Bringing it all back home: how Silicon Valley veterans are transforming European tech

BY BALDERTON

To coincide with a special networking event we held at Balderton’s HQ in London last week – where we bought together Silicon Valley veterans to our office to meet each other and share ideas, Balderton’s Lars Fjeldsoe-Nielsen has outlined his thoughts about being back in Europe, three years after his return from a ten-year tour of duty in Silicon Valley. If you’d like to be included in future Valley Veterans community events please let us know! If you know people considering a move to join tech in Europe, tweet or share this link: https://goo.gl/B4Zrc2.

Bringing it all back home: How Silicon Valley veterans are transforming European tech

by Lars Fjeldsoe-Nielsen Three years ago this month I returned to Europe after a near 10-year stint in Silicon Valley, which included executive roles at Uber and Dropbox, and at three other startups which were all acquired. Back on home turf and striking up conversations at events and as an investor, I began to observe a trend: a steady flow of European entrepreneurs and technologists were starting to buy one-way tickets home from the Valley.

Lars Fjeldsoe-Nielsen, General Partner, Balderton Capital These ‘Valley Veterans’ – as I described them in the Financial Times -had returned with a West Coast outlook: they were globally ambitious, had deep networks and steeped in the Valley’s hard-knock ways. And, significantly, it was starting to have a powerful impact on European hubs. Three years on, research Balderton Capital has undertaken with Startup Heatmap Europe, to be published in full later this year, means that at last we have some data on a trend that, while discernible, had so far been anecdotal. The Valley, unsurprisingly, remains a big draw for European technology founders and entrepreneurs, with 35 percent of those surveyed having spent “significant time” in the United States, either working or in higher education or both. 41 percent of founders state that they visit the US at least sporadically for conferences, networking, recruiting or fundraising. More than 40 per cent stated they wished they could go more. We will be releasing the full data insights later this year. How the European ecosystem has changed:

1. Innovation is distributed
2. Great startups get funding
3. Governments ‘walk the walk’
4. A second generation is spinning out new companies
5. A Valley-style playbook has emerged
6. Europe now outpaces the US for tech IPOs

How Europe’s Ecosystem is Changing for Tech

So what effect has this trend of returning Silicon Valley veterans had on the European ecosystem, three years on? I believe it’s most visible in six key areas:

1. Innovation is distributed now

It’s been the case for a while now that all the ingredients for building globally relevant, billion-dollar companies are in place in Europe. According to Dealroom.co, there are at least 154 tech companies valued at over $1bn across the continent (including those privately held and publicly listed). But the real proof point is that it’s no longer just the major hubs such as London, Paris, and Berlin, that are producing these companies today. Success is now distributed throughout Europe, whether it’s FarFetch, which was founded in Lisbon, or Spotify (Stockholm), or Unity Technologies (Copenhagen), or Adyen (Amsterdam), or BioNTech (Mainz), or Skyscanner (Edinburgh), or Avast (Prague), or Taxify (Tallinn). At least 154 tech companies are now valued at over $1bn across the continent – @LarsFN of Balderton looks at changes in Europe since his return from Silicon Valley

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2. Great startups will get funded

Across every phase of growth, from first money in to late stage, there has never been so much venture capital available to European entrepreneurs as there is today. According to PitchBook: “2017 was a record year for Europe’s VC ecosystem with €16.9bn ($19.5bn) in capital invested – the highest number PitchBook has recorded”. For context, in 2008 just €5.4bn ($6.2bn) was invested. (However, deal count has slipped for three consecutive years, suggesting that investment is being focused on best-in-class startups.)

3. Governments walk the walk

European governments have increasingly been saying the right things about the tech sector over the last five years, but now they are walking the walk too. All over Europe, politicians are leaning in and listening to the needs of the startup community, knowing that tech entrepreneurship is now a key growth engine for the wider economy. Denmark is a case in point. Danish Prime Minister Lars Løkke Rasmussen recently convened a group of tech influencers, including entrepreneur Tommy Ahlers, formerly chair of (Balderton portfolio company) Peakon, now minister of Science, Technology, Information and Higher Education. The fruits of this are already plain to see: regulations on employee equity have been relaxed, making it easier for startups to compete for top talent by offering stock options – a card the Valley has long been able to play.

4. A second generation are now spinning out new companies

The surge in billion dollar companies, and the exits that have followed, has precipitated the emergence of a second generation of entrepreneurs, who are spinning out new companies and angel investing in other startups. Having been through the inevitable turbulence of a scaling a company themselves, this experienced talent pool are now striking out on their own. Much like the Valley’s celebrated ‘PayPal Mafia’, great examples are coming to the fore. Recently when I met founders in Stockholm, for examples, they were all Klarna, Spotify and Rovio alumni, perfectly illustrating the rapid rise of the next generation. In turn, this is creating a burgeoning talent pool across disciplines from design to data, engineering to product and finance to marketing, further feeding the ecosystem.

5. A Valley-style European growth playbook has emerged

Another sign of the maturity of the European ecosystem is that there is now a playbook for how companies can go global from day one. One of our portfolio companies, Revolut, is a great example. In a little over three years (it was founded in July 2015), this London-based fintech superstar has soared to over 2m users, and has carried out over 150m transactions with a total value of almost $20bn, upending a massive industry in the process. Five years ago, few high growth European startups took a global perspective from launch. Now it’s becoming the norm for ambitious startups.

6. Europe now outpaces the US for tech IPOs

According to the London Stock Exchange, since 2014, Europe has seen more tech IPOs than the US – and twice as many as in both 2016 and 2017. This year has been no different: a flurry of tech IPOs of Europe-based companies – including Adyen, Avast, with Farfetch and Funding Circle, waiting in the wings – show how European tech is now making the weather when it comes to the public markets.

How Europe Lags Silicon Valley

Now of course it would be disingenuous to claim that Europe, across its many hubs, will eclipse the Valley any time soon. While a recent cover story in The Economist (‘Why Startups are leaving Silicon Valley‘) argued there are signs the Valley is on the wane, largely due to its eye-watering property prices and the forbiddingly high cost of launching a startup there, Europe continues to lag the West Coast in so many ways:

1. Density

The Valley’s concentration of momentum resembles a sun with massive gravitational force. By contrast Europe consists of smaller centres of gravity, built around capital cities and regional hubs. This dissipates – and inevitably reduces – momentum.

2. Boldness and mega rounds

Once Valley companies reach orbit they tend to raise in the billions, while their European equivalents still raise in the tens or hundreds of millions. This is likely to even out over time – a company like Revolut is on track to possibly raise billions — but the gulf is still vast.

3. Exits

Exits in the hundreds of millions in the Valley hardly raise an eyebrow. In Europe, they are still a big deal.

4. Intensity

In Europe, when it comes to workplace culture, a work-life balance prevails, whereas in the US, startup founders rarely step off the treadmill. Weekend working is the norm. It is debatable, of course, whether a 24/7 work culture is a prerequisite for success. However, it’s worth pointing out that Sequoia partner Mike Moritz says the work ethic among Chinese tech companies far outpaces their US rivals.

5. ‘The Musk effect’

Europe lacks superstars, love him or otherwise, of Elon Musk’s ilk – people with vision and energy who capture the imagination and bring the boldest ideas to life. (And of course Mr. Musk was not born in the US, but South Africa. There’s just a certain energy in the Valley that makes it possible.)

6. Stock versus salaries

Europeans still tend to perceive cash as more valuable than stock options, whereas in the Valley is the opposite is true. This remains a significant obstacle to European growth.

The Balderton Essential Guide to Employee Equity

Data, insights, key learnings and worksheets on the topic of equity in European-founded startups. Download the Full Guide In some ways of course the Valley is a victim of its own success. To name but one example, hiring top engineering talent in Europe costs far less than on the West Coast, meaning that starting a company is in many far more viable on this side of the Atlantic. Nevertheless, three years on, Europe’s momentum is building inexorably. Today it’s rare to encounter founders without the network, work ethic and global ambition which largely used to be the preserve of their Valley counterparts. I’m more convinced than ever that in large part this is due to the network effect of technology leaders who have upped sticks from California to shoot for the moon at home. This is a more extensive version of an article that originally appeared in The Telegraph Why Silicon Valley veterans are booking one-way tickets to Europe. READ MORE ARTICLES