Skip Silicon Valley: Why Smart Startups Start In Europe(forbes.com)
forbes.com
Skip Silicon Valley: Why Smart Startups Start In Europe
http://www.forbes.com/sites/avidlarizadeh/2013/06/26/skip-silicon-valley-why-smart-startups-start-in-europe/
13 comments
> "but if your plan is absolutely dependant on VC, maybe something is wrong."
This seems wrongheaded and a bit presumptuous. There are no shortage of startups with no realistic business plan - there are also startups with a business model that requires substantial initial capital.
Silicon Valley is built on high-risk, high-reward, high-capital companies - there's a reason why "lifestyle business" (lower-risk, lower-reward, lower-capital) is a dirty word there.
It seems like you're swinging the pendulum all the way to the other end where we start making fun of people who take VC money.
I've been part of companies that are fully owned and never took VC money to get off the ground. They do reasonably well, but they are also pretty strictly limited to ideas with very low capital requirements.
This seems wrongheaded and a bit presumptuous. There are no shortage of startups with no realistic business plan - there are also startups with a business model that requires substantial initial capital.
Silicon Valley is built on high-risk, high-reward, high-capital companies - there's a reason why "lifestyle business" (lower-risk, lower-reward, lower-capital) is a dirty word there.
It seems like you're swinging the pendulum all the way to the other end where we start making fun of people who take VC money.
I've been part of companies that are fully owned and never took VC money to get off the ground. They do reasonably well, but they are also pretty strictly limited to ideas with very low capital requirements.
But if you're not European you're not going to get health coverage in Europe. To be honest, health coverage isn't a major concern for 20-something hackers who sit in front of computers all day.
I'd also spend a good bit of time studying the tax code of any country I start a business in. Some countries, like Australia, tax capital gains at the same rate as income, which is bad news for anyone who put sweat and tears into a startup for years. You'll get punished when you take a nice exit.
I'd also spend a good bit of time studying the tax code of any country I start a business in. Some countries, like Australia, tax capital gains at the same rate as income, which is bad news for anyone who put sweat and tears into a startup for years. You'll get punished when you take a nice exit.
In England the health system is free to everyone, the private health insurance buys you very little.
Same in Denmark. I'm not a Danish citizen, but since I'm legally resident in the country (work/residence visa), I'm in the system. In fact since everyone is in the system, the yellow health-coverage card is de-facto used as your ID card for some purposes (there's no national ID card).
Anyone visiting the country but not resident here is also entitled to emergency care, e.g. if you fall off your bike as a tourist and have to go to the hospital, there is no charge. Same if you have a heart attack while visiting.
Anyone visiting the country but not resident here is also entitled to emergency care, e.g. if you fall off your bike as a tourist and have to go to the hospital, there is no charge. Same if you have a heart attack while visiting.
If I get a travel visa to England, I can get free cancer treatment?
If you are entitled to live and work in England, you are entitled to free healthcare. Since the subject is about running a startup in London, you'd have to have those entitlements. This isn't a discussion about visiting England as a tourist.
It depends!
Am I entitled to NHS treatment when I visit England? http://www.nhs.uk/chq/Pages/1086.aspx
Am I entitled to NHS treatment when I move to England? http://www.nhs.uk/chq/pages/1087.aspx
Am I entitled to NHS treatment when I visit England? http://www.nhs.uk/chq/Pages/1086.aspx
Am I entitled to NHS treatment when I move to England? http://www.nhs.uk/chq/pages/1087.aspx
you need right of residence to register for a National Insurance number, but after that you're good to go
> health coverage isn't a major concern for 20-something hackers who sit in front of computers all day.
I wouldn't be too sure about that.
I wouldn't be too sure about that.
You can even be looking at having your fat exit taxed twice if you are a citizen of another country
I'm not a tax expert but I think that would only apply if you're a citizen of the USA, which is the only country in the world that taxes you on your worldwide income.
Even for the USA you'd generally not be taxed twice, because foreign taxes paid are deductible from U.S. taxes. For example if I, as an American living in Denmark, sold a startup, I would pay Danish taxes on the sale. Then I would file American taxes by computing my tax liability under the American rates and subtracting the Danish taxes paid. The result in that case would just about always be $0, because Danish taxes are higher than American taxes, so the foreign tax credit wipes out any American tax liability. If the foreign taxes were lower, you'd have to pay the difference in U.S. taxes, but not the sum of the two.
As I understand it, the US allowance for this is capped at $90k (in income, not tax paid)
There's no cap on the foreign tax credit; you can deduct millions.
What you're thinking of is the Foreign Earned Income Exclusion, which allows you to exclude the first $95,100 of foreign earned income from your taxes, if you live outside the U.S. more than 330 days a year. In my case there's no real reason to do that, because the foreign tax credit I get for my Danish taxes zeroes out my US tax liability. The main people who benefit from the $95k exclusion are those working in low-tax jurisdictions, e.g. American expats in Saudi Arabia. In their case it allows them not to avoid double-taxation (which is what the tax credit prevents), but any taxation at all.
What you're thinking of is the Foreign Earned Income Exclusion, which allows you to exclude the first $95,100 of foreign earned income from your taxes, if you live outside the U.S. more than 330 days a year. In my case there's no real reason to do that, because the foreign tax credit I get for my Danish taxes zeroes out my US tax liability. The main people who benefit from the $95k exclusion are those working in low-tax jurisdictions, e.g. American expats in Saudi Arabia. In their case it allows them not to avoid double-taxation (which is what the tax credit prevents), but any taxation at all.
Appreciate that correction, thank you
A lot of countries tax you if you're a resident still, even if physically non-present (Canada, etc.), and earn the income in a foreign country. You can do stuff to become officially non-resident first. that is the thing you can't do as a US citizen.
That reminds me, I've been wondering for quite some time:
Anyone doing startups or tech in Montreal or Vancouver? How's the environment?
Anyone doing startups or tech in Montreal or Vancouver? How's the environment?
Counter-point: http://english.martinvarsavsky.net/entrepreneurship/advice-f...
"Another legal obligation that is very common in Europe and unheard of in the USA is state-mandated severance pay packages. This is a direct impediment to start ups, the reason being that most start ups fail and in the USA there is an understanding of this. In the USA employees demand stock options as upside should the start up succeed knowing that there will be no severance package should the start up fail. But I have yet to find a place in Europe where employees or governments truly understand this. Not only are forced severance pay packages a problem because most start ups fail and they still have to pay them, but also because start ups are constantly trying out people and the concept of trying out people is very costly in Europe. In some countries like France, forced severance packages of people who have been with you say only half a year can be as high as double their earnings during that time. For most Europeans stock options are considered a scam to pay them less."
"Another legal obligation that is very common in Europe and unheard of in the USA is state-mandated severance pay packages. This is a direct impediment to start ups, the reason being that most start ups fail and in the USA there is an understanding of this. In the USA employees demand stock options as upside should the start up succeed knowing that there will be no severance package should the start up fail. But I have yet to find a place in Europe where employees or governments truly understand this. Not only are forced severance pay packages a problem because most start ups fail and they still have to pay them, but also because start ups are constantly trying out people and the concept of trying out people is very costly in Europe. In some countries like France, forced severance packages of people who have been with you say only half a year can be as high as double their earnings during that time. For most Europeans stock options are considered a scam to pay them less."
> "For most Europeans stock options are considered a scam to pay them less."
I agree with your overall thesis, but bear in mind that in the US stock options are frequently used as a reason to pay people less.
I agree with your overall thesis, but bear in mind that in the US stock options are frequently used as a reason to pay people less.
I can't get past the first paragraph of this article. Anyone who kicks off their argument with three sentences of continuous name-dropping is not worth listening to.
As a London based entrepreneur, I found the pretext to the article hilarious. Why would a Stanford educated, Silicon Valley pro even consider a backwood like little ol' London?
/s
/s
it's just the author establishing a context; it's not sour grapes in her case is what she is trying to say.
I'm European, but I think that the U.S. is (sadly) definitely better for startups, for an obvious reason - huge market. Expanding to other European countries requires lot of work and energy (different laws, language, culture etc.). In the US, no such friction exists. Another thing is workforce mobility, it's lower in Europe (because of laws, language, culture).
Lack of VC is not the core issue IMHO, I guess it's just the consequence of smaller markets. Biger markets = bigger VC money.
Lack of VC is not the core issue IMHO, I guess it's just the consequence of smaller markets. Biger markets = bigger VC money.
I don't get the logic of trying to do something difficult (starting a business) while intentionally choosing to do things which make it even harder (starting in small countries in Europe which don't have a domestic market, without decent VC, and in a hellishly expensive city to boot (London).)
If I were, say, Czech, I'd seriously consider doing stuff in the Czech Republic for a while, if I could bootstrap, then raise capital globally (maybe with a small office in the US if that helped). But I sure wouldn't go from the US as a USAian to Europe to start something unless it was inherently a European-local business.
If I were, say, Czech, I'd seriously consider doing stuff in the Czech Republic for a while, if I could bootstrap, then raise capital globally (maybe with a small office in the US if that helped). But I sure wouldn't go from the US as a USAian to Europe to start something unless it was inherently a European-local business.
Fashion startups have fared better in Europe than in the USA.
The "whales" in that industry are wives of financiers, sheikhs and commodities barons, along with celebrities. The next best group to sell to are the financiers, sheikhs, and commodities barons themselves. The globalized Patrick Bateman. All of these groups are well represented in Europe, especially London.
The next tier down in customer is the highly urbanized 20-34 year old. Due to the constraints of urban living when this group has extra cash they tend to buy $400 bags and shoes, rather than put it into a car or mortgage payment. There are far more people in this group located in Europe and Asia than there are in the USA.
It probably doesn't make sense to start many other sorts of online business in London, but fashion is an exception.
The "whales" in that industry are wives of financiers, sheikhs and commodities barons, along with celebrities. The next best group to sell to are the financiers, sheikhs, and commodities barons themselves. The globalized Patrick Bateman. All of these groups are well represented in Europe, especially London.
The next tier down in customer is the highly urbanized 20-34 year old. Due to the constraints of urban living when this group has extra cash they tend to buy $400 bags and shoes, rather than put it into a car or mortgage payment. There are far more people in this group located in Europe and Asia than there are in the USA.
It probably doesn't make sense to start many other sorts of online business in London, but fashion is an exception.
Don't worry, it appears this was just a topic made-up as an excuse to namedrop and self-promote. The US is a massive country of early adopters in a single, standardized market with the same language, same culture, same media [for publicity purposes], etc etc... and a culture, tax code, legal system, and governance that supports entrepreneurialism (yes, it's far from perfect, but it's generally better than western Europe, look at the ridiculous policies promoted by Hollande in France and his mocking of startups). Like you said, why would you make things harder for yourself when doing something already very difficult?
I'm currently bootstrapping a startup in London [0].
The problem for technical people creating startups in Europe isn't just lack of capital. It's risk-adverseness and occasionally classism. Unless you're creating a pure internet startup you will need to work with other businesses and your first issue is in convincing them to take a risk on you; if you've not got an MBA from x University, some friends in the industry and a couple of entrepreneurship awards it's only harder to do this.
The other ways up are really silly. Incubators that want you to social proof yourself with a number of popular advisors, etc. Also known as "You have to be in to get in." Or the weird government schemes that will give you a nice loan to pay-off, or the very dodgy-looking startup schools which want you to pay a fee to have them parrot obvious advice at you "Be Lean! Be Agile! Fill Out This Canvas!" The only important things are the right connections and an opportunity to prove yourself and what's there is often about legitimising the institution above giving the player an opportunity to legitimise themselves.
But, as with all things, just because something's difficult doesn't mean you shouldn't try. Better to try, fail and learn than to continue as a bystander.
[0] http://getawayapp.co
The problem for technical people creating startups in Europe isn't just lack of capital. It's risk-adverseness and occasionally classism. Unless you're creating a pure internet startup you will need to work with other businesses and your first issue is in convincing them to take a risk on you; if you've not got an MBA from x University, some friends in the industry and a couple of entrepreneurship awards it's only harder to do this.
The other ways up are really silly. Incubators that want you to social proof yourself with a number of popular advisors, etc. Also known as "You have to be in to get in." Or the weird government schemes that will give you a nice loan to pay-off, or the very dodgy-looking startup schools which want you to pay a fee to have them parrot obvious advice at you "Be Lean! Be Agile! Fill Out This Canvas!" The only important things are the right connections and an opportunity to prove yourself and what's there is often about legitimising the institution above giving the player an opportunity to legitimise themselves.
But, as with all things, just because something's difficult doesn't mean you shouldn't try. Better to try, fail and learn than to continue as a bystander.
[0] http://getawayapp.co
You can't scale a typical startup in Europe.
If you rely on pageviews alone, maybe, but your audience then is English anyhow, as local language stuff just doesn't bring enough eyeballs.
If you rely on selling shit, then any US startup has a homogenous market of 313 million people, one legal framework and (roughly) one tax framework. In Europe? You're quite literally fucked.
A startup, by definition, is supposed to grow quickly. Which is inherently harder in Europe. Not starting in the US is quite frankly asinine.
/European myself, working for US startup, moving to US
If you rely on pageviews alone, maybe, but your audience then is English anyhow, as local language stuff just doesn't bring enough eyeballs.
If you rely on selling shit, then any US startup has a homogenous market of 313 million people, one legal framework and (roughly) one tax framework. In Europe? You're quite literally fucked.
A startup, by definition, is supposed to grow quickly. Which is inherently harder in Europe. Not starting in the US is quite frankly asinine.
/European myself, working for US startup, moving to US
Following your argument, it is "asinine" to create a startup in the USA, when China has a homogenous market of 1.3 billion people... There are markets, there are opportunities, there are startups. Each locale has advantages and disadvantages.
ahh, but not all of those 1.3bn are a part of the economy that can be targeted by a web startup. you need internet access, demand and cash on hand.
but yes, outside of software, China is exactly for those reasons a great market (BMW sells more cars there than outside of China). however, it is hard to scale out of China, as the language kills you. once they embrace english, those web startups will start killing, no doubt.
but yes, outside of software, China is exactly for those reasons a great market (BMW sells more cars there than outside of China). however, it is hard to scale out of China, as the language kills you. once they embrace english, those web startups will start killing, no doubt.
It's a fashion company. Europe probably makes sense for fashion.
wut? Have you ever been to europe?
London, Paris, Milan, Tokyo and New York make up the biggies for fashion hubs. London has a higher tech startup density than Paris and Milan, with slightly larger numbers of VCs, so combined with it's travel links it makes it an excellent place for a fashion startup.
"to build our fashion ecommerce start-up"
Well there's your reason. IMO it's important (or at least a factor) to be close to your domain. London or NYC or Los Angeles are your choices if you want to be part of the fashion community.
This article is applying that generally, when it's just a specific market choice.
Well there's your reason. IMO it's important (or at least a factor) to be close to your domain. London or NYC or Los Angeles are your choices if you want to be part of the fashion community.
This article is applying that generally, when it's just a specific market choice.
For most software-based startups it comes down to a few things:
* Ease of hiring (remote workers increase the pool of available talent)
* Infrastructure (including availability of payment solutions, ease of setting up a business, etc)
* Access to finance (which may not be necessary if bootstrapping, or bank loans are available, which is especially promising in the UK with the Enterprise Finance Guarantee)
Unless you're VC-hungry there aren't really that many barriers to creating and running a successful company in the EU. Perhaps the biggest drawback to Europe is the culture, which is less startup friendly and slightly more risk adverse compared to startup-centric locations in the US.
* Ease of hiring (remote workers increase the pool of available talent)
* Infrastructure (including availability of payment solutions, ease of setting up a business, etc)
* Access to finance (which may not be necessary if bootstrapping, or bank loans are available, which is especially promising in the UK with the Enterprise Finance Guarantee)
Unless you're VC-hungry there aren't really that many barriers to creating and running a successful company in the EU. Perhaps the biggest drawback to Europe is the culture, which is less startup friendly and slightly more risk adverse compared to startup-centric locations in the US.
"Slightly more risk adverse" is a vast understatement, and goes hand in hand with the culture problem. The near permanent branding of anyone who has failed in a business venture is horrifying from an American perspective. A lot of American business success stories had failed businesses in their past.
Beyond that, another major bullet point is:
* Ease of firing (inability to fire creates an inability to hire, you get trapped with terrible employees)
Beyond that, another major bullet point is:
* Ease of firing (inability to fire creates an inability to hire, you get trapped with terrible employees)
Couldn't agree more regarding the attitude towards failure! There's little acceptance of the idea that failure is a learning experience and multiple attempts are required to be successful. But, I think culturally it's improving, slowly. Tell someone you're an entrepreneur and working on a startup however, and it's a strange stifled reaction that's usually encountered.
Firing someone isn't as difficult as you'd imagine. There are a few more hoops, but at least in the UK it's not really all that difficult and it's not like you're permanently stuck with a bad employee. Plus, this is why trial periods exist!
Firing someone isn't as difficult as you'd imagine. There are a few more hoops, but at least in the UK it's not really all that difficult and it's not like you're permanently stuck with a bad employee. Plus, this is why trial periods exist!
To get a true perspective on the startup/tech scene in London then the next HN London meetup should be top of your agenda - http://www.meetup.com/HNLondon/events/125382282/
s/Europe/Boston/
Sadly, there are too little VC's and angels in Europe. If you take a look at a startup map of Vienna (or most major cities), you are gonna cry. The biggest "startup" is dict.cc...yeah.
That's why I am considering moving to CA after I get my degree. Though I am not sure yet.
That's why I am considering moving to CA after I get my degree. Though I am not sure yet.
Agreed. The biggest problem is funding. I'm working for a startup right now that's (to overuse a phrase) killing it, but I cannot imagine us getting here without a large amount of capital to get off the ground.
We'd have been stuck in garages without the money to really hit the growth curve hard.
I'm a Canadian expat in the US, I cannot imagine starting any sort of capital-intensive venture in Canada just because the investment money does not exist.
If you're building something that doesn't require a lot of funding, by all means do it wherever makes you most happy. If you do need a substantial amount of money though, your options are limited.
We'd have been stuck in garages without the money to really hit the growth curve hard.
I'm a Canadian expat in the US, I cannot imagine starting any sort of capital-intensive venture in Canada just because the investment money does not exist.
If you're building something that doesn't require a lot of funding, by all means do it wherever makes you most happy. If you do need a substantial amount of money though, your options are limited.
This. It is a huge pain to raise money at the lower levels in Europe. That I know of, something like a convertible note does not exist, or at least hardly anyone would offer one. The process can also be much longer, even if you find someone interested in making an investment. The pattern for new European startups seems to be, get as far as you can without taking money and then find a way to get to the US to raise.
That is an odd conclusion. Vienna is a nice city, but even for European terms it is not exactly a hotbed of innovation and start ups. Try Berlin, London.
There are lots of people doing startups in London but fundraising is still much harder than in SV
Yeah, I'll maybe go to Berlin in the end. Still, it seems everything is happening in the US. But what do I know :)
Fellow Austrian here. I was in your exact boat about 6 months ago. Startup "scene" in Vienna is sad. Immigrating into the US is hard so I looked at Berlin and London.
For now I'm living in London. I considered Berlin, but I think the English practice here is invaluable. My English was already quite good when I came here, but it's improved LOADS. Also there's much more going on in general (culturally, socially), and there's more and bigger startups here (e.g. compare HN Who's hiring / startup city rankings).
For now I'm living in London. I considered Berlin, but I think the English practice here is invaluable. My English was already quite good when I came here, but it's improved LOADS. Also there's much more going on in general (culturally, socially), and there's more and bigger startups here (e.g. compare HN Who's hiring / startup city rankings).
> If you take a look at a startup map of Vienna (or most major cities), you are gonna cry. The biggest "startup" is dict.cc...
Don't look at silly maps (URL?) that are pure fiction. dict.cc is a popular website, but not a classic startup (apparently no ambitions to commercialize) and 11 years old.
Recent highly successful startups from Vienna are e.g. Runtastic and 123people.
Don't look at silly maps (URL?) that are pure fiction. dict.cc is a popular website, but not a classic startup (apparently no ambitions to commercialize) and 11 years old.
Recent highly successful startups from Vienna are e.g. Runtastic and 123people.
A reasonable number of bigger startups have come from Europe, though some later move to the US once they get particularly big and/or acquired. Some examples that come to mind: Skype, Spotify, Unity, Mojang, Opera.
In Europe, you get other valuable things, like a vibrant place, health coverage, etc. I'd put Canada in the same bag.
IMHO, the ideal plan is a fully owned company (ala O'Reilly) which pays for its own growth. You'll still be able to find outside investment later- except you will make the terms, instead of getting pennies.
Call me selfish (and that's a compliment to me :-), but I'd prefer the money to be in my pocket than in the VC pocket.