Another two reasons why Europe tends to be breed small exits

Europe Inc., formerly on top of the world (circa 1792) needs to get with the programme and start building some world class companies.  I am not sure it is really about to get around to it.  Last week I announced a new investment in a company called InspirationalStores.  I got a lot of emails of congratulations (mostly, but then Europeans are very polite), encouragement, skepticism (“are you mad?”) or constructive criticism (re for example the challenges to achieving scale in this market).  But two “events” really stuck in my mind:

Event One, the frantic calls from the French Financial Press

I got about 5 calls from the local financial press; these guys rarely seek you out and I don’t seek them out either.  PR is for the company.  But in this case they all wanted to talk “the financiers”.  Questions on their lips: “Why such a large round of financing ?”  And “why now”, in the face of a global financial meltdown ?  “Don’t you realise you are going to get wiped out” !   They found it amazing that we would be funding anything at all in the face of what is happening in the credit sphere and quickly spreading to the rest of the economy.  Of course saying “we are long-only investors no matter what the weather is” would not quite suffice, so …

… two answers

  • the boring and obvious one is that great companies are often built in times of crisis and that capitalisation becomes a critical competitive advantage when the funding markets are shut.  If we can ride out the downturn in a capital efficient manner and leverage the inherent advantages to the model (which I will not detail here :-)) then we will emerge strong on the other side.  It ain’t going to be easy, but then anyone who thinks making money in venture obviously has not been in the sector long.  Scars on my back and all that.
  • the less obvious one maybe is that €10M really is not that much money when you are backing an ambitious project and an ambitious team.  Why is it that in the French landscape people seems stunned by a perceived “huge round for an e-commerce company”.  If our startups lose the capital battle then they will never win the war against much better funded US competitors.  The self-fulfilling prophecy of the middling local success.  I have a different definition of the word “venture”.  Yes, cash is more important than your mother (aka CIMITYM, courtesy Ken Morse).  Just raise enough of it.

image <—- Ken says: CIMITYM !  Got it?

Event Two: The Copycat Cometh

Given that (a) this is Europe and (b) I am no Fred Wilson, I tend to get few comments per post.  But on a piece of news like this new funding, I get a few more than usual, and they are from or about startups who would like you to know that they exist: a dash of MixCommerce and a hint of BrandOnlineCommerce.  Besides the fact the fact that I would rather invest in the original artefact, I don’t really care who was there first (see the comment thread on that topic), but it does point to an interesting problem: in Europe everyone seems to be interested in starting their own company rather than partnering with other entrepreneurs to build better and bigger businesses.

Richard I and Philip II, during the Third Crusade<— I am the real king of e-commerce, you Cathar heretic !  Now go Away or I shall taunt you a second time !

Even for a second it all these energies partnered together and decided to go after GSI Commerce in a meaningful way.  Wouldn’t that be a better way of building a large business ?  Isn’t more important (and profitable) to build a large exit than own a large percentage of a tiny failure ?

Start for a second about how you will build your business in a different way.  As my partner Jeff Fagnan would say, think about how you “play to win”.  Not how you play to win €2M.


Right now, we are a tiny industry with limited amounts of money being put to work, not enough big plays, undermined by our own industry body (yes, EVCA), dependent to a certain extent on public funding, and occasionally providing interesting exits to our LP’s.  To change this across the industry we need fewer / better funds supporting fewer / better startups and focusing on game changing outcomes.

In the meantime, it’s humble pie and (probable) recession for all of us.  Gotta get back to work !

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5 Responses to Another two reasons why Europe tends to be breed small exits

  1. Henry says:

    Hi Fred,
    Not sure I agree with your conclusion. In the US every start up has at least 2 or 3 similar competitors. Everything is on a larger scale, even the copycat sites.

    Every American grows up being told they live in the land of opportunity and read about the likes of Bill/Larry/Sergey/Steve on a daily basis.

    It’s therefore not surprising that they have many more kids going into tech and many many more creating their own startup. Collaboration sounds like a bit of a socialist/old Europe solution!

  2. Fred Destin says:

    Hi Henry and thanks for the thoughtful comment. You are right that I did not frame this properly.

    Every great market opportunity is bound to attract a number of entrepreneurs to go after it and that is why you will find 5-8 venture backed statups in each great emerging category — but the US has the immense benefit of a large and deep local market that tends to support multiple startups.

    Also I have found that in the US (where I invested in the past) the teams tend to be strong from the seed stage and with a deep bench of talent, whereas in Europe (and France is a particularly bad offender) you will often find one – two man bands who are good teams but simply not on par with the best in the US and ultimately not in a position to compete. If they joined forces they could build better businesses together.

    This is where it is my turn to disagree with your conclusion. The US is particularly good at harnessing collaboration networks to build powerful startups quickly — putting together great advisory boards, attracting strong talent from the outset — whereas the European entrepreneurs tend to work in relative isolation and take longer to achieve critical mass. There is nothing socialist about that, in fact it is an appropriate Darwinian response to the high risk of failure to be partnering with other to be stronger !

  3. Henry says:

    Fair point. I can see the tough environment providing an additional pressure to combine forces. I am sure we will see this happening on a more frequent basis.

  4. Shafqat says:

    Interesting discussion. Are there any good examples of smaller European startups that have banded together for scale or collaborative success? While I think Fred’s idea is correct (and Darwinian) in theory, the implied transaction costs make it a lot harder to implement (I’m not referring to the monetary costs).

    Would be curious to hear about examples. I can think of a couple companies that we could work well with to achieve Fred’s vision, but it sounds all too theoretical to me. I’m short-sighted perhaps? ;-)

  5. Christian says:

    Personally I don’t we think we harness the collective approach enough. For sure, we can quite often be too risk averse in Europe – but I think Europe really needs a silicon valley type impetus. It’s happened a little bit but not on a big enough scale.

    I currently have a part-time and small online branding and design consultancy, running parallel to a day job and other projects. I want to take this full time and would happily offer creative capital.

    Maybe it is a case of us Europeans needing to stop intellectualising and (collectively) put our money where our mouths are.