The writer is founder of Sifted, an FT-backed site about European start-ups
This year, I have heard several visiting Americans berate Europe for its lack of innovation and entrepreneurial success, with some justification.
Since the beginning of the century, Europe’s share of the top 100 most valuable companies in the world has fallen from 38 to 18, while that of the US has risen from 54 to 61, boosted by the giant west coast tech firms. Part of the reason is that US-style “permissionless innovation” is far more adaptable to disruptive technological change than Europe’s regulation-heavy “upstream governance”, says Andrew McAfee, the Massachusetts Institute of Technology scientist and author.
To defend its technological sovereignty, Europe must “get serious” about building globally relevant tech companies and accept the “radically inegalitarian” outcomes that result, says Alex Karp, the American co-founder of the US data company Palantir. Describing himself as a “classic European progressive” who wants poor people to have “healthcare and teeth”, he argues that the whole European experiment will be in question “if everyone with a high-value revenue is sitting in America”.
While accepting the urgent need to raise their technological game, Europeans answer in two ways. First, they say Europe’s social model is not optimised for maximising gross domestic product so much as eudaimonia, the ancient Greek concept of happiness. On that score, several European countries outperform the US. Europe shows up strongly in the latest World Happiness Report, which asks people how satisfied they are with their lives. Eight European countries, led by Finland, Denmark and Iceland, are among the world’s top 10 happiest nations (Israel and New Zealand are the other two). The US ranks 15th.
That makes some of the US criticism of Europe sound like the question posed by the novelist Jeanette Winterson’s adoptive mother on hearing that her daughter had fallen in love with another woman. “Why be happy when you could be normal?” she asked. If economic “normality” results in societal unhappiness, maybe it is better just to stay happy after all.
The second, more defiant, response is that Europe is finally “getting serious” about tech, albeit in its own patchy, culturally diverse way. Over the past decade, tech-enabled start-ups have exploded across Europe, benefiting from some imported Silicon Valley mindset and methodology. Up until the end of October, last year, early stage European start-ups attracted 31 per cent of total global investment in this sector compared with 33 per cent in the US, according to Atomico’s State of European Tech report. Picking up on the trend, storied US venture capital firms, including Sequoia Capital and Bessemer Venture Partners, have set up shop in Europe.
“Europe really is becoming a tech hotspot,” says Roxanne Varza, director of the Paris tech campus Station F, which has worked with 5,000 start-ups since it opened in 2017. Whereas a decade ago the most ambitious European entrepreneurs would automatically head to Silicon Valley, many are now staying at home and recruiting top-tier talent from around the world, including the US, Varza tells me.
In spite of the global tech market downturn that is hitting the industry, Europe’s upbeat entrepreneurs are quick to list the region’s advantages: some great technical universities, many highly skilled, and relatively cheap, software engineers and plenty of ambition to tackle the world’s biggest problems, such as climate change. But they are equally quick to identify the remaining constraints on growth: an incomplete single market, making it hard to expand across borders, overly restrictive regulations and a later-stage funding gap.
One European country that shows how to combine societal happiness and entrepreneurial dynamism is Sweden, which has one of the highest rates of social mobility in the world and has created more tech unicorns (start-ups valued at more than $1bn) per head than almost any other country.
The idea that the US is the land of opportunity is only true until you want to get into school or pay your healthcare bill, according to Sebastian Siemiatkowski, co-founder of the Swedish fintech giant Klarna and son of Polish immigrants. With free education and free healthcare, Sweden is a “fantastic society” where everyone is equally valued. “It is one country where if you want to make it, it is up to yourself,” Siemiatkowski told me at a Sifted event in Stockholm earlier this month.
At least in some parts of Europe, entrepreneurs succeed because of its social model, not in spite of it. The rest of Europe, and some US critics, should take note.