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MICHA BENOLIEL GREW up in France and launched his first technology startup there.
But he never forgot the atmosphere of adventure and optimism in San Francisco, where he studied in the early 1990s.
So when he came up with an idea for a smartphone app that could send messages without Internet or cellular connections, he went back to California in 2011 to pursue his dream.
“I knew the only way to change the world was from here,” said Benoliel, now the CEO of Open Garden, which makes the FireChat messaging app.
As technology upends industries and lifestyles at breakneck pace, Europe has not produced any companies to rival the giants like Google, eBay or Facebook.
Its best and brightest prefer to emigrate to Silicon Valley, or sell their ideas on to US firms before they have a chance to establish themselves.
The European Union’s top executives in Brussels are trying to rectify that with a long-term plan of reforms and incentives but face an uphill battle.
The 28-nation bloc is, above all, lacking in the risk-taking culture and financial networks needed to grow Internet startups into globally dominant companies.
In the US, especially in Silicon Valley, they are up for any crazy idea,” said 43-year-old Benoliel. “Successful businesses often come from crazy ideas.”
Caution rules
Europe’s relatively cautious attitude to investment stands out as one of the biggest hurdles — and among the most difficult to change.
Investors in Europe want to see that a young company can generate revenue from the start. Europe’s many high-technology companies are focused on manufactured goods that can be sold right away to generate revenue — industrial equipment, energy turbines, high-speed trains, medical devices and nuclear energy.
By contrast, internet companies often have little to no revenue at the beginning.
Twitter and Facebook, for example, first focused on building up their user numbers. Only once they were established as global forces did they put more attention to making money, through advertising and other strategies.
This difference in mentality stands out as one of the key reasons that Europe has fewer venture capital firms and less investment in startups than the US or Asia.
Over the past five years, US venture capitalists spent $167 billion (€150 billion) on new business ideas compared with some $20 billion (€17.9 billion) by their European counterparts, according to the National Venture Capital Association.
Last year alone, US investment in startup companies was $50 billion (€45 billion), with nearly half of that amount in Silicon Valley. The European equivalent paled at $4 billion (€3.6 billion).
Asia, which has seen the rise of internet retailer Alibaba in recent years, also outshone Europe, with venture capital totaling $22.5 billion (€20.2 billion) in 2014, according to Preqin, a data analysis company. That figure is set to surge further this year, with $23 billion (€20.6 billion) invested already by the end of August.
Early investment is crucial for startups to be able to get their products to market quickly. With technology, several competitors often work on the same idea and race to get out their product first and make it stand out.
“These are very fast-moving, winner-take-all industries, so if you are slow on the uptake then you will be done from the beginning,” said Anand Sanwal, CEO of CB Insights, a New York research firm that tracks Internet startups.
An oligopoly
Part of Europe’s struggle to compete in online technology is not specific to itself, but a reflection of how Silicon Valley has been able to create a community of tech specialists and venture capitalists who can meet easily, exchange ideas and strike up new collaborations.
“It’s really a venture capital oligopoly where a few people who have tons of cash agree among themselves to invest in something and that can’t be done in places where investors don’t meet in the same way,” said Anssi Vanjoki, a professor at Finland’s Lappeenranta University of Technology, who was chief of mobile phones at Nokia when the company was the world’s top handset maker.
It takes time to foster such communities. Even within the US, other cities and regions have tried and failed to replicate Silicon Valley’s success, with the exception perhaps of Seattle, Washington, where Amazon and Microsoft are based.
Europe’s startup culture has been further hindered by the fact that in many EU countries it often takes more paperwork, time and money to do business than in the US. For example, the stronger social safety nets make it harder to fire a worker, which in turn makes it a riskier proposition to expand staff for a startup.
The markets of Europe also remain fragmented. Expanding operations across the continent is made more difficult because business laws and languages are different from one country to the next. By contrast, starting off in the US gives a company a single English-speaking market of 320 million people within which to grow.
Success stories
Some European companies have made the extra push and reached global proportions, though none has hit the rarefied levels of Google and Facebook.
Local success stories include online calling service Skype, which started as a Swedish-Estonian venture, and the Swedish commercial music streaming service Spotify, which has over 60 million users worldwide. Two years after Skype started, it was sold to eBay for $2.6 billion (€2.3 billion) and eventually Microsoft acquired it in 2011 for $8.5 billion (€7.6 billion).
Meanwhile, the Finnish are cornering the market for mobile gaming. After Nokia’s cellphone demise, a startup culture flourished in Finland, helping to create a booming mobile game industry with companies like Rovio and Supercell, which created the hugely popular Angry Birds and Clash of Clans games.
In 2013, Supercell sold a 51% stake to Japan’s SoftBank and GungHo for €1.5 billion.
Niklas Zennstrom, the Swedish co-founder of Skype and now CEO of Atomico, a technology investment firm based in London, said things are improving.
“Since I started Skype in 2002, the market has changed tremendously for the better,” he said recently at a European venture capital conference in Geneva.
The EU’s executive Commission in Brussels has a long-term plan to speed things up and help European startups become the next big Internet company.
It aims on the one hand to make a more unified EU market by reducing red tape and differences in business laws. On the other, it is taking a tougher stance on dominant Internet companies, particularly Google, to foster competition.
Experts say that while the policies might help, they are unlikely to be enough in themselves.
“Legislation will always create a context for growth, whether that’s through taxation or incentives, but the real value comes from connections between people and a focus and real desire on solving real human problems,” says Duncan Lamb, who was a software designer at Nokia and is now the new design director at TransferWise, a financial services online company based in London and Tallinn, Estonia.
“It’s 100% about people.”
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Europe, and Ireland epitomises this, wallows in a welfare, give me, quagmire. Where instead of encouraging people to pursue ideas and ambitions, the masses would rather ridicule those that try and fail, to the point of ‘celebrating’ a person’s failure. Those that do succeed usually end ‘hated’, ‘despised’ and generally blamed for everybody’s ills. If Europe (including Ireland), want to start producing Googles, Facebooks, etc we need a serious change of mindset. Especially in schools where children are taught from day one that all that matters is grades. That the object of life is to get good/great results so they can go on to college/university to get a ‘good degree’ and hence get a good job. Wouldn’t it be better to encourage children to use and explore their imaginations and help them build ideas??
That should be the first paragraph on Irelands Wikipedia page.
I’d far prefer raise children in the Europe you described than the failed Utopia of the USA that you failed to describe. Silicon Valley is a community of the smartest tech brains in the world. Legislation has been put in place to facilitate and encourage this but you can’t thank the US education system for that. The Collison brothers were educated in Limerick and have gone on to create one of the fastest growing tech start up’s globally in recent years.
dude you are spot on but also weeing into the Atlantic in North Donegal. You know what happens.
@Rocky Raccoon. Where would dear old Ireland & for that matter Europe be without ‘the failed Utopia of the USA’?? The Marshall Plan, US investment, US technology, etc. If the US is a failed utopia, than that makes europe a barren wasteland. Yes the Collison brothers did do well but again it was on the back of US technology. And as for all the socialists talking about innovation having nothing to do with capitalism. None of the businesses or technology conglomerates, or indeed Silicon Valley would be here today without Wall Street and it’s cash laden investors, who took a risk on the back of someone’s idea or product.
It’s very simple. Socialism does not breed innovation or success, because there is little incentive. Capitalism encourages competition and personal motivation
Actually no, capitalism has nothing to do with innovation. In fact studies have shown that the better paid someone gets for doing a task the worse they will perform. The key is value of ideas and freedom to explore interests; economic models whether socialism or capitalism have no bearing on this.
Capitalism facilitates innovation. “The better paid someone gets” has nothing to do with the argument that free market capitalism better breeds innovation than a centrally planned society. I’m also wondering as a matter of interest if your “studies have shown” remark has any scientifically reviewed backing..
Capitalism has everything to do with innovation. The reason we all carry affordable smart phones right is because of capitalism. Socialists did not invent smart phones. Socialists do not drive innovation.
Zero encouragement + Zero Creativity = Zero Facebooks or Googles
EU: Property is the best investment
I think The Journal is a good business model which could work around the world.
We should nationalise Facebook. Simples.
hit green tumb if you like cake.. the red if you would like to kick a puppy in the face
Here is what it boils down to (bare with me).
1) There is a difference between uncertainty and risk
– Risk is uncertainty that can be quantified
– Uncertainty is unquantifiable
2) Investors, even angel startup capital investors, cannot invest in a risk they cannot quantify. No private source of funding can
3) The US has programmes in place to fund highly innovative projects that are uncertain
The EU noticed how successful the US model, but completely failed to understand the above factors. They did everything like the US except made the innovator front a portion of the risk. So EU innovators go bankrupt on their first attempt and never try again, while US innovators keep trying until they succeed.
Ireland’s model is even stupider. They won’t hand over any money unless there is a third party private investor involved as well. Again, missing the point. Private investors cannot invest in uncertain projects and uncertain projects result in the greatest amount of innovation.
Another problem with the EU and Irish models is that once an application is rejected you can’t reapply. Under the US model, you can reapply through as many different authorising bodies as you like. And the authorising bodies are government agencies like NASA who know a thing or two.
The US programme is called the SBIR
https://en.wikipedia.org/wiki/Small_Business_Innovation_Research
…”starting off in the US gives a company a single English-speaking market of 320 million people within which to grow.”
Europe need to move to Luro … Language for the United Regions of Europe.
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