty to richness but there is little correlation how that happens. And if we know how it works, shouldn't we be all rich now?

jon-wood• 11 years ago

Those 503 million Europeans are spread across 50+ different countries with widely varying laws and customs, and speak dozens of languages. To consider them a single coherent market doesn't make any sense.

fsloth• 11 years ago

Lots of the modern giants like Google are based on software and computers. Computing, electronics and semiconductors benefitted from being heavily invested in by the US government long before commodization of the technologies took place in the form of military applications and the like. Cultural and technological headstart in computing is one good explanation.

Most of Europe was in ruins after 1940:s, whereas the USA emerged from the war mostly unscathed and with a freshly mobilized manufacturing industry.

fleshshelf• 11 years ago

6 unicorns out of Sweden since 2000 alone. The problem to me seems we don't seem to have the ability to sustain Google/Facebook sized companies.

raverbashing2• 11 years ago

On that subject, how many Unicorns Canada has?

briandear3• 11 years ago

Canada only has about 15 people though.

yxhuvud2• 11 years ago

It is not as if Sweden has more.

throwaway859876• 11 years ago

Prehistoric times: Nortel, Mitel, Corel, RIM

Recent times: possibly Shopify, one other moved to USA

Most money in Canada is controlled by civil pension funds, who don't like smallish investments for big risks.

Thus a large percentage of software engineers move to USA, and are active in Silicon Valley.

aianus6• 11 years ago

Blackberry, until recently.

Canada suffers from dutch disease; it's simply too easy and profitable to dig stuff up (oil, diamonds, gold, potash, etc.) instead of producing value through software or technology.

e5india3• 11 years ago

There are a couple things missing from this article that really need to be fleshed out:

1. You're comparing the unicorns which is like comparing the top of the pyramid without measuring the base. In other words, where are the figures for seed-round startups? What is the amount of capital available to startups at the different stages in the business life cycle? Without those numbers we can't really tell if this is a matter of investors in the EU being less efficient in their investments or if its simply a matter of scale.

2. The other mistake that people I think when making this comparison is in comparing the success of the US market compared to Europe as a whole. First of all, you have to keep in mind that much of the success in the tech sector is highly localized. Now obviously the definition of 'tech sector' can vary wildly but generally when we talk about The Tech Sector we mean Silicon Valley. Almost every other state not named California has tried to replicate Silicon Valley and met with the same lack of success you're speaking about here. The major two exceptions are New York and Texas in that order. The rest of the American States see the same kind of out migration of tech chasing money that the essay sees among foreign tech entrepreneurs.

3. Expanding on the above: on a national level we don't care if the tech sector concentrates in California or Texas or wherever as long as it is in the US. The EU might refer to itself as a union, but are the French willing to invest in a tech sector centralized in Romania for the benefit of a Europe as a whole? Not likely. Silicon Valley, as much as we celebrate the free market aspect of it's success, also benefited from massive federal government spending in that region that played a huge rule in establishing its tech ecosystem back in the 50s and 60s.

edit: I've been editing for grammar.

humanrebar• 11 years ago

we don't care if the tech sector concentrates in California or Texas or wherever as long as it is in the US

Hmmm... I'm not sure that's true. For some definition of "we", it would be tautologically true, I guess. Many states complain about paying more in taxes than they get back in spending. California, Texas, and New York all pay more in taxes than they get back in spending, though Delaware takes the biggest hit, per capita:

https://en.wikipedia.org/wiki/Federal_taxation_and_spending_...

e5india3• 11 years ago

Oh I absolutely agree. That's why I meant to limit that to the national sense of 'we'. Of course internally we still have our debates about spending and certainly other states would prefer if Silicon Valley where part of their local economy. But ultimately California's success is still part of our national success and so ultimately the spending happens however much we would prefer it be spent differently. And the complaints you mention in our own country which does have such a strong national sense of identity makes it even less likely in the EU.

Is the sense of being 'European' so strong that member states are willing to spend billions of their own taxpayer euros to build up a tech sector largely centered in some other member state? I dont think so.

exelius5• 11 years ago

IMO the EU is too protective of its economy to allow the kind of innovation Silicon Valley is famous for. The EU has a default assumption of "you have to prove that this will not be harmful before you can do it" where the US has a default assumption of "someone else has to prove that this will be harmful before we will stop you". The important part is that this burden of proof in the US is not placed on a company at a time before they have revenue to prove it. By the time they're big enough to have to defend themselves from an attack on regulatory grounds, they have the means to do so.

Something like Uber could never have come out of Europe. A large company that is breaking the law while competing with regulated taxis and remaining unregulated themselves? That would never fly in the EU, and Uber has met a lot more resistance there than the US. They're only able to address the EU market because they have a large, profitable base in the US.

In any measure, the regulatory culture in the US is much more laissez-faire than the EU. In the US, you can do whatever you want as long as it's not explicitly illegal. In the EU, you can do whatever you want, as long as you prove that it's not illegal first. It's a huge difference, and it's one of the biggest cultural differences between Europe and the US.

jessaustin• 11 years ago

...Delaware takes the biggest hit, per capita

Does this have anything to do with the fact that many many companies are incorporated in Delaware but don't do much business there? It seems possible that the federal taxes paid by such companies are counted as being "from Delaware" even though they mostly aren't, really.

happyscrappy3• 11 years ago

The major two exceptions are New York and Texas in that order.

Umm. Boston(MA)?

exelius5• 11 years ago

Boston is a second-tier startup city along with Pittsburgh, Chicago, Seattle, etc. It's too expensive, it's hard to recruit good talent (too cold, too far from everywhere, etc), and there's not a ton of VC. You can do it, but you'll have an easier time of it in NYC or Texas.

Texas has a warm climate, cheap housing and low taxes, which draws a lot of startups there. Raising money can be a problem, but you also don't need nearly as much - a good engineer in SV costs $250k; the same engineer in Austin costs $110k, and it's entirely possible to live on $10k a year while bootstrapping a startup. There are also a half dozen internationally-recognized engineering schools within 2 hours of I-35.

New York just has a ton of people and a ton of money. Also, the global media machine is based there as well, which is why you see a lot of media and advertising startups coming out of NYC. NYC is also attractive to people who weren't born there.

e5india3• 11 years ago

I stand corrected on Boston! I'm in SF so maybe I'm showing my lack of awareness a bit here. I'll definitely be paying more attention to Boston. Thanks for the correction.

hkarthik• 11 years ago

Curious which Texas startups are considered unicorns? Last article I read didn't mention any.

Google only pulled up this recent article: http://www.bizjournals.com/austin/blog/techflash/2015/09/sor...

Are there unicorns coming out of Dallas and Houston, but not Austin? I find that hard to believe.

adventured4• 11 years ago

BigCommerce probably is at this point, or very close to it.

nandemo• 11 years ago

Indeed.com?

brc2• 11 years ago

+1 for mentioning the cold war spending which is what put the 'silicon' in silicon valley.

In many peoples minds, Silicon Valley sprung fully formed to it's current state sometime in the 70s, when that is far from the truth. And I don't mean that just in the tech sense, but also the VC & funding model sense.

Arthur Rock wasn't just some rich guy that dropped from the heavens when he invested in Apple - that money came from much, much earlier and was already following a specific way of investing.

Worthwhile reading :http://steveblank.com/category/secret-history-of-silicon-val...

SneakerXZ3• 11 years ago

It is quite easy question actually.

In short, US is unified market with one language, laws for business are same across all states, one currency, one culture, low taxes, no social system and a lot of money.

In EU you have 28 countries, 24 languages which equals to same amount of cultures. 11 currencies. Every country got own laws so once you make business across many countries, you have taxation and law hell. EU tries to improve it so it is getting better but it is still very bad. You basically need a lawyer and a translator for every country where you operate. We have quite big taxes, social system and health system. All these needs to be payed for every employee and it increases the operation cost.

The country that I am from, we had better search engine than Google before Google, we had Uber before Uber and many other. Unfortunately they didn't expand because of problems I mentioned and nobody gave investment that would overcome all these problems. At the end when big name comes to our market they just buy established local competitor and rename it.

Also Silicon Valley is a bubble. In Europe we never heard about most of startups from there and we have local competitors that are established here and do basically same things.

ThomPete19• 11 years ago

Europe has more Fortune 500 companies on than the US according to what I am linking. If it was just a matter of language then how come they USED to be able to create global players but aren't able to as much any more.

Whats changed thats holding Europe back?

egwor• 11 years ago

According to the fortune web site, the fortunate 500 only covers companies that "are incorporated and operate in the US." I think it was probably cheaper and easier to do this in the past, but now regulatory and tax reasons make it more difficult and more expensive.

Companies are ranked by total revenues for their respective fiscal years. Included in the survey are companies that are incorporated in the U.S. and operate in the U.S. and file financial statements with a government agency. This includes private companies and cooperatives that file a 10-K or a comparable financial statement with a government agency, and mutual insurance companies that file with state regulators. It also includes companies that file with a government agency but are owned by private companies, domestic or foreign, that do not file such financial statements. Excluded are private companies not filing with a government agency; companies incorporated outside the U.S.; and U.S. companies consolidated by other companies, domestic or foreign, that file with a government agency. Also excluded are companies that failed to report full financial statements for at least three quarters of the current fiscal year. Percent change calculations for revenue, net income, and earnings per share are based on data as originally reported. They are not restated for mergers, acquisitions, or accounting changes. The only changes to the prior years' data are for significant restatement due to reporting errors that require a company to file an amended 10-K.

SneakerXZ3• 11 years ago

These companies were founded when the world weren't so connected. The size of US market unified with one currency and language didn't matter back then. Because if you have founded a company in California, it was hard for you to reach people in New York because there was no internet so when somebody founded a company in Germany, he had basically same position as the guy in US. And after many years the guy in Germany had a lot of money so he could easily expand to France and so on. So business were growing with same pace and it didn't matter where you were.

But there is more factors in it, Europe used be more rich (it had a lot of colonies), US wasn't so developed as it is now. GDP of US was lower than GDP of UK in 1900. And of course laws changed, we have more bureaucracy than we used to have.

KaiserPro3• 11 years ago

There is one currency, there are no import taxes, VAT is per country. (assuming EEC) This ofcourse assume that you are operating in one country and providing goods to another. Employment is another issue.

Thats almost the same as in the US(excluding employment).

The issue of low taxes is frankly utter bollocks, yes the US's taxes might be lower but so is your life expectancy, and productivity.

The main issue with startups is that most of europe is based on trade. What can I sell to you for a profit, what can I invest in that will give a decent return with a balanced risk?

Most tech startups fail. Most tech startups are clones of another well established startup. Those startups do not make money.

Why would I invest in something with such a terrible likleyhood of return?

tosseraccount• 11 years ago

"productivity is lower" ??? wtf?

https://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PP...

We're Number 3 !!!!

Life expectancy appears to be about what is the European Union. U.S. is 79 years ( source: https://en.wikipedia.org/wiki/List_of_countries_by_life_expe... ) ( Euro stats: https://en.wikipedia.org/wiki/List_of_sovereign_states_in_Eu... )

Europe doesn't have import taxes? what?

Did you fact check any of your statements?

SneakerXZ3• 11 years ago

Nobody says it is impossible, you can provide goods to other country with EUR but you are competing with other markets. French local company has advantage over German company that tries to sell good in France because French company has smaller shipping cost (it is not unified through EU), they offer localized goods, they have local visibility, they know local laws, they can provide localized support and these things are hard when you are new company and you want to grow.

switch0072• 11 years ago

There are 11 currencies in the European Union.

noelsusman2• 11 years ago

There's still a much larger difference in both laws and culture between European countires than between American states. Also, much of what you said doesn't make much sense. Lower life expectancy and productivity? Are you arguing that investing in startups is irrational and Europeans realize this while Americans don't?

adventured4• 11 years ago

US productivity is among the highest on earth.

Alabama's GDP per capita, is higher than Italy.

US economic growth is routinely far beyond that of Europe. UK, Germany, France, Finland, Denmark, Spain, Portugal, Greece, Italy, Russia, Austria, Poland - haven't net grown their economies since 2007.

US unemployment is almost half that of the EU (and is half that of the Eurozone).

Life expectancy is on par with the EU, and is higher than Europe as a whole. Russia - by far Europe's biggest country - only has a life expectancy of 70 years.

You would invest into start-ups, because the few that succeed produce vast returns, and even among the failures the ecosystem as a whole produces massive knock-on benefits that spur innovation and overall economic growth.

allendoerfer• 11 years ago

Aside from the obvious fact, that you cannot compare 500 million Europeans that speak plenty of different languages to 300 million US Americans (have you been to Eastern Europe?), it is because the PC, the internet etc. were invented in the US, thus SV was formed and the start-ups there still reap the benefits (exit opportunities, investors, etc).

KaiserPro3• 11 years ago

Because investors in Europe are less optimistic.

Why would I invest a lot of money in a company that for it to succeed will have to burn through anywhere between $10-$250 million, before they even think about breaking even?

even as a seed fund, the rate of attrition is genuinely terrible. The only way unicorn can survive is to bend reality long enough so that people are willing to gamble on the pyramid scheme that is behind all non profit making pre-IPO startups.

Think about it. Uber is only in the position it is because it keeps on taking funding. That funding is used to

A) expand at a massive loss

B) Inflate the current valuation

C) pay off previous investors.

If uber were for what ever reason not able to raise any more capital, they would literally collapse over night. They are unable to make a profit without making massive structural changes, changes not scheduled for years. Yes they have cash reserves, but they'll be convertible if some investors need them. More importantly, if an investor decides to sell for a lowerprice, the only thing that makes Uber Uber, its valuation will disappear.

Let me be very clear, There is nothing special about uber. Unlike netflix, amazon, or facebook which either have unique content, or many thousands of hours of personal content, Uber is just a service which can be swapped out at will. It is just a taxi service, one that is cheap because its being subsidised by not paying health care, and the many investors.

It is the very embodyment of the south sea bubble.

aianus6• 11 years ago

I highly disagree. Uber is like Amazon; it could stop expanding and investing tomorrow and immediately start turning a huge profit.

They charge 10% of all taxi rides with a marginal cost of maintaining some server software and a mobile app. No cars, no human dispatchers, no medallions, no nothing. It's a great business.

ThomPete19• 11 years ago

Just not for the uber drivers exactly because there is no medalions :)

verybitter922• 11 years ago

Why is there no Silicon Valley of Europe?

Because programmers and other IT professionals are paid laughably low wages and shown even less respect than they are in the US. It's a similar situation in Japan and Australia. Yet whenever politicians talk about the need for startups to compete with Silicon Valley, you never hear them say a word about the insultingly low wages that are the norm in Germany, France, UK, Belgium, and others.

Want to create a Silicon Valley of Europe? Then pay Silicon Valley wages, you cheap bastards!

The Irrlicht guy wrote about this:

http://www.irrlicht3d.org/pivot/entry.php?id=1295

gaius2• 11 years ago

And some laws against offshoring and "business visas".

verybitter922• 11 years ago

Why was I downvoted? Everything I said is the truth. Why would someone want to be a programmer in Europe when the pay and respect is so bad, and with what money can a programmer be expected to start a startup when they're only being paid a €3000 a month salary?

mschuster913• 11 years ago

Upvoted you, I agree. Also, for the non-Germans, take-home cash (after taxes and mandatory medical insurance), depending on your tax class, may be as low as 1.800€ from said 3.000€.

PythonicAlpha3• 11 years ago

In my opinion, the EU has failed (still) to be an open big market, where companies can grow without restrictions.

One current big example are the new VAT rules in the EU for non-physical products. They just do the opposite, what a free market should be. There are already companies that say on their website, that they will sell to their own countries people and happily even to people outside of the EU, but not to people living in other EU countries. The total opposite what the EU once should be. The new VAT rules also should limit the possibilities of big companies like Amazon to circumvent VAT. In reality it become a big stumble block for smaller companies.

The EU is a big market, with many, many rules. To many rules and to few thoughts on the effects particularly for smaller companies. (instead, the big corporations are effectively writing the rules)

When smaller companies do not get the chance to come up (what is happening) than the chances for Unicorns are also greatly limited. Instead the same big players are winning again and again and are doing the same dinosaur stuff again and again.

pvaldes3• 11 years ago

VAT has become a big problem for commerce, yes.

PythonicAlpha3• 11 years ago

It's not about VAT, but about the new VAT rules in the EU particularly for non-physical goods. The problem is not the VAT amount, but that small companies potentially have to deal with all the finance offices (and special rulings) of all EU countries. That is ridiculous!

highCs• 11 years ago

Many EU countries got startups during the mass consumption revolution. US however is the only country to have not missed the micro revolution. US got micro startups in 1975, 1983, 1995 and so on. Hard to beat 40 years later as no one has experience nor tech money. Its not that we dont have hackers in EU, its that we dont have Paul Graham. I dont think this - tech experience and tech money - is easily relocatable as it is stated in the article.

cm2187• 11 years ago

In a couple of years, when this tech bubble have burst we will laugh at this kind of headlines

wellboy2• 11 years ago

Speaking for Germany, which is probably the "best" country after the UK, here are a few reasons

1. Almost no investors who have built a tech-company before

2. Investors are very risk averse and want business models that monetize from day 1, because that's what a business is and those are good German values. This way, there is a strong incentivization by investors of e-commerce businesses and strong disincentivization of startups that want to build a great product first and focusing on scale.

3. In the same vein, investors simply don't know the idea of growing first and delaying monetization, which is what made the majority of "unicorns" possible. This is because there are no German examples for that, so they could not experience it themselves and German investors don't know or don't care about what happens in the U.S.

4. Fundraising takes double the amount of time here at half the valuation. I have seen 3 companies of close friends shut down after having raised Series A, because of exactly this.

5. Because of all that, there is little courage or idealism of the generation of first-time German entrepreneurs left. We have enough talent, there is just not the mindset baked into our ecosystem what makes the U.S. so successful. That's why most founders have to revert to building copycat e-commerce shop, but very few of the founders (maybe 3% of those that I have met) have the goal and the idealism to build something new that can really improve our world.

However, that's why there is a big opportunity to take the market of early stage seed investments that is focused on high risk bets only. If you want to do it really well, you announce that e-commerce ideas are not allowed.

digi_owl• 11 years ago

The impression i have is that European (if there is such a singular entity) tech development is more oriented towards system wide efficiencies and disability assistance than producing the next stock market rocket.

tschellenbach• 11 years ago

1.) Lack of seed stage investors 2.) Lack of exit scenarios and later stage investors. This makes seed stage investing less attractive. 3.) Few experienced engineers, designers etc. There is plenty of talent, but it's hard to build up experience without successful startups. 4.) Part of the talent leaves Europe 5.) A vicious circle of those factors

petercooper4• 11 years ago

Combine lots of languages with lots of regulatory areas and you end up with numerous smaller communities. Add this to Metcalfe's Law and you have disproportionately smaller opportunities for company size when social effects are important (as they are to most Internet-based unicorns, though not to companies Europe does do well at - like car companies and manufacturing, say).

Mathematically, say one network with size 100 has opportunity of 10,000. Ten networks of 10 have opportunity of 100 each - totaling a far lower 1,000.

Note how several of the top "unicorns" are from China (Xiaomi, Lufax, Didi Kuaidi, DJI, Zhong An, Dianping) or India (Flipkart, Snapdeal) - other countries with (mostly) unified languages (formally, if not in practice) and vast middle class populations (due to their overall gigantic populations). Other unicorns outside of big territories are Atlassian and Spotify - but they're valued so highly because they work in the US market almost as if they were US companies.

ThomPete19• 11 years ago

Yes but historically Europe have had much more success with creating large companies so the question is what changed?

Historically the EU used to be much more divided which is exactly why the harmonization process seems to have such a paradoxial result.

petercooper4• 11 years ago

I might be wrong but I think it's because the sorts of companies that become "unicorns" nowadays are more dependent on cultural, language or social network aspects (Snapchat, Facebook, Airbnb, Pinterest) than manufacturing, drug, or oil companies ever were (all areas Europe has excelled in).

If biotech or robotics ever take off in a huge bubbly way, I imagine we'll see a much larger of Europe unicorns coming to the table as those areas play to European strengths again.

shas3• 11 years ago

I think you are overstating the importance of languages. As a counter example, one has to only look at large European companies, like Seimens, Airbus, Philips, Volkswagen, etc. Their multinational spread transcends language barriers. Why would this be a problem for start ups? India has several languages and is insanely diverse. In this way it is different from China. But what works for companies trying to scale up in India is that most people have a functional knowledge of English.

But I think you are right on the money about regulation. For better and for worse, the regulatory framework is far more liberal in the US compared to Europe. Even though Indian regulations are much worse than Europe and often more draconian, the Indian unicorns have flourished in niches where regulation doesn't matter or are more rational because they came about more recently.

kazinator• 11 years ago

Volkswagen doesn't need to speak Chinese in order to have a plant cranking out parts in China for approximatelythe same reason why a computer user doesn't have to know a programming language to read their e-mail.

A small management team at the top of the org chart above the workers just has to be able to communicate with the parent company and "program" the organization below in their native language, to produce the required results.

petercooper4• 11 years ago

As a counter example, one has to only look at large European companies, like Seimens, Airbus, Philips, Volkswagen, etc. Their multinational spread transcends language barriers. Why would this be a problem for start ups?

Because these companies are all based around companies communicating with customers, which can be localized and has no real network effect.

Many current "unicorns" are social companies or companies with inbuilt network effects where customer-to-customer communication or cultural familiarity is important.

mapgrep• 11 years ago

I have trouble accepting any of the conclusions in this piece when it has significant factual errors or at least false implications.

Here are some of the EU rules listed in an apparent attempt to show Europe has more onerous regulations than the U.S.:

There are rules for the curve of the cucumber to the bendiness of bananas.

This hasn't been the case since 2008. http://www.nytimes.com/2008/11/12/world/europe/12iht-food.4....

Also, according to the U.S. Congressional Research Service, "U.S. imports of some fresh fruits and vegetables also are subject to federal marketing orders that... create mandatory grade, size, quality and maturity requirements that apply to domestic and imported products." https://www.fas.org/sgp/crs/misc/RL34468.pdf

Just to take one example, here is one document where the USDA regulates potatoes for their air cracks, bruises, dirt, enlarged lenticels, external discoloration, flea beetle injury, sunburn, and growth cracks, among many other things. http://www.mipotato.com/CMDocs/MPIC/usda%20grade%20standards...

Recently large vacuum cleaners and incandescent light bulbs were banned.

The EU has not banned incandescent light bulbs but is phasing out many types of incandescents. As it happens, so is the U.S. https://en.wikipedia.org/wiki/Phase-out_of_incandescent_ligh... https://en.wikipedia.org/wiki/U.S._Lighting_Energy_Policy#In... Here is a recent map of all the nations in the world phasing out such bulbs. Notice the U.S. and EU are listed at the same level of prohibition: http://blogs.scientificamerican.com/plugged-in/the-overly-dr...

Recently the EU was looking into banning cinnamon used in cinnamon rolls because of a too high amount of coumarin, known to be causing liver damage if consumed too extensively.

Wildly incorrect, although there have been some misleading headlines so perhaps forgivable. What happened is that the Danish authorities ruled that a type of cinnamon swirl ("kanelsnegle") was not a specially exempt traditional or seasonal food. This meant it was subject to EU recommended daily limits on the ratio of coumarin per kg of dough. The Danish Food Administration had done a survey and found half of the nation's fine baked goods were probably over the line. Cue hysteria about the beloved rolls being banned (never mind that bakers could just cut back on coumarin, for example by changing quantity or type of cinnamon). Anyway what ended up happening is that the rolls were reclassified as a traditional national treat and thus exempt from the recommended limits.

http://www.npr.org/sections/thesalt/2013/12/25/256602581/whe... http://www.theguardian.com/world/2013/dec/20/cinnamon-intake... http://www.eubusiness.com/news-eu/denmark-food.wo7

FWIW the FDA regulates how much yeast, citric acid, Sarsaparilla, Sassafras, tallow, green walnuts, unmodified starch, and vanilla can go into foods, among many other ingredients. (see http://www.fda.gov/Food/IngredientsPackagingLabeling/FoodAdd...)

xacaxulu3• 11 years ago

I think comparing cities against cities might be a more apt comparison, especially normalized for available investment amounts, population, etc. Remember that a number of US states rival single European nations in GDP, population, physical size, etc. I'd rather talk about Berlin vs Austin, London vs Manhattan, Paris vs Boston.

Second, is '# of $1B startups' even an important metric? Just like some employees prefer Europe for worker protections, smaller work weeks, paid maternity leave, healthcare unattached to employment status, etc, so some startups might find that their success has more to do with the markets they find themselves operating in and serving, rather than total income.

tsotha• 11 years ago

There's a huge network effect in startups. Once the financing structure, the management skills, and technical know-how are in a place, companies start (or move) there, which in turn brings in even more skilled work force and VCs. How many articles have we seen about governments trying to create The Next Silicon Valley and failing after dropping loads of cash?

And over the short run the talent picture is a zero sum game - Europeans who moved to SF to start their company are potential founders Europe doesn't have any more.

Also, don't underestimate the draw of US universities. We get people from all over the world coming to the US for their graduate degrees and many of them stay.

icc97• 11 years ago

The University system certainly has something to do with it. Compare the startups from those who've graduated at Stanford/Harvard [1] with Cambridge [2]

[1] http://minimaxir.com/2013/07/alma-mater-data/

[2] http://www.theguardian.com/technology/2013/dec/01/cambridge-...

brooklyndavs• 11 years ago

I think asking this question without addressing the overall cost/benefit to society is not very productive. The overall goal, I think, is to allow startups to grow and thrive while at the same time being a net plus for society. I would argue that "ask for permission later" mentality of some US based startups is a net minus to society overall. While I don't have any love for the taxi industry the regulations around cars for hire were put in place for consumer protection. These are some of the same regulations Uber is currently trying to get around (surge pricing in particular). Similarly, while I don't have any love for the hotel industry the regulations around short term housing exist to allow ample housing supply for long term residents of that city.

While inconvenient for the entrepreneur/investor/1%class most regulations exist for the common good of society. If a startup can prove that the regulation is outdated and doesn't make sense in the context of a new technology they should be able to convince the regulators that the regulation needs to be adjusted.

ThomPete19• 11 years ago

I don't disagree with a word you are saying but I don't think I was implying that you shouldn't do cost benefit. It just wasn't what the article was trying to explore. I am saying both in the beginning and the end that I am not even sure it make sense to focus on unicorns for Europe.

But given it's importance on many things after all I wanted to understand why Europe didn't have more than they do.

unabst• 11 years ago

If these valuations are based on funding rounds, then aren't they the direct consequence of VC funding and VC math? If this is the case, then More VCs should equal More Unicorns, because they are the one's creating them.

If EU vs US VC funding is about 1:8, then the ratio correlates with the output of unicorns. If is even less, then that would imply EU actually may be outperforming the US in unicorn output per VC head. As it turns out, the EU numbers are booming this year, so it's tough to compare, but the numbers do seem to back this somewhat [0] [1].

[0] http://blogs.wsj.com/briefly/2015/04/27/european-vc-investme...

[1] https://www.cbinsights.com/research-venture-capital-q1-2015

thetruthseeker1• 11 years ago

India has 7, 1 less than Europe, that is very interesting from many accounts. GDP of Europe ~20 Trillion $. GDP of India is 2 Trillion $ - I wish there were more studies like this, but not just at the billion $ evaluation, but say 100 million $ evaluation, I think reaching the mark of 1 B$ also requires significant amount of luck(in addition to great execution), a smaller number like 100 M$ may be a more consistent measure

loourr• 11 years ago

Because they're further downstream from where all the money is being printed.

erdevs• 11 years ago

We need a new term for "unicorn" ... "Paper unicorn", perhaps.

A better comparison would remove the confounding variable of valuation. Instead, it'd be interesting to look at start-ups in each region with >$200M in annual recognized revenue. Valuations fluctuate based on investor sentiment and market conditions. Revenue is more fundamental.

dschiptsov• 11 years ago

The same reason as why almost all the activity is on the Everest and there are orders of magnitude less expeditions on K2 and almost 0 on Kanchendzunga.

Because it requires Silicon Valley (the Everest region) and US-style financial institutions (free money) and bankruptcy protection laws.

trgn• 11 years ago

I'll speak for Flanders, where I've lived. I presume it's not unlike some other large metropolitan mega-regions in Europe.

Something that may contribute is that life is fairly predictable in Europe, and by many accounts prosperous. This may sedate the entrepreneurial spirit.

Selling your labor to make a living is an entirely respectable choice. A comfortable life all the way to the end is more or less guaranteed. Labor protections are much more generous as well. In the US, starting a company is partly an attempt to escape wage slavery and toxic work environments. Somewhat exaggerated perhaps, but in the USA, the entrepreneur is celebrated while the salaried employee is pitied. (Unless when it's election season and all suitors crow about jerbs, jerbs, jerbs).

There is also an enormously amount of stored wealth in the existing infrastructure and built environment, much of it owned by families or collectively, and people enjoy continued long term robust family relations and social support structures nearby, cradle to grave. Generations of prosperity and fairly modest lifestyles see to that. This is lost to many Americans, when comparing snapshot measures like average yearly income or per capita GDP. But wealth - the measurable money kind and immeasurable chicken-soup-for-the-soul-kind is accumulated over time and regions like Flanders are positively rich with both. America - somewhat a cliche - MUST be sustained by growth, because the recurring costs of the necessities are so high. The built environment in America is basically a gigantic liability, only supported by a promise of future revenue. And the constant geographical movement of labor breaks apart families and existing support structures, constantly in need to be reconstructed. In this context, the promise of a fat payout after an IPO is a soothing balm.

dayone• 11 years ago

i have been to europe. trust me, the so-called stars of european tech community are definitely overhyped. Not only do they solve much smaller problems, their beliefs and thoughts are really small too. The engineers they attract are very average not rockstars at all.

tim3334• 11 years ago

Recent take from Reid Hoffman:

Many parts of the world now have the necessary ingredients to create start-ups. There are brilliant technical graduates everywhere. Venture capital has gone global.
Why does Silicon Valley continue to produce a disproportionate share of industry-transforming companies like Google, Facebook and LinkedIn? Or the next generation of companies like Airbnb, Dropbox, and Uber? The answer, which has been hiding in plain sight, is Silicon Valley’s ability to support scale-ups.

http://www.ft.com/cms/s/0/39001312-4836-11e5-af2f-4d6e0e5eda...

tim3334• 11 years ago

Interestingly Stockholm does almost as well as Silicon Valley

on a per-capita basis, Stockholm is the second most prolific tech hub globally, with 6.3 billion-dollar companies per million people compared to Silicon Valley with 6.9

http://www.ft.com/cms/s/0/e3c15066-cd77-11e4-9144-00144feab7...

known• 11 years ago

You need Cash/Caste to succeed as an Entrepreneur in India; https://en.wikipedia.org/wiki/Varna_in_Hinduism

Why Is Europe Failing to Create More $1B Startups?

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