What’s wrong with tech entrepreneurship in Europe

December 10, 2009

Photo Credit:  Dave Cynkin

Niklas Zennström, founder of Skype, Kazaa, Joost and now Atomico Ventures spoke at Le Web today about his entrepreneurial experiences. Following that there was a round table panel hosted by Brent Hoberman (co-founder Lastminute.com), discussing why there is a notable lack of billion dollar internet businesses in Europe. The panel included entrepreneurs from the UK, France, Spain and Norway such as the founders of Fon and Opera.

Both Zennström and the panel highlighted some structural issues which are clearly holding back Europe. I was horrified at some of the severe issues which startups have to endure in Spain in particular. It’s no wonder Spain is in deep trouble, with unemployment at a horrific 19%. I feel fortunate the UK does not suffer from anything quite as severe as these issues.

So what is the problem with tech businesses in Europe?

  • VCs have a very low appetite for risk, compared to their silicon valley counterparts
  • European entrepreneurs move to silicon valley to enjoy a more supportive environment, but causing a European brain drain
  • Tax regime is geared towards corporations rather than small startup businesses
  • Restrictions on immigration and visas for high-level people
  • Restrictive hiring and firing legislation which prevents businesses flexibly scaling up or down as required
  • High burden of regulation
  • No critical mass of potential acquirers
  • Large European businesses don’t trust buying from newer small companies
  • More complicated and harder to scale in Europe (due to language and multiple country markets)

Silver lining

Whilst these challenges are undoubtedly hampering Europe’s ability to build significant internet businesses there are some points where we do rather well:

  • It’s easier to build a global business out of Europe, because we’re more used to dealing with different languages and cultures.
  • European managers are better than their American counterparts, partially because of greater international experience.
  • Innovation remains high.

What can be done

  • Reduced regulation
  • Reduced tax burden
  • Better internet infrastructure (e.g. more European cloud operators)
  • More sanguine approach to failure
  • and by far the most important, everyone agreed, a hands off approach from Governments

Finally, it’s worth noting that it’s not all bad, there have been some successful European tech companies, such as Skype, and there will surely be more.