A friend recently asked why America churns out startups that seem to be successful to an extent that knows no equal in Europe.
It’s difficult to discuss how-to’s on growing a national (or larger) startup ecosystem without mentioning Israel, a nation that has managed to produce a dazzling amount of tech ventures for its relatively small population. Around the time I graduated college and started getting introduced to the Dutch startup scene, I got my hands on Startup Nation by Dan Senor and Saul Singer which provided interesting insights to how access to capital as well as cultural aspects enabled Israel to take such a dominant role in tech. Military service1, the risk-averseness introduced by immigrants and chutzpah, the quality of audacity for good or bad, are some of factors cited by Dan and Saul as shapers of those cultural aspects in Israel.
It needs to be noted that Europe has claimed its share of startup wins such as
- Adyen (payment) :credit_card:
- Deliveroo (food delivery) :bento:
- Klarna (payment) :credit_card:
- Rovio (games) :video_game:
- Shazam (song detection and streaming) :musical_score: :iphone:
- Skype (videoconferencing) :video_camera: :phone:
- Skyscanner (travel, flight booking) :airplane:
- Spotify (streaming, audio) :musical_note: :headphones:
- Supercell (games) :video_game:
- Takeaway.com (food delivery) :bento:
- Zalando (retail) :dress: :necktie: :shoe: :jeans: :handbag:
but in all honesty the numbers of European tech startups founded and matured (acquisition, IPO or just plain old going-steady) are obviously not nearly as impressive in numbers in relation to the population if you were to contrast it to Israel… or the US, to get back on topic. :wink:
Culture and access to capital, venture capital in particular, are important factors to entrepreneurship anywhere. The differences in culture and capital access may provide some clues as to why America performs differently to Europe in the startup arena.
Europe doesn’t have venture capital like it used to. During the Age of Exploration, explorers ventured into the unknown with the financial backing of the elite. During the Industrial Age, money seemed to find its way to the machine builders and inventors which in turn helped Europe maintain its relevance by establishing it as an industrial power. The Information Age has produced some wins as previously mentioned but few to none of those wins managed to capture their audiences as well as some of the popular American names.
I’ve been through a few cohorts at accelerators and have witnessed peers maneuver the fund-raise dance in Europe and in America to vastly different results. In my experience, numerous teams that proposed ideas deemed “nonfundable” in Europe have managed to raise funding in the US. Fortunately, US founders still end up finding their way to Europe although generally not for the funding climate but rather for things such as the higher quality of life at a lower cost. :money_with_wings:
Slowly but surely, investors are catching on and this can be observed in the growing sums of money invested in European ventures. Crunchbase reports 17.7B USD being invested in EU startups in 2015 while they tracked about twice as much, 36B USD, being invested in 2019. Dealroom has reported a steady growth of European venture capital from 2019 through 2018 starting at 6.5B EUR and growing to exceed 21.2B EUR. Statista provides data on the number of investments and the sum of investments in Europe which also supports the notion that the funding situation is improving. In fact, an older 2017 analysis by Pitchbook emphasized that deal size itself was increasing, allowing startups to do push further and get more done per deal. Assuming that each source honors consistent definitions for startups and investments year-over-year, it seems evident that the influx of capital to European startups has been ramping up. :moneybag:
At some point, one can only hope that easier access to capital will allow founders to dare to take more chances to actually push whichever frontier they’ve zeroed in on. Thriving startup ecosystems are a lot more than just money though.
With multiple countries, languages and distinct cultures, Europe is somewhat of a challenging, culturally heterogeneous, sandbox in which to grow a startup. I would go as far to argue that America, with all its differences between the two coastlines, is arguably more homogeneous in a cultural sense than a similarly sized chunk of Europe.
Even as a “nation-of-immigrants” that is subjected to so many cultural influences, America has developed to shape some core cultural values that seem to be commonly held by most.
Those observations aside, I would consider the
- tolerance for risk,
- bias towards big think,
- individualistic leanings and
- willingness or daringness to cooperate
In the parts of Western Europe that I’ve spent most time in, prudence is hailed as a virtue. As a generalization one may note that the Dutch3 joke about their Calvinistic tendencies and although I rip at the Dutch, this is a tendency that I’ve experienced in multiple parts of the continent. While the European is busy conducting cost-benefit analysis, an American somewhere has already dispatched capital and put folks to work to find a solution.
I can already imagine some Europeans cringe at the idea of just venturing into the unknown but if new functional concepts arise from experimentation, it follows to assume that the every-trying American is set to win at some point. This idea doesn’t quite gel with the flavor of risk-aversion commonly served in Europe although cues are being taken from Silicon Valley and other startup havens in order to develop a tolerance for experimentation and “failure”.
Notably this risk-aversion is not only a challenge among the investment climate but arguable also in the labor market where it may be challenging to entice folks with the promise of shares in the risk and rewards. I often wonder if the presence of our safety nets have some role to play in this, or perhaps we designed those safety nets because we are so risk-averse? :thinking: One could argue that the presence of safety nets should simplify or even encourage the taking of risk given the comfort of knowing that on can only fall so far, but that again could be a completely separate post.
I would assume that America’s relationship to risk is shaped by it being a nation of immigrants where nearly everyone has been brought up with the awareness of a nearby history of venturing into the unknown to escape horror or to pursue happiness. The authors of Start-up Nation also related this spirit to Israel’s immigrants. In Europe, my immigrant peers seem to care less about failing or hitting rock bottom and thus seem more comfortable taking certain risks. Of course there are some nuances. Many of those immigrant often struggle to secure the needed initial funding which they, considering circumstances, can’t source from the famous goto initial funding parties colloquially referred to as “family and friends”. Being a 2nd-generation immigrant to the Netherlands, spending my formative years in Suriname, I have also sort of developed a risk-averseness that Leni4 and I often hold up to the mirror in laughter. She considers much of what I do far too risky while I often think she is playing things too safe. We brush off our somewhat culturally-defined character traits on her being very German in her efforts to seek security and me just being a flexible volatility-conditioned Surinamese Dutchman.
Somehow I tend to get the sense that Americans, in general, think a bit bigger than their European peers. I often consider this a feature or component of American culture that may play a role in explaining the differences in the types of startups that both ecosystems produce. It took Americans to propose a concept for a car that, to an European, effectively feels like a house on wheels. It is in America where one finds portions that are over-dimensioned for the average-sized human stomach such as the “Big Gulp” and other “Supersized” food items. Big is almost synonymous with America and America has not just applied this to object but equally enthusiastically to ideas as well. Furthermore, reasoning about serving a quarter billion people is different in The United States as opposed to Europe. This exercise in Europe would require consideration for internationalization (languages, notation systems, etc.), cultural differences and regulatory aspects in order to achieve a similar scale, thus presenting another challenge for European startups that may not always be trivial to resolve.
Individualism and Collectivism
America and Europe seem to exhibit different leanings on the individualism-to-collectivism spectrum. Europeans tend to recognize the central role that collectivism seems to play in some Asian societies and simultaneously often seem gloss over the notion that “the self” fills a seemingly more subdued role in Europe as opposed to the US. Europe’s political history may have something to do with its predominantly collectivist leanings but that topic is definitely out of scope for this post5. For now, types such as Steve Jobs, Bill Gates and Elon Musk have become somewhat of an American phenomenon. Even some of Europe’s notable tech leaders, such as Linus Torvalds (creator of Linux, the operating system that runs the web :smirk:) and Guido van Rossum (creator of Python, a language that facilitates rapid software development and machine learning), have relocated to the United States. Supposedly, a culture so eager to celebrate individualism and support such dreamers in a manner, will enable many more of such visionaries to do what others deem “crazy”. Meanwhile, Europe’s different mindset could give birth to ventures of a considerably different nature. Since funds are more readily streaming into the European startup sector, I’m already looking forward to witness how other models, such as cooperative models for example, will shape the European startup scene.
For its individualistic-leanings, the American startup scene has managed to prove rich with collaboration. Founders will readily find themselves good mentors to help their businesses forward, especially around the Silicon Valley region, which Quartz referred to as the “Pay-it-forward” mentality. Leon Pals reminded me of Steve Jobs walking away with some Xerox technologies which exemplifies that spirit of collaboration. Collaboration wasn’t always amicable, however; and it wasn’t rare for collaborators to become competitors just like Steve Jobs’ collaboration with Bill Gates eventually evolved into a passioned battle between opponents. Over time, many companies have found themselves relocating to the west coast in order to benefit from the multitude of ideas, capital and willingness to collaborate. The tension that may have stemmed from collaborations that evolved into rivalries may have been a catalyst in keeping Silicon Valley tech firms on edge.
Culture and capital may be notable factors in explaining why Europe hasn’t been able to produce tech ventures at the scale observed in the US. The changing investment climate, however; may yet result to more changes on this front. Although I would expect the cultural factors to remain a challenge for a while they simultaneously present an opportunity for things to be done differently. :thinking: :wink:
Compulsory service to the Israeli Defense Forces apparently played a crucial role in shaping generations of leaders well-suited to thrive in the tech sector. ↩
I carry a Dutch passport so I’m kind of ripping at my own folks here. :wink: ↩
Europe has arguably experimented with collectivist political ideology more than America has. ↩