Earlier this week, the Wall Street Journal’s Ben Rooney published an article called “How Entrepreneurial is Europe?” The article, a re-cap of a talk he gave at Istanbul’s Webit Congress, looks to quantify how ‘entrepreneurial’ various countries are, as benchmarked against the US & Israel. The study looked at two specific figures – number of deals & total VC funding per capita – and benchmarked European countries against Europe itself, as well as against the US & Israel. The intent was to give context to Turkey’s appeal as a startup ecosystem, but, ultimately, the article feeds into a mindset that has a diminishing return in value.
Rooney does make an effort to point out that the data, provided by VentureSource (another Dow Jones company), may not be complete – it does not include angel rounds, does not mention France, Ireland, Denmark, Luxembourg, or other notable startup locations – and that given the small sample sizes, the data can easily be skewed by outlying deals. The end result, however, is the same: the reader is given the impression that startups have 10x the chance of succeeding in Israel, despite the fact that Rooney published an article just two weeks previous stating that Israel has trouble building global players.
Why is “per Capita” relevant?
Ultimately, I take issue with two aspects of this article. The first is the idea of ‘number of deals per capita,” as I’m not sure this is a relevant figure to look at. What does it matter that Germany has 85 Million citizens? How are 95% of the population impacting the performance of the 5% or so of the population working in the tech startup ecosystem? If Germany encourages parents to have more children, will they subsequently create proportionately more deals or funding? If you’re going to take a nationalistic view of the issue – my second issue is with this – then why not look at the Startup Cycle conversion funnel. How many newly created companies are raising funding? How many angel-funded companies are raising VC funding? Is there a Series A crunch? A Series B Crunch? No Crunch? Or, if you don’t think funding is a relevant validation of a startup’s path to success: how many companies which launch in Germany launch internationally? How many companies that reach $1 Million in revenue reach $10 Million?
France Digitale has been doing a very interesting report each year in cooperation with Ernst & Young, and the data points feel much more relevant – here is the most recent edition.
Sweden is not competing with the UK? Europe as a Single Market.
The other issue I take with this article is that it simultaneously measures Europe against its own member states, while comparing Sweden to the United States. While I agree with Rooney’s assertion that Sweden & other smaller markets are forced to think globally from day one, he contradicts this process in this very article, pointing out that Estonia’s VC per capita is far lower than other countries, despite the tales of the “Estonia Mafia” and their claim to Skype.
The reason for that, as Rooney points out, is that Estonian entrepreneurs rarely create companies in Estonia; more often they create London companies – one such example is TransferWise.
Ultimately this data ends up contradicting itself because it looks both at individual member state performance vs. overall European performance. Data like this would also suggest that Delaware is a hotbed for technology companies in the United States; the reality, however, is not quite the same. Likewise, London’s towering VC capital, large per-capita, would probably have nowhere to go if it weren’t for the Stockholm Spotify’s, the Estonian Skype’s, the French Criteo’s, and the German Soundcloud’s in which to invest.
So, “How Entrepreneurial is Europe?”
No complaint is valid without a suggested solution, so allow me to propose a different way of evaluating the same question: “How Entrepreneurial is Europe?”
Europe is a unique beast, and I wouldn’t suggest benchmarking it against the United States or Israel, as they don’t have the same issues to deal with. Instead, let’s benchmark Europe against itself, because, after all, Europe’s biggest weakness is its lack of connectivity. Let’s look at what percentage of deals in the UK are investing in companies outside of the UK. Index Ventures doesn’t have a physical presence (or, God forbid, a French fund), but still invests in loads of French companies. In fact, London’s three biggest VC funds – Accel, Balderton & Index – co-invested in peer-to-peer housing rental service Housetrip (founded by the French-born Arnaud Bertand & his wife), which has its largest office in Lisbon, Portugal (600 or so employees), despite its London HQ and original Swiss presence.
Is this an investment for the UK, for Portugal, or for France? The reality is that it doesn’t matter. The investors don’t care, nor do the founders, Europe wins in nearly all aspects of this deal – employment, tax-wise, etc. – the only exception may be that the LPs are possibly not European, but the funds will invest returns back into Europe.
Let’s stop measuring European countries against each other, and start measuring them the same way the continent operates: by how much they cooperate with each other. How much of the startup ecosystem do they import from the rest of Europe? How much do they export across Europe?
For me, these are the figures that matter.
Photo courtesy of The Kernel