Tech investors can’t get enough of Europe’s fizzing startup scene

https://www.economist.com/business/tech-investors-cant-get-enough-of-europes-fizzing-startup-scene/21806435

by simonebrunozzi • 5 years ago

105 162 5 years ago

economist.com

1cvmask2• 5 years ago

https://archive.md/SsgdQ

1cvmask2• 5 years ago

Funny they didn’t mention UI Path and some others like Darktrace, Deliveroo, Getir, Trendyol etc… :

https://sifted.eu/articles/europe-unicorns-2021/

https://sifted.eu/articles/uipath-seed-investors/

bschne• 5 years ago

“Now Spotify is the winner in music streaming, Klarna is the winner in buy-now-pay-later and UiPath is the winner in robotic process automation—they’re all European,” he says.

nostrebored3• 5 years ago

Klarna is the winner in BNPL

lol what a bold and wrong statement

rexreed4• 5 years ago

UiPath, while founded in Romania, is officially headquartered in the US (NYC) and is counted in US / NYC funding amounts. 80% of the team is not in Europe either, with the entire management team in the US. So they aren't usually included in any Europe VC roundups, despite the origin of the company.

sebow• 5 years ago

Should not be double-counted in regarding the funding, indeed, but it still is a 'romanian company', and it's not really in the "startup phase" anymore, it actually has some long history but only post-covid became very successful.

European startups that are remotely successful literally have to move to NYC(or any other US city i guess, but NYC is the preferred choice, though it may be expensive) to not die off.It's not even a joke, and it's the sad reality of living in the grandious European Union that suffocates you with bureaucracy.There have been places that became lax towards tech startups (see cz for example), but even with laws being slowly changed/ignored, the money either isn't there compared to US, and even if there is (see france, uk especially post brexit), the investing entities lean on the fact that there's more talent/square meter, so they're not really that quick to pull the trigger if they can save on some bucks.

oblio9• 5 years ago

80% of the team is not in Europe either, with the entire management team in the US.

Is that really the case? Their main R&D center is in Romania and it's huge.

If anything, it's probably the other way around since management is the top of the pyramid, which kind of by definition, is not a lot of people.

stef253• 5 years ago

Deliveroo

How perceptions of this company has changed. Prices are ridiculous, both from the Deliveroo mark up and what the restaurants charge extra to make up for that markup (4EUR bottled water seriously?)

More than half the riders here in Belgium are illegal immigrants using fake rider accounts that don't speak the local language. There's a squat near my house where they all hang out waiting for a call.

Seriously, look in side the window and you see a bunch of guys sitting around on broken chairs and crates surrounded by their Deliveroo backpacks (which are all filthy and worn out). They're so destitute and sorry looking that when one comes in to a restaurant to pick up a delivery you think omg.

I'm not someone who usually takes the side of "those poor workers" but in this case Deliveroo really runs on paying the poorest, more vulnerable people in society pennies to deliver over priced meals that a restaurant sold them for something like 30% less than they usually would.

Meanwhile the industry's gravitating toward ghost kitchens, putting even more unfair pressure on local restaurants.

Seriously I'd love drag whatever MBA is behind this company and show them what their "high valued startup" looks like here. I don't understand how these people sleep at night.

And then there's Lendable: "Loans at 28.6% Representative APR" and we're supposed to be amazed they turn a profit?!

jacquesm4• 5 years ago

All of the food delivery companies are predatory. Haven't seen a single one yet that is doing anything other than to squeeze the restaurants, the customers and the deliverators for every last dime.

908B64B1974• 5 years ago

More than half the riders here in Belgium are illegal immigrants using fake rider accounts that don't speak the local language.

Have you considered reporting them? Through the app or to the local authorities?

Meanwhile the industry's gravitating toward ghost kitchens, putting even more unfair pressure on local restaurants.

That's actually great... and not new. Delivery-only restaurants means better margins for restaurant owners and a different business model.

code51• 5 years ago

Looks like Getir has proven the business model locally but considering their latest moves in the UK, their main goal is capturing the European market. I have doubts about the whole instant-delivery space though. Profit margins are probably not large enough to make the business sustainable. The scenario looks like winner-takes-all or at least hold your breath until IPO.

secondcoming• 5 years ago

An article from earlier today seems to decry Europe's startup scene [0]

[0] https://news.ycombinator.com/item?id=29316357

skohan• 5 years ago

I've worked on startups in the US and Europe, and there definitely are differences. Say what you want about the US, but the general risk tolerance and attitude of forgiveness around failure are a good match for startup culture.

bluefirebrand• 5 years ago

attitude of forgiveness around failure

This has never been my experience anywhere I've worked. I wonder if maybe this only applies to the right kinds of people and isn't really true in a general sense.

arthur_sav• 5 years ago

Main issue in the EU is still compensation. They are pretty stingy with equity and salary.

And risk wise, yes, US tends to swing for the fences more often which produces unicorns. EU tends to go more traditional and safe routes (aka boring).

Zealotux• 5 years ago

So uh... How do I get in the club? Because I could use a few millions.

toomuchtodo• 5 years ago

Sell a dream to those with deep pockets and shallow expectations. The dream and equity sold is the product.

lumost• 5 years ago

Isn’t this fundamentally the best strategy when money is free? Scarcity/speculation should dominate returns.

johnebgd• 5 years ago

Have ability to believe lies.

mrweasel2• 5 years ago

Pretty interesting question. I know at least one company which have burned more than $5mil in VC funding over ten years, and they only have a semi stable prototype built on 15 years old tech (which they claim is an actual product). Clearly there’s money to be had, but how to get them is the question.

xyzzyz3• 5 years ago

$5M over 10 years? I forgot how to count that low.

trutannus• 5 years ago

Skype, was in 2011 bought for $8.5bn by Microsoft

Figured Estonia would make it into this at some point.

varjag3• 5 years ago

Estonia was where its Sweidsh and Danish co-founders outsourced the development.

zz865• 5 years ago

I thought fizz means eventually to fizzle out and disappear.

jetrink• 5 years ago

In this context, it's an allusion to carbonated drinks and is a different way to say 'bubbly.'

rexreed4• 5 years ago

It's an unfortunate use of term, because while fizzy does mean bubbly and frothy, it can also mean unsustainable because the fizz in drinks never lasts.

Author should have / could have used the title "Tech Investors can't get enough of Europe's growing startup scene". Would have conveyed a much less bubbly / frothy / transient nature.

echelon• 5 years ago

My mind jumped to "fizzling out" before the "fizz" = "frothy" or "fizz is just temporary" associations kicked in. This is definitely a poor choice of adjective.

escapecharacter• 5 years ago

They have to say fizzing because not all of the startups are in the Champagne region of France.

medo-bear• 5 years ago

this is paywalled for me

chillel• 5 years ago

http://archive.today/SsgdQ

jp57• 5 years ago

"fizzing" and "fizzling" are too similar.

bingohbangoh2• 5 years ago

they should've said "bubbling tech scene"

kyleblarson• 5 years ago

Came here to say that. I read it as 'fizzling' and immediately thought the title was sarcastic.

0des2• 5 years ago

Then the reader could associate it with a tech-bubble.

bryanrasmussen• 5 years ago

gassy

dr_dshiv• 5 years ago

No really, it’s about to pop

asdfman123• 5 years ago

It has to come from the fizzing region of France, otherwise it's just a sparkling startup.

0des2• 5 years ago

I think this is partly the fault of the word "effervescent" being too hard to spell.

brezelgoring• 5 years ago

Here is the archive link:

https://archive.md/SsgdQ

outside1234• 5 years ago

Wow, so content free. What companies are representative of this new scene?

Don't get me wrong - I'd love this trend - but I just don't see it yet.

endymi0n• 5 years ago

TL;DR: They aren't as visible on average because there's not such a big prevalence of outliers (even if we do have some, such as Spotify).

EU creates 39% of global startups, but only 14% of unicorns. Success rate

It's historically much more revenue than growth focused, but there's quite a lot of successful startups over here as well. It ties in closely with the local culture of "Mittelstand" and a far larger share of SMB's/family businesses than bigcorps in the US.

https://www.mckinsey.com/industries/technology-media-and-tel...

NicoJuicy• 5 years ago

Eg. Someone i met through a friend: OTA Insight.

( I'm not related to the scene)

boringg• 5 years ago

When I want investment news on the hottest global markets I go to the economist for the cutting edge trends.

jbverschoor• 5 years ago

So which "startups" are they talking about? If they're talking about scaleups, sure. Less risky.

gardaani2• 5 years ago

Slush, one of the Europe's largest startup events, is happening next week (1-2 Dec 2021) in Finland. The program contains lots of interesting talks and they will be streamed. Definitely something anyone interested in European startup scene should follow.

https://www.slush.org/events/helsinki/agenda-2021/#/

mariushn• 5 years ago

Thanks! Can't find streaming info in the main menu & FAQ. Will it be streamed publicly or only for ticket holders? Is there any page with details?

gardaani2• 5 years ago

It might be this page: https://www.slush.org/events/slush-live-stream/

I think they will be streamed publicly. Currently, it contains streams from 2019. Year 2020 the event was canceled.

1270018080• 5 years ago

European countries still pay a solid 80% less than in America. How can they ever get talent?

CraftingLinks• 5 years ago

Because we don't want to live in US. Because we dont like US culture. Because there's more to quality if living than just raw dollars.

jowdones• 5 years ago

Because European talent is largely confined to EU so gotta take what's being offered.

poisonborz• 5 years ago

This is asked in like every thread about Europe. Read about income tax and the social services states provide in the EU. I'm happily giving up that "80%" for those.

tompccs• 5 years ago

Because the talent can't get into America because of its terrible immigration system.

yoran3• 5 years ago

It's paradoxical that entrepreneurship is less of a thing in the EU than in the US. After all, Europeans can afford a lot more risk than Americans. There's a strong safety net in the form of social security. Health insurance is not tied to your employer. European university graduates don't start with lives with several $100k in debt, while having gotten an education of similar quality. Maybe the culture is shifting?

marmaduke• 5 years ago

At least for France, there is less to recommend doing a startup than in the US. The social security regime is worse (than for others eg employees, govt workers), the tax schemes are complex and penalizing at the low end, and the amount a company has to pay an employee is near double what the employee sees in the bank, because near half goes to support the social security net. I’ve been here a decade and wouldn’t start one, even after doing autoentrepreneur unless it was the only choice.

sokoloff• 5 years ago

If you’re stuck in France, could you not start a company anyway and only hire remote workers from outside of France?

vkou2• 5 years ago

and the amount a company has to pay an employee is near double what the employee sees in the bank, because near half goes to support the social security net

In dollar values, in the US, that same amount will go to pay for health insurance and benefits and social security and medicare taxes. Combined with lower wages, and your overall payroll expenses will still be much lower in France.

There aren't a lot of senior engineers making north of $300,000 USD/year in France. But there are a lot in SV.

andreyk• 5 years ago

I'd guess a lot of it is cultural - I believe much of Europe also has a far less workaholic culture than the US, with more emphasis on living life and whatnot. And I'm sure there are other factors (France's labor laws presumably make things harder, although that's a barely informed guess on my part).

zemvpferreira4• 5 years ago

There is no paradox, only innocence. Did you know here in Portugal company directors used to be personally liable for social security payments for a business's employees in case of bankruptcy, until the end of their former contract? That meant for every engineer you hire, you might easily be on the hook for 10K with the government in case you go under. Try failing fast with that.

America was built in part by swindlers and robber-barons in a system who let them get away with it by design. In many of Europe's different legislations, failure in the bankruptcy way has/had serious consequences for the business person responsible. Play fast and loose with your responsibilities like you might in the US, confident that the corporate veil will bail you as long as you don't do anything criminal, and you might find yourself staring down the barrel of a loaded fiscal gun.

TTPrograms4• 5 years ago

If this perspective of "startup failure is a deep moral sin insufficiently penalized by the government" is common in Europe then the lack of entrepreneurship is not very surprising.

duped2• 5 years ago

Framed another way, perhaps the existence of strong social safety nets is evidence of cultures that discourage behavior and ideologies that encourage entrepreneurship.

Even in the United States the conditions for a startup ecosystem to thrive are localized mostly to California, both financially and culturally. Risk intolerance and shortness of ambition is pervasive in our society too, just that a few historical factors have allowed for a business counterculture to thrive in parts of it.

csa5• 5 years ago

Even in the United States the conditions for a startup ecosystem to thrive are localized mostly to California, both financially and culturally.

I largely agree with this, and I (mostly) love California for many of these traits.

That said, I think startup ecosystem 2.0 will be centered around Austin. It will look very different than the California startup scene, but it will be just as transformative (if not moreso) imho.

yoran3• 5 years ago

Maybe I'm wrong, but isn't California one of the more progressive states with a stronger social safety net than say Arkansas or Alabama? So isn't that counter to your argument?

TTPrograms4• 5 years ago

1) Less upside for entrepreneurs/investors/early employees due to tax policy,

2) greater hiring/firing friction due to stronger employee protections,

3) greater fixed operating costs/overhead all around due to increased incorporation costs/bureaucratic requirements.

I don't think these things are necessarily negative, but in a world with competition between markets with high incorporation friction and low incorporation friction you'd expect entrepreneurship to concentrate in lower friction markets.

jbay808• 5 years ago

I can't speak for Europe, just for Canada, but I assume that a similar dynamic might exist. "Less upside" for successful founders due to taxes is frequently cited but I seriously doubt it. Instead, less risk appetite in the investment community is far more likely. Investors offer less money, with far more strings attached, and so founders move to the US to seek better investment terms. Taxes are a distant afterthought.

jorblumesea• 5 years ago

Europe has very progressive policies on some level, but also very regressive or unfriendly policies for business owners. Classic example is bankruptcy. In the US, chapter 11 is done as an almost routine "get me out of debt". This was impossible in Europe until very recently (EU Restructuring Directive, July 2021 was the deadline to implement).

Personal bankruptcy is another good example where Europe just has no equivalent.

flir• 5 years ago

In the UK personal bankruptcy costs £680 and is normally discharged after twelve months. Is the US less onerous than that?

b200006• 5 years ago

in europe, you cannot file for personal bankrupcy. you will be stuck with debt forever.

Hglgrd• 5 years ago

This isn't true. For example, France and Germany both have a complete personal bankruptcy legislation

kall• 5 years ago

I don‘t think that is the case across the board. I‘ve certainly heard of Privatinsolvenz. But you might not be able to claim this for business related debts (which should be covered by your limited liability cooperation in theory)?

robin_reala• 5 years ago

That’s categorically not true. For example, in the UK you can file for bankruptcy[1] and in Sweden you can apply through Kronofogden to have personal debts cancelled after a supervised three year period.

[1] https://www.gov.uk/bankruptcy

jacquesm4• 5 years ago

This is complete nonsense. I don't know where you picked that up but wherever you did it isn't true.

ArtRichards• 5 years ago

In general, as an individual entrepreneur/'business owner'/selbstandiger in germany, and also in the US, its neigh impossible in Germany to perform your own accounting/tax filings; and the idea of an LLC is very difficult to obtain (see how companies like Starbucks structure their limited liability with an 'AG & Co. KG')

Combine this with the lack of 'safety net' for someone who owns the business (you dont qualify the same as if you were a regular non participatory employee) and the lack of angel funding/froth in general... its not as simple as you may imagine, especially for non citizens.

Its possible, but its not as simple :)

Edit typo

jashmatthews• 5 years ago

Paying private health insurance and pension is, inalmost all cases, better for an internationally mobile founder anyway!

whizzter3• 5 years ago

Like others mention, while you might not be on the hook for huge hospital bills there are other parts of the safety net that are more or less denied to you.

Myself I ran into "problems" when it came to parental leave, parents in Sweden usually gets a combined 480 days of parental leave, of which about 360 are at 80% of your income levels.

Problem is that if you (like me) plan on bootstrapping something then you're not taking out salary during that period, so even if you paid a lot of money in taxes the year before you still get marked down as a zero-earner if you plan to take time off with your kids.

Luckily the Swedish govt realized that this hurts things in the long term so they actually relaxed the rules in this area so you can retain your previous income levels for 3 years if you want to take advantage of parental leave.

(Not entirely sure if they fixed this if you get sick though, regular employees that get sick can retain most of their income for a while but not entirely sure if these 3 years startup grace period applies when getting sick)

jacquesm4• 5 years ago

If you push enough people off a cliff some of them will learn to swim. If you don't push people off a cliff only those that think they'll be able to swim may jump.

otikik2• 5 years ago

My not-very researched take: entrepreneurship is a game played mostly by people from already wealthy families. Since the % of wealthy people in the US is higher, and their rich are richer, you get more "initially rich" entrepreneurs.

Axsuul• 5 years ago

Interesting take but how do you explain almost half of all companies being founded by immigrants or their children?

brailsafe• 5 years ago

If I didn't have a ton of debt, I'd probably need a particularly intense desire for material wealth or financial independence in order to drive me into business. I don't currently have a ton of debt, just a bit, and I'd like to get rid of it, but beyond that I'm not terribly interested in the bullshit products and crap most people spend all their money on. Therefore, money itself isn't motivating enough to sacrifice so much for it. Likewise, arguments about changing the world are hollow at best most of the time, and overall those claims by previous companies have arguably worsened the world more than helped it.

leobg2• 5 years ago

I‘d argue that it‘s not a paradox . It‘s actually the same thing:

People in Europe seem to be more focused on what is deemed „safe“. Parents don‘t want their kids to become „entrepreneurs“ - they want them to find a „safe job“.

I‘m sure that many parents in the U.S. want that, too, for their children. But the U.S. is a country that was founded by immigrants. By people who, in the very founding of the country, broke with old traditions and with the „normal way“ of doing things.

Another commenter mentioned that many startups seem to be headed by immigrants, or that many of the „big guys“ in Silicon Valley started out as such (PayPal Mafia, Google guys, WhatsApp...). It‘s the same thing: You need to break with tradition to become an entrepreneur.

So, in a sense, you need to be standing a little „outside“ of the society in which you are moving. People who visit Europe from the U.S. often notice that Europeans tend to seem less open to random encounters with strangers, and that they tend to hang out in tight-nit social groups.

This is, of course, a generalization. But having lived both in Germany and in California I see this as an accurate description.

And I would argue that it‘s a lot harder to do a startup when you‘re inside a tight-knit social circle, where you have to explain yourself, where you face embarrassment if you fail, and where people might say „Who do you think you are, founding your own company?“.

It‘s a lot easier to do that if you, as Steve Jobs once famously said, have freed yourself from the concept that you must do what you are told, and should not bump into the walls too much (i.e. the „rules“ according to which society claims to work). After all, a real startup is an entity designed to break some of those rules, and to replace them with new ones.

Also, it seems to me that Europeans and Americans (especially Californians, East Coasters and Austiners) differ in where they seek salvation from their problems:

In Europe, I would argue, it is still very much more the politicians and the state. And I do not think this is the case as much in those areas of the U.S.. Again, the observations of a better social security net on the one hand and a lagging behind in entrepreneurship seem to me not to be a contradiction, but two sides of the same thing.

That idea that you can fix what you see as broken by doing a startup is slowly becoming a lot more mainstream in Europe, for sure. But, I think, for Europeans this is more a learned behavior, something inspired by what they see in Silicon Valley and in entrepreneurship shows as „Dragon‘s Den“, whereas in the U.S., it‘s always been a way of life and a philosophy for at least some substantial part of the population.

Do not forget, also, that many countries in Europe were dictatorships just two generations before. In Germany, half of the country lived in socialism up until my parent‘s generation.

In such an environment, you do not raise your kids to take risks, to put yourself in the spotlight, or to change the lives of others. And these values of „being safe“ and „fitting in“, they filter down, from grandparents, to parents, to children. It takes generations for them to die out. So there‘s that, too.

arthurcolle• 5 years ago

I really like that Rocket Investments group that just copies existing products and launches them in into LATAM/Emerging markets. I think this is a German group - does anyone have any info on them?

thenthenthen• 5 years ago

They are from berlin (rocket internet). Cant find it anywhere but heard a rumor they once sold a german ebay clone to Google for big $$$ by pretending to be a huge company. They hired a aircraft hangar for the occassion

aledalgrande• 5 years ago

wow, guess due diligence wasn't in fashion at the time

leobg2• 5 years ago

Yeah. They started out in the early 2000s by selling overpriced ringtone subscriptions to minors, essentially.

nicooo• 5 years ago

That was already their second gig. They made their first millions by copying eBay for Germany and selling it back to eBay 100 days after incorporation.

SkyMarshal• 5 years ago

Headlines like this sound more like they're trying to convince the reader of something that isn't actually happening.

difosfor• 5 years ago

Sequoia .. announced last year that it would open their first European office in London

Interesting since the UK left the EU. But I guess they like the banking environment there? Still, I expect quite some red tape if they actually want to invest in EU companies from there.

callamdelaney• 5 years ago

Why would they want to invest in EU companies when 90% of EU innovation is based in London?

throaway19903• 5 years ago

Communist europe's startups? All they ('companies') do is get free handouts from Brussels and govt agencies.

throaway19903• 5 years ago

There have been grand total of two good companies worth anyone's pity have come from Netherlands, ASML and NXP both spinoffs/offshoots of Phillips.

The Netherlands is the last bastion of entreprenuership and innovation in deeply communist and anti-innovation, anti-rich and anti-prosperity EU.

Not sure how long before Netherlands nationalizes their big companies.

Tech investors can’t get enough of Europe’s fizzing startup scene

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