How to Fix Entrepreneurship in Europe

This week, all eyes are yet again simultaneously focused on the U.S. while also being rolled back at its ineptitude to lead the free world. As such, this is clearly a good time to talk about Europe. Many matters are currently being discussed, all worthy of our time: refugee crises, Eastern authoritarianism, Brexit’s impacts, the Euro’s stability, demographics, Greece, Islam’s place in society, the Eurovision, England’s inevitable sports blunders…

I am vastly under-qualified to discuss any of these (not that it’s ever stopped me in the past or will in the future). I am however both willing and able to analyse Europe’s place in the entrepreneurship world.

Years ago, technology investor Peter Thiel said that “there are no successful tech companies in Europe” and blamed Europe’s ongoing efforts to regulate tech companies on jealousy of larger companies in the US (as opposed to, you know, common sense). One would be remiss not to point out that success may mean high dividends on one side of the Atlantic while referring to advancing society on the other, but that’s another ball-game entirely. Nevertheless, below are a few ways to get him to shut his big (fat/rich) mouth.

Fix the Great Internet Chasm

A historical sore spot in the European Tech scene is indeed the region’s lack of tech behemoths large and influential enough to match the likes of Google, Amazon, Baidu or Tencent. Obviously, European governments have responded by throwing money at the problem. In the past several years, the European Union, France and Britain have announced that they would spend billions to support the creation of new venture capital firms and start-ups. In-so-far as entrepreneurship is enabled by access to cheap capital, that is good news.

Yet, it is important to note that these efforts are mostly done by individual nations. The only way Europe (pop: 500M, arguably the Western world’s largest and wealthiest consumer group) will ever compete with the US (pop: 325M) and China (pop: 1,400M) is by working internally to create infrastructures, systems, products and services that benefit everyone.

Most start-ups are now birthed online/digitally, and Europe is facing a rarely-addressed tech divide which will impede this ambitions : while households in Austria and Denmark spend 0.7% of their net income on mobile broadband coverage, households in Bulgarian and Hungary spend about 7% of their net income for the same privilege. People and companies in Northern Europe have cheaper access to internet and as such are on average better accustomed to the digital world than their Southern and Eastern counterparts. They shop online more often (1 in 2 people shopped online in Germany last year Vs 1 out of 8 in Romania) and adapt to new technology at a dizzying speed. Logically then, they bat far above average when raising venture capital funds or creating and sustaining new tech companies (ever heard of Spotify?).

Southern Europe’s high barrier to entry, however, coupled with the painstakingly slow roll-out of high-speed networks can have long-lasting effects on participation in the digital economy. Policymakers in Madrid, Athens and Rome have tried to keep up with Stockholm, Paris and London, but it’s an uphill, and possibly hopeless, battle — one that will only become more one-sided if Europe doesn’t recognize the compounding effects of the digital disparity.

A multi-speed and multi-tier Europe is a mistake we’d all pay for. Want European unicorns? Build cell towers in Bulgaria. It’s not sexy, but sometimes you gotta get gritty and muddy to get a win.

Revamp Education

Building an entrepreneurial Europe also requires us to redesign and rethink the entirety of our education systems. Researchers regularly promote the fact that entrepreneurial education is a major engine for economic growth and job creation. It also leads to innovation on an individual, corporate and societal level, and even promotes joy and engagement at work.

Yet, European school curriculums are still based on a format founded 250 years ago, designed to train an army of bureaucrats and engineers, as opposed to a nation of innovators. Indeed, subjects organised in silos do not necessarily get young people to be more entrepreneurial, as compartmentalisation is the opposite of what entrepreneurship so often aims to achieve.

What is needed in an increasingly automated world are young women and men able to work in a collaborative way, solve inherently complex problems and manage not only people, but also robots and algorithms. This requires the development of “soft skills” such as empathy, communication and the ability to connect people, as well as emotional intelligence. Do you remember learning about any of the above in school? I studied in France, Germany, England and Sweden, and I certainly don’t. Europe’s plan to concentrate on digital literacy is A) late, and B) simply not enough.

Not that we should teach toddlers what VCs are. But we should at the very least teach high-schoolers that their app idea is worth squat without a market and pain points analysis.

Do away with the rigid legal frameworks

There are literally hundreds of wonderful things about living and working in Europe: clear legal frameworks, free healthcare, strict labour laws against working employees to death, equal right, early retirements… As such, this suggestion might seem antithetical to what was just enumerated. Yet I always believed one could have the cake, eat it and marry the baker too. Nevertheless, the following should only apply to companies with less than three years of age, with fewer than 20 employees, and that are not yet profitable — a small yet vital part of the economy.

Social charges in parts of Europe are often as high as double the salary of an employee, something the entrepreneur is personally responsible for. If one fails to pay these social charges because of a tough quarter, one is personally liable and indebted for who knows how long. This alone discourages many, and governments should be more lenient vis-à-vis personnal bankrupcy.

Another common legal obligation is state-mandated severance pay packages. This is a direct impediment to start ups for a simple reason: most startups fail. Europe should allow smaller companies to offer stock options instead of a severance package to employees, hence implementing a high-risk high-reward mentality many (young) people would be very happy with. Additionally, severance packages are a problem because start ups are constantly trying out people that may or may not work for a very young company with a shifting culture, which quickly becomes a very costly concept.

Finally, let’s relax some of the legal mambo-jumbo. We all know that Amazon was started out of a garage. Less known is the fact that Amazon would never have been able to see the light in Europe. Why? Because you can’t legally work in a garage here.

A little leniency for very small companies could go a long way.

The Financing Puzzle

Investors like Europe. They just don’t like it as much as Silicon Valley. Q3 2020 was a record quarter for Europe’s venture ecosystem, with €10.6B in capital invested. Yet this is not nearly enough to close the gap with the U.S, who saw $37B of funding in Q3. And therein lies part of the issue: Europe start-ups all-too-often rely on debt-financing, whereas VC funding is far more common in the U.S.

Yet, European entrepreneurs often lack the right assets that could be used as collateral, making it prohibitively expensive, if at all possible, to borrow. Analysts may claim that Europe’s lack of access to a virtually unlimited amount of money may have helped the region’s start-ups to avoid some of the excesses of Silicon Valley, but this Lagom-like philosophy (yes, Sweden, I went there — see you after school) may be no more than something we hold onto to rationalise our role of third fiddle in the world.

Encouraging VCs to visit Europe can be hard, but is very much needed. Showing them we’re willing to be flexible finance-wise would go a long way.

We need protectionism

Sit down. Stop shaking your fists. No. No. Get off the stage. Put down the pitchforks. And the torches. Yes, the torches too. Jesus, do you kiss your mother with those lips? No, I did not get a degree in “Liberal Art History”. I went to Business School. Good ones, too.

Protectionism rightfully elicits plenty of strong emotions. Many argue that trade protectionism “kills” innovation and productivity. That is true. Yet, how can start-ups compete with Silicon Valley’s infinite cash? How can they resist the urge to be bought off and discarded? By forbidding some outside players from entering the market, Europe could foster and nurture it’s own pedigree of companies, then opening the doors when they can stand on their legs to allow for healthy competition, which would only let the strong survive.

It’s a 10-year cycle, and it works. What do you think China did for 40 years before it got Tencent and Alibaba? Facebook is still banned there, along with hundreds of other platforms and services currently being incubated (an incubator is etymologically the ultimate form of protectionism btw) in-house, and with great success. Why shouldn’t we do this on a much smaller scale? Why not start with FinTech?

Protectionism is seen as a cuss word. Yet nothing is ever as black or white as it may seem, and Europe’s policy agenda should be guided by a phrase recently offered by French President Emmanuel Macron: “protection, not protectionism”.

There are 50 Shades of Protectionism. And I’m all up for the shade that asks Silicon Valley to wrap it before it taps it.

Good luck out there.

This article was originally posted on my blog, The Pourquoi Pas. Come say hi!