We’ve seen that we put our money where our mouth is: we believe in the 7 mutant rules of the digital economy and in platform models. On one side of our own VC platform stand the startups. The goal of this article is to describe the main characteristics of the successful European startups. A bunch of elements interesting to keep in mind.
Identikits of the European Unicorns, the continent’s new digital champions
We conducted a study among the biggest European startups to understand their growth path and to identify their success patterns. Here are our findings.
Results are surprising on several aspects.
The biggest successful European startups are not based on R&D innovation
While innovation has long been considered the result of R&D activities, the study shows that the vast majority of European success stories are primarily building business model innovations.
Indeed, 63% of these companies are built on service innovation and only 37% of them on technological innovations.
Spotify or Deezer didn’t invent a new compression format: they reinvented the distribution of music. The success of Asos doesn’t come from very technological innovations but from a new way to market and sell clothes, with simpler interfaces and bigger inventory.
B2B is not the most lucrative model
Companies that sell directly to other companies seem more reassuring at first, because corporate buyers are rational beings, companies are used to paying and their needs may seem easier to identify. Yet, B2C companies account for 76 percent of successful European startups. Just remember Vente Privée, Shazam, Zalando or Skype.
We see two reasons why this is the case. First, a higher aversion to risk in the corporate world that makes it very difficult to sell innovative services or products to big companies in Europe.
Secondly, the double benefit of B2C models: the creation of network effects and the possibility to adapt the product offering in response to the behaviour of users.
The founders of successful European startups are neither young graduates, nor forty-somethings coming out of the industry
Looking at the biographies of the founders, two parameters are blindingly obvious. The first is the average age. Founders of European digital companies with a valuation over €100 million are on average 32 when they founded their startup.
The second is related to founders’ previous experience. While most founders had between 2–4 years of work experience before they founded their startup, this experience was mostly entrepreneurial: 61 percent of the companies are founded by at least one serial entrepreneur.
Success stories don’t all end with a trade sale to a major player of the traditional economy
While exits are mainly through trade sales (56%), a substantial 44% lead to an initial public offering (IPO) in their domestic market or in the US.
Among the trade sales, it is interesting to note that most of them are to a player of the new economy, including Apple, Tripadvisor, Kayak, Groupon, Facebook, Microsoft, Google, Amazon or Yahoo! The most active industries in the traditional economy are media (Axel Springer in particular), banking & insurance.
Don’t forget Europe!
It would be very interesting to compare these figures with the US ones. At daphni, we believe that the DNA of European startups are not the same as in the US.
However specific may be the European rules, Europe as a playground is getting incredibly vibrant. And as Fred Wilson said recently, “there have been 24 billion dollar plus exits in Europe in the last five years with probably a hundredth of the VC dollars at work in Europe vs the US”.
Our conclusion is that Europe has never been such a great place to invest in promising startups. More, we have highlighted some patterns: R&D efforts are not always paying off, successful entrepreneurs are serial ones, young but not just coming out of school and BtoC models are the most scaling ones.
Yet, we know that patterns sometimes lie and that the biggest successes come from black swans. So we keep watching everywhere talent is.