On Bridges, Part 3: What Can Europe Give to Silicon Valley?

Bridge_drawingThis 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.

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On Bridges, Part 2: Why Should Europe Care for Silicon Valley

Bridge_drawingThis post is 2nd of 3 discussing ways Silicon Valley and European tech scene 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. As an intro, see Part 1 here.

Europe’s tech scene is buzzing. Those of us who have been on both sides can attest that the people innovating there, business models attempted and technologies applied in Europe are very much aligned with what’s happening in Silicon Valley, despite of the separation. So it would make sense to link up more, right?

As a healthy sanity check before jumping to that conclusion, let us ask: why would we need stronger ties? Looking from Europe, that is.

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On Bridges, Part 1: Realizing how Europe and Silicon Valley are drifting apart

Bridge_drawingThis post is 1st of 3 in the series aimed at discussing ways Silicon Valley and European tech scenes could contribute to and gain more from 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) but I believe this topic is calls for more discussion and thinking along than 15 one-directional minutes on conference stage.

If you were to sit in the audience of any European tech summit these days you get soaked in action around you. Would it be TechCrunch Disrupt Europe, LeWeb, or the raising 5000-attendee rocket of the region, Slush in the November darkness of Helsinki – there is no arguing that the European startup scene is in its most bustling, vibrant shape ever.

Yet, a lot of this exciting renaissance seems still to be constrained to the Old World continent.
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VC Funds Go Where Immigrants Come From

Thinking about the linkages between US and European tech investment and startup scenes ahead of the Slush conference in 10 days, I found an interesting paper: Deal or No Deal: The Growth of International Venture Capital Investment (PDF here) by Pandya and Leblang of University of Virginia.

Recommended reading in full for anyone who cares about intercontinental talent and capital flows, but I just wanted to share this fascinating graph:


You can often hear how foreign investments and emigration are discussed as linearly opposite ends of a see-saw: if you get more of cash invested into your country from abroad your skilled talent can stay home and build companies there as opposed to seeking interesting challenges abroad. What the authors show here is rather a two-way street, another re-inforcing cycle where the movement of talented people will eventually build into increased cross-border investment of capital:

We find that US VC firms invest more frequently in countries that have large populations of skilled migrants residing in the US. In stark contrast to existing FDI research, we find that recipient countries political institutions have limited  influence over the volume of venture capital deals.

Possibility of Innovation In a (not The) Valley

Thomas L. Friedman wrote in the Herald Tribune a few years ago a column that acknowledged, and probably injected a lot of self confidence to innovators outside of the usual suspect American hightech hubs. Written from an angle of criticism towards the American high school system, I found his text much more useful read upside down – thinking about how the more remote areas previously known for their cheap labour and mass quantity low tech production are winning share on the global innovation arena. “In a flat world people can now innovate without having to emigrate,” as Friedman put it in rhyme.

Now in one of the recent issues of FastCompany, Richard Florida took a look back and found that the innovation world has not gone flat afterall. Highly recommended read as a whole, but I picked out a few interesting facts for myself:

  • Of the roughly 170,000 patents granted in 2003 in the United States–which gets applications for nearly all major inventions worldwide–nearly 80% went to Americans, Japanese, and Germans. The next 10 most innovative countries–the usual suspects in Europe, plus Taiwan, South Korea, Israel, and Canada–produced another 15%. The rest of the world accounted for only 5%, with India and China responsible for just 0.4%.
  • Indian and Chinese entrepreneurs founded or cofounded roughly 30% of all Silicon Valley startups in the late 1990s, generating $20 billion in annual revenue and about 70,000 jobs.
  • There are about 150 million (!) people in highly mobile, global creative class who migrate freely among the world’s leading cities–places such as London, New York, Paris, Tokyo, Hong Kong, Singapore, Chicago, Los Angeles, and San Francisco

What Friedman originally called for as producing a comprehensive U.S. response – encompassing immigration, intellectual property law and educational policy – is more valid than ever in this situation… but maybe even more so for the “receding valleys between spikes” as described by Florida. Umm… like Estonia?

On Estonia at The World

To share another recent radio appearance (the previous one in Estonian only, sorry) here is my interview for Marco Werman at PRI’s The World that aired on a network of radio stations across the US in January: MP3, 4.5 minutes. We talked a little about Skype, but more about the factors that have enabled tiny Estonia to introduce a number of tech innovations both inside the country and for the world.

To understand the context for the interview, please listen to (direct MP3 link) Cyrus Farivar‘s report on Enterprise Estonia opening offices in Silicon Valley, featuring also Andrus Viirg and Steve Jürvetson.

PS: on a totally different topic, I got reminded of the above audio files being available by a blog post on The Future of Newsrooms. Interesting reading around journalists’ changing role (information broker VS investigator). I’m afraid this specific post above here creates a crashing meta-referral of “my own thoughts” back to “mainstream media”, El Oso?

It is scary HOW thin the startup layer really is

Small and medium businesses form a dominant part of any economy. Countries, governments – in some more progressive corners in the world, whole societies – work hard to create fertile environments where new startup companies could spawn from. Just a tiny percentage of them will become the next [insert your favourite global brand here]. But we couldn’t live without even those who don’t. As a random example, SME’s give over 50% of the jobs and turnover of the UK economy – and the UK is supposed to be the most “large corporate” one in Europe.

Given this, it is no wonder that you hear the “we need more startups!” rally cry, especially in innovative and more value generating fields promising a brighter future. Depending who you talk to, there is always a different benchmark to look up to. Estonians feel that we should get to Finnish level. Finns feel that they don’t have as many startups as in Sweden or Singapore. Anywhere in Europe you can’t escape the discussion on when and how we get to where Silicon Valley is without startup culture and volumes.

And now a scary though from Silicon Alley, in the context of the MSFT-YHOO acquisition:

For $44 billion, Microsoft could buy every Silicon Valley and Silicon Alley venture-backed start-up in existence. That includes Facebook at $15 billion. It includes Slide, RockYou, and every other elemental company. It would be a Moe Green kind of scene like at the end of the Godfather when Michael Corleone takes out all the heads of the five families. It would turn Microsoft’s Internet business around overnight. It would be the ultimate coup.

Just $44 billion (well, I know it’s no pocket change, but remember the times when AOL paid about $182 billion for Time Warner? and US dollar has become a lot cheaper as well since then.) and for a second there are no more startups in the Valley? Nor the Alley. That is scary.

At the same time, the venture capital market looking to invest in those startups is better financed than ever. VC investments reached $40 billion globally in 2007 (why does this number look so familiar?), high since 2001. And the result? Sellers market, of course.

Paul Graham‘s essay The Venture Capital Squeeze from 2005 is a must read now. To understand why having rich employees is a benefit, how post-Enron SOX rules are suffocating the IPO market and how VC industry has gone head to head with corporate acquisitions.