Leverage The European DNA (Digital Natural Advantages)

We presented in our previous article the identikit of the European unicorns: the key takeaway? Europe is a fertile ground for digital champions! Below we go deeper in our analysis, extracting the European DNA structuring the next generation of europeans leaders.

At daphni, we are looking for startups that take advantage of European forces, marked by a specific cultural DNA. This DNA is based on 3 pillars and it influences the entrepreneurs’ perspectives, values and concerns.

The three pillars of the European DNA

Europe is distinguished by specific DNA based around 3 structural dynamics: collective, quality of life and inventive.

This cultural DNA is shaped and influences social structures & economic activities.

Social structures can be seen as “institutions”, which are stable, valued, recurring patterns of behavior. They are the very core of social contracts and there isn’t a day that goes by without talking about any of them (and we all have beliefs and opinions about them). Some examples ? Educational institutions, social welfare, health care institutions, law and legal system, academia, the media, etc.

Economic activities are grounded in the industrial traditions that translate into expertise throughout the value chain, from the design stage to the distribution, and resonates through a high-level training system in these sectors and more recently in the appearance of iconic startups.

Let’s dig deeper into each pillar of the European DNA.

1. Collective

Europe is characterized by nations with strong social pacts, especially Western and Northern Europe. This strong willingness to live together is revealed by four key elements, in particular:

1.1 Collective & social structures

The quality of infrastructure (transport, electricity, telephone, etc.)

The World Economic Forum compiled The Global Competitiveness Report 2014–2015 ranking to measure and classify 144 countries according to their competitiveness factors.

Based on the criterion of infrastructure, 6 European countries feature in the top 10, the United States comes in 12th place.

Quality and access to health and primary education

Quality and access to health and primary education are also an important indicator of the willingness to live together and to enable everyone to live in good conditions.

26 European countries come ahead of the United States regarding quality and access to health and primary education. 6 European countries are in the top 10

The use of sharing economy services

While the most iconic sharing economy companies (AirBnB, Etsy, Zipcar, Upwork, etc.) are American, three significant facts are representative of the European DNA:

• Europeans are mass users of these services:
• > 58% of the AirBnB platform accommodation is located in Europe and Paris is the city that has the most apartments. In the top 10, seven are European cities (source)
  > 26% of French people are active users of Leboncoin (17m French people out of 66,030,000 inhabitants) compared to 19% of Americans on craigslist (60m US citizens out of 318.9 million inhabitants (2014))
  > 9% of French people are members of BlaBlaCar
• Some of the most success full American companies in that space are founded by Europeans (LendingClub, eBay, etc.)
• The new exemplary global companies that are undergoing large growth are European (BlaBlaCar, Transferwise, etc.)
• European competitors are emerging to face their US counterparts (Drivy, Wimdu, etc.).

The inequality rates

The rate of inequality is a representative indicator of the level of social pact of a nation. This rate is determined by the GINI coefficient which measures income inequality: the higher the rate, the more equally the income is distributed. The ranking of countries with respect to this factor, carried out by the CIA, establishes:

> a top 10 comprised solely of European companies
> only one non-European company in the top 19
> the United States comes in 41st place

1.2. The European collective dimension comes from economic legacy and leaders

This strong European willingness to live together has a direct impact on four economic sectors that are particularly interesting in Europe:

• sharing economy, which we have already mentioned: some of the leaders include BlaBlaCar, Leboncoin, Drivy, Videdressing, etc.
• sustainability driven by tech, which is a particularly interesting area that is coupled with a challenge for resources and energy (see mega trends, PwC). Some of the leaders of the old economy: Veolia, Schneider Electric, Eni, etc. Some of the leaders of the new economy: Netatmo, Airinov, tado°, etc.

Global Needs for 2030, with 8.3 billion people (National Intelligence Council)
> 50% more energy
> 40% more water
> 35% more food

• smart cities, here again, which combine with the growing urbanization of societies. Some of the leaders of the old economy: Siemens, Alstom, etc. Some of the leaders of the new economy: Sigfox, Luceor, etc.

In 1800, 2% of the population lived in cities, today this figure has reached 50%, and the UN Department of Economic and Social Affairs has predicted a 72% increase in urbanization by 2050.

• education, publishing and training, which is currently hardly digitalised at all. Some of the leaders of the old economy: Wall Street Institute, University of Oxford, Ecole Polytechnique, etc. Some of the leaders of the new economy: Bettermarks, Babbel, Quipper, Digischool, Toca Boca, Livementor, etc.

> 3% of global education spending on digital compared to 35% in the content industry
> very strong growth in Europe: 22% CAGR between 2012 and 2017
> undercapitalized: 8% of capital in e-learning comes from the private sector

2. Quality of life

European DNA also stands out for its search for it’s quality of life, in professional spheres as well as personal ones. This well-being can be seen by:

2.1. Quality of life & social structures

Social protection systems

Social protection systems (old age, survivors, disability, health, family, unemployment, housing, etc.) play an important role in the well-being experienced in a country. They can both reduce anxiety vis-à-vis the future and ensure a decent standard of living for the population in a precarious situation.

Public social spending represents 22% of GDP on average in the OECD area, with 14 European countries in the top of the ranking.

These figures are corroborated by the ranking of the best health systems in the world according to the WHO, in which 7 of the top 10 countries are European.

A balanced private and professional life, combined with strong productivity

Since 1950, annual working hours have declined in all developed countries. In 2007, the annual working time was 1,570 hours in France and on average 1,555 hours in six other European countries (Germany, Italy, Netherlands, Spain, Sweden and the UK).

The OECD Better Life Index, the OECD, determines the classification of countries according to the time spent outside of work. The US lags behind, coming 33rd out of 36 countries; France and Germany are tied (64% of the day away from work). The European DNA is strongly linked to the balance between work and life and a strong productivity.

Rankings overview:
Denmark # 1/36–67% // 2.1% working 50 hours or more a week
France # 6/36–64% of their day // 8.7% working 50 hours or more a week
Germany # 7/36–64% // 5.6% working 50 hours or more a week
UK # 24/36–62% // 12.3% working 50 hours or more a week
US # 33/36–60% // 11.4% working 50 hours or more a week

This personal / work life balance is combined with strong productivity.

According to the OECD, the GDP / hours worked ranking includes 9 European countries in the top 10.

Cities that are good places in which to live

Well-being in general is also greatly influenced by the city in which we live. According to the US consulting firm Mercer in 2015:

7 European cities featured in the top 10 of the best cities to live in

2.2. The European quality of life dimension comes from economic legacy and leaders

This European commitment to the pursuit of well-being has a direct impact on four economic sectors that are of particular interest in Europe:

• travel

According to the ranking of International T&T Consumption (WTTC):

15 European Union countries ahead of the United States regarding the contribution to the GDP of travel & tourisme in 2014

Some of the leaders of the old economy: ClubMed, British Airways, etc.
Some of the leaders of the new economy: Booking, Trivago, Secret Escapes, etc.

• food sector

The Oxfam Food Index places:

19 European countries in the TOP 24 of the best places in the world to eat

Some of the leaders of the old economy: Danone, Nestlé, etc.
Some of the leaders of the new economy: Just Eat, Delivery Hero, etc.

• security and privacy

Europe is at the forefront on issues of security and privacy, with leading players in the private sector and a great deal of public support across the country and the European Union.

Some of the leaders of the old economy: AVG, Thales, …
Some of the leaders of the new economy: Silent Circle, Scytl, DocTrackr, Darktrace, …

• on-demand economy

On-demand economy improves living conditions and purchasing power with personalized services for consumers and prosumers, which sometimes coincide with the aforementioned verticals, such as Delivery Hero or Just Eat on food delivery. This tendency has been strengthened by the “megatrend individual empowerment”, of the National Intelligence Council (Global Trends 2030) and is also reflected by the increasingly prescriptive role of prosumers, integrating the applications that they use in their personal lives into their companies. Some of the leaders of the new economy: Drivy, Takeaway.com, etc.

3. Inventive

The European DNA is a mix of creativity and engineering tradition that makes it extremely inventive.

3.1. Inventive & social structures

Creativity is Queen in Europe as demonstrates its leadership in the luxury or fashion industry, but this creativity is also technical with strong engineering skills & savoir-faire, and a tradition of invention.

1. Cinema: Europe has won over half of the Palmes d’Or (55%) at the Cannes Film Festival since its inception
2. Literature: 75% of Nobel Prizes in Literature have been awarded to European authors.
3. Architecture: 54% of Pritzker Prizes (the equivalent of the Nobel Prize in architecture) has been awarded to European architects
4. Museums: 7 European museums are in the top 10 most visited museums in the world

3.2. European inventive dimension comes from economic legacy and leaders

European creativity has a direct impact on five economic sectors that are of particular interest in Europe:

• luxury

European brands occupy the entire top 10 of the most powerful luxury brands in the annual ranking by Millward Brown. Some of the leaders of the old economy: LVMH, Kering, etc. Some of the leaders of the new economy: Devialet, Onefinestay, etc.

• advertising

3 European groups are in the top 10 of the biggest advertising groups: WPP #1 (London), Publicis #3 (Paris), Havas #3 (Paris). Some of the leaders of the new economy as well: Criteo, Teads.tv, etc.

• music

Europe, with the label Universal Music Group held by Vivendi, is the world leader in the music industry (39% of music production sales).

Some of the leaders of the old economy: FNAC, Universal Music, …
Some of the leaders of the new economy: Deezer, Shazam, Soundcloud, Spotify, …

• fashion

European textile includes the world’s largest group in the industry, H&M, followed by Inditex, the 3rd largest group in the world (ranking by Interbrand, best retail brand 2014)

Some of the leaders of the old economy: Benetton, H&M, Lacoste, Zara, etc. Some of the leaders of the new economy: Asos, Farfetch, Menlook, Showroomprivé, Zalando, etc.

• publishing and media

2 European groups are among the 10 biggest media groups in the world.

Some of the leaders of the old economy: Axel Springer, Sky TV, etc. Some of the leaders of the new economy: Aufeminin.com, Dailymotion, Webedia, etc.

The American Digital Natural Advantages are different from those of the EU

Collective, Quality of Life, Inventive: here is the backbone of the European DNA, whereas USA’s DNA is structured around Productivity, Empowerment and Entertainment. daphni will see in a favourable light the startups that are made of these bricks, simply because Europe, historically and industrially, is better equipped to grow world leaders around these specific pillars.

Want to know more about our investment thesis? Read our articles:

• part 1: The 7 Mutant Rules of the Digital Economy
• part 2: Uberization? Nope, Platformization
• part 3: What The Most Successful European Startups Look Like?
• part 4: International Is The New Normal
• part 5: Leverage The European DNA (Digital Natural Advantages)
• part 6: Daphni’s Investment Strategy