On Bridges, Part 3: What Can Europe Give to Silicon Valley?Posted: 22/11/2013 | Author: sten | Filed under: In English | Tags: conference, entrepreneurship, europe, investing, siliconvalley, slush, startups, US, vc | 2 Comments »
This is the final post of 3 contemplating how Silicon Valley and European tech scenes could get closer to each other. The series are an expansion of a short speech I gave at Slush conference in November 2013 – video of which should be online soon. I believe this topic calls for more discussion and thinking along than 15 one-directional minutes on conference stage allowed. To get up to speed, read Part 1 and Part 2 here.
After looking at the widening gap between European and Silicon Valley tech scenes and establishing that the usual first priority, raising money from the other side might not be the most feasible way to fix this – the questions becomes: how can we build more non-financial ties between our scenes?
As US is not paying close attention I believe that the key to the solution is on the European side. And to succeed in driving this change in relationships, Europe needs a mindset shift.
When building high-value ties in any network the question should never be what you get, but rather what can you can give to the other party. What can you help with, what can you teach, what can you spare. This tends to be true with your friends, your community, your country… and I would suggest also when you think about doing business with Silicon Valley.
Too often startups from around the world and among them from Europe go to Silicon Valley only to get something. Unfortunately, as it usually goes, a begging little brother will be treated as one.
Europe has a lot to give
Dear European entrepreneurs: we have been too modest sharing what we’ve got. Despite of the stereotype of history obsessed Old World trotting behind the brave New World rushing to The Future, I believe Europe has a lot to give in the global high tech game. There are ideas Europe should proudly put front and center as distinct and unique value we can bring. Let me give just a few examples:
Matching talent with challenges
Silicon Valley’s weakest spot today is the constantly unsatisfied demand for talent capable of solving hard problems. Yes, there are amazing, experienced people around – but if they want to live anywhere fancier than a tent in Mission or Palo Alto, let alone afford good schools for their kids — they will cost a lot to hire. And worse, despite of their high price the endless inflow of exciting ventures to join drives down average tenure and loyalty in the Valley, compared to how these same people would behave in similar companies even on the East Coast, let alone in Europe.
European contribution here has been largerly the simplest: sending talented immigrants to US. Even if we shouldn’t stop people of the free world from living and working wherever they want and departures from Europe are at much smaller scale than from many places in Asia, talent immigration has one unpleasant feature – the source of talent will in the short term always feel they are loosing out.
The next in level of complexity, but more sustainable for both sides would be setting up more development outposts across the pond, helping Valley firms build offices and hire people in Dublin, Prague or Kiev. Or alternatively, Europe could offer more well-functioning M&A targets. Meg Whitman used to call this “off-balance sheet R&D,” when she was acquiring auction sites for eBay from around the world, especially those doing something better already than their new mothership. In this model jobs do remain in Europe, but not the large exits or even annual dividends.
As a more far-fetched idea, why couldn’t we make this a two-way street and provide interesting “job adventures” in Europe for early-career Valley experts. There could be some who would drop their product management, product marketer or business development roles as the #3481 guy in Facebook to a 3-year stint in a cool European city where they can be #1 in the entire country in what they do. And once they go back – they can sell their new-found international experience as a truly unique skill. Yes, this is a tough sell at first, but we did that repeatedly at Skype and companies like Soundcloud are doing this again.
Share working models
For any European who has spent an extended stay Silicon Valley it can often feel surprisingly backwards if you are just trying to live your life as an ordinary citizen, or may I say e-citizen as you do back home. Silicon Valley is not uniformly as advanced as it often looks.
I gave a short speech on this experience alone at Stanford last spring and will not repeat the whole argument here: Future That Should Be Here Now video and a blog post with full transcript are available if you’re interested. The underlying point is that when it comes to online and mobile applications truly embedded in how people go about their daily chores, how they sign and exchange legal documents, how they interact with the government, how they do their consumer banking, how they get service from their doctors and so forth, many places in Europe are lightyears ahead of what is available to a normal American resident today.
This is a huge opportunity to openly share the experiences and teach what we’ve learned in Europe to the waves of startups (and why not the various levels of US government, looking just at the IT-side of ongoing healthcare reform) attempting to only start solving similar issues for the people in their markets. Valuable, “been there done that” advice could take the form of board seats or equity stakes for Europe, too.
The next 400 million paying customers
Even for the most self-focused entrepreneurial ventures, should they make it to their B-rounds or even cashflow-fueled growth, comes a day where they need to look outside of the home market to expand their business. And no matter how much the mobile handset makers talk about the next billion people coming online in Africa and how lucrative the already-online billions of users in Asia are, the most common scenario for the Groupons and Airbnbs and Ubers of the forseeable future is still to figure out their expansion strategy for UK, Germany and France. Europe still is the rational next market for most US rocket ships who are looking to find customers with above-average income and access to credit cards who live in understandable regulatory environments and enjoy reliable infrastructure you can deliver your products and services over.
Yet, as the truly single market of European Union is still a slowly evolving dream, figuring the operations out on a country-by-country basis to cover the full 400M user potential can be tricky. And who else to help US entrepreneurs to crack Europe than those who are in Europe and understand Europe. Again, we have something to selflessly teach here.
Skills to think global
The value of understanding foreign markets does not stop with homely Europe, though. Still far too much of US-originated innovation is born in the form of English-languaged iOS-only apps with hardcoded $ signs. European entrepreneurs are much better fit for operating globally. Multi-currency, multi-culture and continued adaption through expansion are much deeper in European startups’ DNA. As a proof point, look at how the likes of Rovio (Angry Birds), Supercell (Clash of Clans), Skype and Evernote have conquered the Chinese and Japanese markets that have remained not just a challenge but rather impenetrable mystery for many American competitors come before them.
Counter-intuitively the teams that have the most natural skills for global adaption come from the spots on the map of Europe so tiny that they are hard to find even for the geography-savvy Americans. If you’re a startup coming from Iceland, Estonia, Luxembourg or Slovenia you have virtually no notion of such thing as a home market. You are preprogrammed to think global, and thus, you probably have a lot to teach your friends in US how that comes so naturally for you.
Security and privacy
In the post-Snowden days we’re living in the questions about physical and legal location of users’ data and the regulations governing their privacy are high on the agenda for internet entrepreneurs. Since the internet was born in the US and the strongest private players on it have been US-regulated companies the rules and behaviours have been evolving accordingly to date.
Now, if you look at where the users of internet live today, less than 10% of them are Americans — a share still on decline. It is obvious that other nations will attempt to have an increasing say in the governance mechanisms and regulation of the system.
This can potentially become a tidal wave of change and risking international breakdowns and further fragmentation of the internet is not in our shared interest. Likely some fundamental agreements on how our global networks will operate and what are the rights of people and companies on them are will be defined across the Atlantic before they get to a global group hug, especially involving the BRICs. As a little signal, look at who is chairing the panel of internet luminaries ICANN created this week to adress these topics.
Europe is already thinking a lot about digital security, privacy, net neutrality and regulation. And this is not just a governments thing, European tech scene can help US peers to figure things out as private entities first.
Misconceptions are friction
I hope some of these examples of non-financial contributions Europe has to offer to the Silicon Valley and broader world resonate. I’m sure you can think of many more if you put your mind to it, and create new business for both sides.
Just one additional thing I wanted to mention here while all this potential bridge building is going on: I think we also owe it to ourselves to fix a bunch of legacy misconceptions that make working across Atlantic harder than it should be.
First, when talking to my friends in Silicon Valley it is startling how geographically over-simplified the widely spread image of Europe is. Even those who know the continent well still think that startups only happen in the “big business cities” like London or Berlin.
The good news we should spread here at any chance we get is that European tech scene is much more diverse. There are pockets of startup activity with global ambition in hundreds of cities around Europe, and dozens of them are likely to realize some of that potential on global scale. Yes, Valley-like physical gathering has massive benefits and would only seem sensible over time but I would not bet on that happening in European ecosystems any time soon. The gaming gurus of Helsinki will not move to London en masse, and design wizards of Copenhagen will stay mostly out of Berlin still. For the visible future the right mental models for thinking about European tech ecosystems are still those of interconnected islands or molecules, rather than few huge metropolitan hubs. As one sign the European investors with the highest quality portfolio are the ones who take the time to tour around the continent at regular intervals, such as Seedcamp who scouts their annual batch of investable startups through events in dozens of Mini-Seedcamps across Europe every year.
And secondly, because of the Iron Curtain legacy as well as the dichotomy Americans use to distinguish between their own two coasts back home there is still way too much thinking of Europe in the East vs West dimension. This distinction has become outdated over the two decades since communism fell. Mind you, many of today’s tech entrepreneurs are too young to remember that end of an unfortunate era of repressions as a personal experience. If you look at the borders of European Union or which countries belong to the single-currency Eurozone or the Schengen area where you can move around freely without a visa or generally in which countries people speak fluent English – the continent looks both formally and informally more unified than ever before.
When it comes to tech, the picture is made even more diversely interesting with bordering countries such as Russia, Ukraine and Turkey. If anything, the recent years have introduced a bit of a North-South differentiating axis to European entrepreneurship mindset, macroeconomic growth and youth unemployment numbers and such – but I think it is in all our benefit to not get dwelled in that new separating axis before it grows into a chasm. Single Europe is a much more beneficial concept for everyone, including Silicon Valley.
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Thanks for hanging in there until the end of this post series. I do sincerely believe that Europe and Silicon Valley tech scenes should become closer than they are today. For the US side this would presume paying a little bit more attention to the world outside. And for Europe a bit more confidence and a mindset of giving something unique and valuable, as opposed to just trying to get early stage funding from the other side.
As a result, I am sure more non-financial bridges can be built and as it has been shown by some VC investment related research: cold hard cash will eventually follow the international corridors where smart people are already on the move.