By Julien Fredonie
As originally published by Entrepreneur.com.
European entrepreneurs have long envied their cousins in the world’s tech mecca, Silicon Valley.
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.
Startups require at least five important elements for success: a research base that generates great ideas, top-flight entrepreneurs, talented employees, capital for both the short and long-term, and established tech corporations that are ready to pump money into, or acquire, promising startups.
The European tech sector has imaginative entrepreneurs and talented employees. It falls short of Silicon Valley in venture capital and established tech corporations ready to take startups to the heights.
China has developed into a real challenger to Silicon Valley these days. As an example, Chinese startups attract 48 percent of global artificial intelligence funding, versus 38 percent for the United States.
The questions for Europe are: Can it develop the dominant startup ecosystem found in Silicon Valley? Or is there an alternative to the huge critical-mass approach that Silicon Valley represents?
I believe Europe can catch up with the United States — and that it doesn’t need a concentrated cluster like Silicon Valley to do it.
The Valley has a much longer startup history.
Silicon Valley is a relatively small 67-kilometer corridor between San Francisco and San Jose, but it was able to give birth to such tech titans as Apple, Google, Cisco, Intel, Oracle and Hewlett Packard. Business and tech people call it a hyper cluster because it concentrates factors for startup success: research, entrepreneurs, talent, capital and corporations. As a Stanford University student, you can collaborate with corporations, start a venture, obtain funding through a network that includes lots of Stanford grads, make your venture a success, start investing in other startups and use your wealth to give back to the community.
One of the reason that Silicon Valley dominates the tech startup world is its head start. Entrepreneurs began creating companies there 60 years ago, versus only about two decades ago in Europe.
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. SAP, Europe’s biggest tech company, is not even in the top 100 European corporations list.
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 augur well for the future.
Atomico, the London-based international tech investing company, notes 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.
For many specialists, these costs are a real long-term threat to Silicon Valley’s tech startup dominance
In addition to costs, a 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. 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. In fact, more American venture capital has begun flowing into European tech startups — and one reason is that European startups are more likely to generate profits sooner.
The continent has the major ingredients for tech prowess.
Europe has everything it needs to support entrepreneurs. In terms of a research base, for example, close to half of the world’s best computer science universities are on the continent.
In addition, both private and government investment are available. At the moment, it’s not as much as the United States can offer, but it’s growing.
Also important is that Europeans’ mindset toward startups has changed. Most of us have traditionally wanted to work for established companies. In fact, when I started my first tech company in 2002, my friends thought I was crazy. Today, just 16 years later, a lot of millennials are embracing entrepreneurship as a legitimate career path.
Diversity, which helped shaped the Valley, is a trend in Europe these days as well. Engineering talent from around the world is flowing in to top tech environments like London and Berlin. This diversity is generating a wealth of creativity.
Today, tech environments are popping up in cities across Europe — a phenomenon that industry gurus call decentralized concentration. While not physically in the same location, these hubs are connected, with the players collaborating and learning from each other while also competing with each other. Many entrepreneurs I have met have this European mindset, one of whose characteristics is not hesitating to open offices or move when needed.
Another plus is that many European countries and cities have created incentives to attract entrepreneurs, making them magnets for innovation.
European tech will succeed without a Valley-like concentration.
Proof that Europe is reaching a critical mass to compete better with Silicon Valley is that it was the region of the world with the most initial public offerings in 2017. Their valuation wasn’t as high as America’s, but hey — we’re getting there.
Another slice of proof is that Europe is becoming the dominant player in some cutting-edge tech fields. For decades, the Valley led the way in every important tech trend — chips, computers, the internet and social media. But, the capital of blockchain and decentralized technologies these days would be Zurg or Berlin rather than the Bay area.
Europe will fail to become one of the world’s dominant tech powers if it tries to replicate the Valley model. It needs to create the conditions for a thriving tech ecosystem of its own, then build its own unique tech history — and it’s doing that.
European entrepreneurs need not have an inferiority complex to their Silicon Valley counterparts. They have the vision to tackle big problems and the ability to attract talent and financing.
Some of Europe’s tech ecosystems with be competing head-on with each other, for sure. But, in many cases, they will be specializing in different fields.
There will never be a Silicon Valley in Europe — and that’s fine. Europe is developing its own startup-generating ecosystem, and it’s going to be more and more competitive in years to come.