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2021-07-19

Reaction: Europe's "Lost" Startups

Romulus recently published a video essay on Europe's "lost" startups. If you haven't watched it, it's a good place to start.

This is only the most recent attempt by YouTube's pan-European content-creators to explain why Europe is falling behind the US and China 1. The answers these creators come up with (including Romulus) tend to be highly tangible and quantifiable:

These answers are satisfying because they admit relatively straightforward fixes. Not enough funding? Throw more cash around (just as the European Council Accelerator is already doing). Brain drain? Limit foreign takeovers and do a better job of advertising Europe as a STEM hub. (How? Oh I don't know, maybe with our ample affordable universities?) A fractured market? Continue the path towards globalization and do your best to ignore the populists. Or if you think the ailment is regulation, then your answer is deregulation.

Satisfying as the above diagnosis is, it is incomplete—it fails to explain why the EU produces only 40% as many seed-stage startups even after adjusting for population & GDP [0]. Europe is not just underinvesting, curtailing, and losing its startups, it is not producing them to begin with.

The cause of this deeper issue is likely less regulatory or financial and more cultural or social.

With the necessary disclaimer that "cultural and social" brings into more anecdotal, less rigorous territory, let us proceed cautiously.

Your correspondent, based on his own experiences living both in the US and Europe, has identified what he has experienced as the three most important factors:

As a result, European VC's are not just underinvesting compared to their American counterparts. They also take longer to close deals and they care more about founders drawing up detailed 3- and 5-year plans 4. Europe doesn't just have a financing or regulatory problem—it has an attitude problem.

To be fair to Europe, these are the flip-sides of rather positive tendencies. The focus on social cohesion has likely helped to reduce inequality [0]. This helps make these countries some of the most pleasant to live in. And despite (or likely because of) the underemphasis on scholastic performance, Dutch kids are the happiest in the world [0]. Pessimism may make Europeans better able to acknowledge the challenges of our time [0], and you probably need a fair dose of risk aversion when your countries have experienced world wars on home turf, and when your countries remain at regular risk of massive drowning.

The problem is when these attitudes are taken to extremes. It's not that we have to worship achievement—only that we don't shun it. It's not that we ignore real problems—only that we continue to believe a better world is possible. And it's not that we start taking wild risks—only that we make an honest assessment of how severe the consequences really are. Failing to launch a company is not synonymous with ending up in abject poverty.

Fortunately, the tides are starting to change. Your correspondent's experience with the Dutch tech sector and in an Amsterdam-based accelerator has put him into contact with dozens of very European individuals who defy each of these labels. Just as EU is fixing its financials to fund the next generations of European startups, the youngest generation of EU nationals is fixing itself up to lead the companies of the future.

A new European chapter is just getting started.


Footnotes

Footnotes

  1. See, for example, Into Europe's "Where are Europe's Innovative Companies?" and TechAltar's "How Europe lost its startups." ↩

  2. Your correspondent—as a European national who has moved to the US to found a company—feels his fair share of guilt in contributing to the problem. ↩

  3. This is what's called zesjescultuur ("sixes culture") since a 6 out of 10 is considered a passing grade. Now, obviously, students everywhere do their best to do as little as they can and still pass. What's striking about the Netherlands is the degree to which it celebrates its satisfaction with mediocrity (De Fusie, NRC, VICE, de Volkskrant). This comes from a pretty healthy place—not wanting to worship achievement in the way that causes so many American students to kill themselves [0]. But it doesn't help to encourage the ego-trip of entrepreneurship.

    More broadly, this Calvinistic sentiment has permeated so deep that even the language idioms deter achievement: hoge bomen vangen veel wind (tall trees catch lots of wind) and steek je kop niet boven het maaiveld uit (don't stick your head above ground level—the implication being that the lawn mower will take it off). ↩

  4. See, for example, [0]. This focus on long-term planning is probably the biggest weakness in the European startup environment. In the early stage, startups pivot and adapt much too often for long-term plans to have any meaning whatsoever. Europe needs to realize and accept that startups are a lottery, albeit one without a ceiling [0]. ↩


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