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IR Blog: Why Europe is developing its own startup environment

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By Simona D’Agostino Reuter

 

Starting from some articles issued by Entrepreneur https://www.entrepreneur.com, this Blog focuses on the European startups and VC ecosystem.

In Silicon Valley entrepreneurs began creating companies there 60 years ago, versus only about two decades ago in Europe

 

A key reason is that Silicon Valley venture capitalists have far more money to pour in to startups than European venture capitalists. This includes both initial funding and the all-important growth phase of a startup, where Europe has lagged far behind.

Nevertheless, today the European tech sector has imaginative entrepreneurs and talented employees.

In Silicon Valley entrepreneurs began creating companies there 60 years ago, versus only about two decades ago in Europe

Still, it is true that the composition of America and Europe’s biggest companies tells a story. While the biggest U.S. corporations are in tech, the biggest European companies are in traditional industries – manufacturing, energy, banking, insurance and pharma, for example.  So, the questions become: Is it too late for the European tech world to catch up? And does Europe need a Silicon Valley to do it?

 

Europe’s tech advantages include lower costs

 

The European tech world has advantages over Silicon Valley that is promising well for the future.

Atomico (the London-based international tech investing company) noted that while the value of U.S. startups is five times higher than that of European startups, so is the Valley’s cost of hiring an engineer. The major reason is the high  – and climbing – price of real estate in the Valley.

 

The good news for Europe is that despite having a much bigger salary, Silicon Valley engineers can struggle financially because of the high cost of buying or renting a home there. The lower costs that engineers face in Europe should make many hesitate to go to the Valley, keeping talent on the continent.

Meanwhile, lower personnel costs are a big plus for European startups.

In addition to costs, another major difference between American and European tech entrepreneurship that has helped Silicon Valley create the lion’s share of the world’s mega tech companies is their financial focus. Most experts assert that European entrepreneurs focus on the bottom line, on creating viable businesses. American entrepreneurs focus on attracting as much investment capital as possible, obtaining dominance in a particular market, then making the business viable.

 

Some tech savants see the European approach as sounder.

Also important is that Europeans’ mindset toward startups has changed. Most of us have traditionally wanted to work for established companies.  Today, a lot of millennials are embracing entrepreneurship as a legitimate career path.

Europe will fail to become one of the world’s dominant tech powers if it tries to replicate the Valley model.  European technology companies have often taken a back seat to Silicon Valley’s startup machine. Yet, Europe is the home of Spotify, Skype, SAP, Deliveroo, Candy Crush and many more big technology companies. Sweden alone has produced more unicorn companies (those valued at $1 billion or more) than any other European country.

Moreover, Europe has been less vulnerable to the bubbles that have hit Silicon Valley. Our economies are less volatile or driven by the high-stakes bets of startups that may or may not make it. Our venture capitalists invest less money, less often. Therefore, companies are weeded out early if they’re not going to work. If the startup is not meeting milestones, European investors are more likely to cut it off early. And the ones who do make it are stronger.

 

European startups seem to have found a happy medium between Silicon Valley and old Europe. They’ve developed a unique approach to entrepreneurship. And we think the European startup success formula includes the following:

  1. European startups build products based on the understanding of the unique needs in any specific local market.
  2. Achieve more with less, less funding, often fewer mentors, fewer partnerships, but they find a way to succeed with the resources they have. And those successes are more likely to stick for the long-term.
  3. Go to Silicon Valley only if it’s the right market for the specific company.

Another plus is that many European countries and cities have created incentives to attract entrepreneurs, making them magnets for innovation.

 

VC in Italy is still lower than in UK, Germany, France, though is now ready to take off, also thanks a renewed interest from public and private investors

 

The good news is that 307 million euros have been invested in startups in the first nine months of this year: it’s a record, especially when compared to 180 million euros in 2016 and the declining performance last year.

In this scenario, it is worthwhile to mention LVenture Group – a leading operator of seed VC in Italy  that creates value investing in top notch digital startups.

 

LVenture Group is listed on the MTA of Borsa Italiana and is among the few listed VC firms in the world; the business model is based on capital gains arising from the exit of portfolio startups, which can be achieved through M&A or IPO op

erations. Thanks to a proprietary deal flow, primarily run by its accelerator, LUISS ENLABS, LVenture Group is able to take on the most promising startups in the market.

The operational approach is designed to mitigate investment risks and maximize success rates.

The power of community

Talking about VCs, when considering the countless pressures entrepreneurs face in startup life, fundraising is likely the first obstacle that springs to mind. However, building a prosperous business requires much more than just money.

Founders should also think about how they can gain access to an ecosystem of potential stakeholders and a wealth of expertise.

VCs are much more than just investors. They have seen something in a founder and their business that speaks to them and makes them want to be part of the journey. However, entrepreneurs must not forget that most VC investors have a wealth of experience that they should be tapping into. From how to best market a product, how to hire the perfect team and how to expand internationally.

It’s this ecosystem that’s the most valuable asset for entrepreneurs. Being plugged into a solid network not only gives access to advice, but also opens doors to collaborations between startup founders and larger corporations.  As confirmed by LVenture Group experience, interactions and synergies within the ecosystem are essential for the developments of startups.

HEAR-ir is Counselling LVenture Group in Investor Relations matters.

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