Europe is not Silicon Valley (and it doesn’t have to) 

Present and future of its startup ecosystem


Europe seems so worried. The European Commission recently opened €10M call to fund projects, accelerators and incubators that encourage startups. Back in July, there was a €100M call for “highly innovative” companies to develop apps and digital services. It’s all part of Startup Europe, an initiative to “accelerate, connect and celebrate startup european ecosystems” and to promote “ICT and web entrepreneurs to start their business in Europe and to let them flourish in Europe”.

It’s not about Europe becoming Silicon Valley, it is about Europe creating conditions so innovation can happen here

Ok. So seems like in Brussels they have realized that the biggest internet companies are not european and that most of the ones that are born here stay local and do not reach international markets. In a crisis + youth unemployment context, startups (low opportunity cost + potential job creation) could be a solution. That is, at least, the theory that’s repeated again and again and again in political conventions: our continent needs a change of mind. To take risks. To innovate. More entrepreneurs. And more people building more startups.

So the European Commission wondered: what should we do to be Silicon Valley? They set up events, competitions, wrote documents and recommendations and even a Startup Manifesto and a Startup Leaders Club. More or less, that’s what they all said: it’s not about Europe becoming Silicon Valley, but about Europe creating conditions so innovation can happen here, as well.

“We can do it ourselves. I set up Slush, a lot of people came, it was not Silicon Valley and it was not organized by the Government. Why couldn’t we be even better than the Valley?”, asked Rovio’s CMO Peter Vesterbacka in a recent debate about entrepreneurship in Europe.

The debate took place in the european SME Assembly, and it was titled “Europe needs more successful entrepreneurs. But what does it take to become one? Are hard work, grit, determination and creativity enough? Or do governments need to give a helping hand?”. The winning team was the one stating there’s no encouragement needed to become a successful entrepreneur. But Governments have decided to give the helping hand. “It’s been a topic for the last two years”, says Kumardev Chatterjee, founder of the The European Young Innovators Forum, that works close to the Comission. “But I think that it’s not about creating new Silicon Valleys ni Europe. It is about creating new entrepreneurs, innovators and hubs where innovation can happen”.

Which cities are the startup hubs in Europe?

The top hottest european startup hubs are, according to Wired, London, Stockholm, Paris, Tel Aviv, Amsterdam, Barcelona, Moscow, Berlin, Paris, Istanbul and Helsinki. But there are more. As Chatterjee notes:

“There are a lot of hubs coming up. Barcelona, Lisbon. Not about money at the moment, but about activity; in Germany, apart from Berlin, Hamburg, Munich… In Italy, Rome. Hungary is a good area, there is a lot of activity in Budapest. In the UK, appart from London, you got Bristol. And apart from Stockholm there’s a lot of stuff happening in Finland, Denmark (Copenhagen), Malmö. Paris. I haven’t heard much of Austria, but they have a festival and are trying to do something nice. Estonia was a success. I know that in Lithuania they are doing well. And this is how you build an ecosystem: individually. In Brussels we are working hard to make it happen. Someday you’ll see there is real activity around the new ecosystem in Europe”.

Álex Barrera, Tech.eu cofounder and editor, adds that there are lots of innovative projects in eastern Europe.

“Poland, Estonia, Romania, Hungary… From an innovation point of view, there are spectacular projects. But they are not worked from a commercial point of view”.

He also cited Plumbr, a estonian startup that predicts and avoids software failures and had just raised $1M. Estonia has become, in fact, a leader in technology.

Anyways, “there’s a cluster effect in London and Berlin”, says Chatterjee. “It’s strong. Naturally, people migrate there. That’s good but I don’t think that you necessary need to go to London. Having said that, I think in London and Berlin the Government has been very positive in fostering a culture that’s attracting the best”.

Culture? Policies? Brussels working hard? Apart from data protection policies and telecos (the annoying roaming!), there are several issues that both European Commission and startup leaders have in mind. And those are, after all, the necessary ones to make Europe a better place for startups.

Let’s take a look at them.

Facing risk aversion

I talked at the University, I asked how many students wanted to create their own company and nobody answered. I asked how many students wanted to become civil servants and everyone did.

Fear of failure assessed for those seeing opportunities. Source: Global Entrepreneurship Monitor

That’s a recurring experience among entrepreneurship speakers in universities. It reflects the so-famous european risk aversion.

Startup leaders suggest that “in the US many students start their business before they even graduate (…) Universities should create more entrepreneurship courses and set up a network of Student Entrepreneurship Centres / Incoubators (through partnerships if needed) that can provide students with support and funding to translate their ideas into reality”. In Spain, the recently approved law to support entrepreneurs adds creation and management to primary school educational contents. Another policy to watch here: second chance for entrepreneurs, or how to learn from your mistakes instead of giving up. Finland even has a national day to celebrate failure. Seriously.

“There is a company in the north of Europe that started on mobile games. It failed, and failed, and failed, and failed for 52 times. But number 53 was, guess: Angry Birds. It’s Rovio. Rovio failed 53 times before they got Angry Birds”, says Chateerje. Rovio also encourages the national finnish failure day.

Better access to talent

“It takes time for startups to find developers and engineers”, says Javier Santiso from Telefónica. It’s not that there aren’t, it’s that in some cities they go to bigger companies that compete with better salaries.

Human resources in science and technology as a share of labour force (%). Source: Eurostat

How does this affect between hubs? As Barrera points out:

“An interesting criteria is the ratio between soft and technical skills. For example: there’s a huge difference between Barcelona and Madrid. Barcelona’s profile is more technical, the products are well developed but it lacks the social part. There are good companies that no one really has heard of. Madrid is the opposite: people around events but more difficulty to find technical talent. There’s less access because they go to bigger companies. The economics of each city make it different. Kiev makes a lot of software and outsourcing. They got technical talent but not that many startups”

Startup manifesto suggests to: make it easy for companies to let their employees go, make it easy for companies to hire outside their home countries and turn Europe into the easiest place for highly skilled talent to start a company and get a job by rolling out a pan-European Startup Visa.

They already got it in the UK.

Ease of doing business

In this ranking, nordic countries and the UK are on the top among european countries. It’s not that the difficulty on doing business prevents people from actually building companies, but it could be annoying, says Barrera. The red tape is definitely not a brand new issue. But startups keep on suggesting to create an e-corp with “unified requirements across the EU that can be done by anyone in under 24 hours”.

What about the cost of life? Doing Business ranking do not mention it, but it makes a difference when you’re a startup. “There are companies that work from Spain or wouldn’t matter working from there. London is expensive. I talked to Techcity UK and they said they had a problem and were thinking about asking for housing places for entrepreneurs, because the rent is so expensive”, says Barrera.

That’s why some articles mention Berlin as the european startup capital (is not only poor but sexy!), that’s why some companies are based in London but work from Spain and that’s why some money comes from US investment companies. Estonia is, again, a good example.

Startup accelerators boom

It’s not only about ideas, talent or business. You’ve probably heard of startup accelerators: there are more and more and more being born. Even Mercadona, a spanish food retail company, has launched one.

Part of the european funding goes to this kind of projects. Some of them have been working for years and the European Commission finds reasonable that finally someone recognizes its work .

Accelerators in Europe. Source: tech.eu

Telefónica needed to know how many accelerators were in Europe to launch Talentum, an initiative that connects students and startups. Javier Santiso lead a study on it. He counted 260.

“Today there are more structured accelerators in Europe than in the US. In Europe, people traditionally would think of London and Berlin but some myths are over. There are surprises: Spain is the second, before France and Germany (…) Spain is an emerging country in startups and venture capital. It’s interesting to see how, when the economy is down, there’s such a movement in accelerators and venture capital investment funds”

“Everything’s considered an accelerator”, considers Barrera. Tech.eu describes an accelerator as a “new, ‘modern’ breed of for-profit business incubators, which typically attract small teams through an open application process and provide a select number of fledgling technology companies with seed funding, mentoring, training and more, for a limited time”.

They found 141 active accelerators and wrote an article on it: “It’s getting crowded: with roughly 100 startup accelerators across Europe, how many are enough?

There’s less venture capital investment

According to Dow Jones, 5.7 US$ billion were raised in 2012 in Europe, while in the US there were 29.7 US$ billion. UK, Germany, France and scandinavian countries are the ones leading in Europe (in the map, data comes from Eurostat and the east is darker because it’s presented as percentage of GDP).

Total VC investments as a percentage of GDP. Source: Eurostat

“If you pitch in Europe, you get €100K. Same pitch in the US raises €1 million”, says Chatterjee. Is a million the key? It’s the key when you’re starting and want to grow. “In the US, they invest from half million to another half million, instead of from 20k to 20k. Losses are bigger, but success cases as well. The scale on investment is completely different. It’s a matter of numbers. And, obviously, companies don’t compete in same conditions”, says Barrera.

As european investors do not take that much risk, the Commission gave a helping-hand: a €100m funding round from the Future Internet Public-Private-Partnership to develop apps and other digital services, to be channelled through 20 consortia including accelerators, crowd-funding platforms, venture capitalists, co-working spaces, regional funding organizations, technology companies and SME associations.

Those €100m are loose change compared to the spanish €1.2 billion in public money to help the startup ecosystem, in a similar public-private-partnership.

… and €740 million of public money is likely to be lost before any successes

As Ben Rooney writes in The Washington Post:

If Europe wants truly to build a culture of innovation, it must accept that a great many investments will fail. According to research by Saul Klein of London-based Index Ventures, 62% of European venture-capital investments are written off. That means, assuming Spain’s investment strategy is at least as good as the rest of Europe’s, €740 million of public money is likely to be lost before any successes. Given that venture capital is a long-term business while politics is very much in the short term, are Spanish voters prepared to accept the risk?

Are we OK with that? Are we living a boom?

Sure the Government wants us to become entrepreneurs (it saves money on unemployment benefits + earns money on taxes), but: aren’t we gonna be fed up of the whole pro-entrepreneurship campaign in every single public space — from school to television — and of the public money invested?

“People realize that rules have changed”

When it comes to school, for instance, lawyer and professor Verónica del Carpio considers “unacceptable” that there has not been any public debate on adding entrepreneurial content to primary school. In her opinion, it’s an interested policy trend. “Precariousness: forget about finding a job. There’s not gonna be so. Either you become self employed or there’s nothing to do”, she says.

One of the sources cited in this article, Kumardev Chatterjee, wrote about “A More Entrepreneurial Europe” for The New York Times:

“Young Europeans are now increasingly aware that the answers to their economic woes cannot come only from government and big business, if at all. Many realize that they need to take risks and create their own opportunities, thereby seizing their destiny. Public programs like the much-vaunted Youth Guarantee cannot create new demand — but certainly more dependency — on states and state-backed champions”

“There’s a storm that’s about to explode. I think it’s inevitable”, considers Barrera.

“When you’ve been here for a while, you realize it’s all about cycles. Suddenly there’s a reaction and everyone says ‘we have to innovate. Entrepreneurs are gonna create employment. It’s true but not very economically literate: a company needs clients, if clients don’t have money the company cannot pay the employees nor create employment. Entrepreneurs have become champions and there’s been a disproportionate attention. In three years we’ll see what’s left (…). But my experience tells me that after the storm, things will be better than before. It creates a culture on doing other things, on having different options. It’s a generational change. There’s young people that do not consider a stable job now, I’m seeing that accross Europe. People are starting to realize that rules have changed. And in the US, what did they have 70 years ago?”

After all, if we look ahead Silicon Valley, the US Government also “celebrates, inspires, and accelerates high-growth entrepreneurship throughout the nation”. Just like in Europe.


(Original piece in Spanish published here)