#27 – Start-up and investment landscape in Europe – the good, the bad and … the reasons for optimism

We deep-dive into the nuanced - and somewhat less than stellar - history of Tech in Europe and how start-ups and investors are making up for lost time, leading to an ever maturing ecosystem, with significant reasons for optimism. Finally, we discuss the increasingly intertwined destinies of US and European Tech.Navigation:Intro (01:33)Section 1: Framing the European start-up and investment landscape (02:20)Section 2: Investment Approach in Europe (17:18)Section 3: Movements from US to Europe (51:19)Section 4: Movements from Europe to US (59:02)Conclusion (1:05:39)Our co-hosts:Bertrand Schmitt, Entrepreneur in Residence at Red River West, co-founder at App Annie, business angel, advisor to startups and VC funds, @bschmittNuno Goncalves Pedro, Investor, Managing Partner, Founder at Chamaeleon, @ngpedroOur show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news Subscribe To Our Podcast Intro (01:34) Nuno: Welcome to episode 27 of Tech Deciphered. We're going to address the tech landscape in Europe, focusing on the investment landscape, as well as the startup landscape, we will go into the typical entrepreneurial approaches as well as investment approaches in Europe, the mindsets, the tactics, the profiles, as well as the typical exits, we will then deep dive into the present state of Europe and how we see it evolve over time.  
 Bertrand: Thank you Nuno, good to be here today with you and to discuss this fascinating topic for us, we are both Europeans. Obviously I'm French, you're from Portugal. We have seen the European landscape changing dramatically over the past 20, 25 years. So that will be very exciting to talk about this. 
 Section 1 - Framing the European startup and investment landscape 
(02:20) Bertrand: I guess maybe we can start about controversies that happened a few months ago in June when The Economist had a big cover on the state of the investment in Europe and how Europe was really not doing much in the tech industry. interestingly enough, there was a quick swift reply from the founder and CEO of Stripe Patrick Collison, who is not just running Stripe from the U S but he's also a European citizen being Irish  
 Nuno: Yeah. His comment was basically saying, all of the points that you raise are great, I think you haven't really shown the case for optimism right? Where there's a lot of great successful companies coming out of Europe. He was mentioning a few that, are obviously runaway successes, like Spotify, Klarna, N26, UIpath, wise and a few others. 
 And he also obviously talks about Stripe and its role, although Stripe is more of an American company, to be honest, but Stripe in its role in working with very innovative companies in Europe as a counter position to the economists headline and main articles in that edition. 
 So to be honest, I think he is onto something in saying there is a case for optimism that wasn't duly manifested in that edition of your magazine or newspaper as they call it. It's very funny cause they call the economists still the newspaper, although it's in my view of magazine.  
 Bertrand: Maybe you want to restate the position of the economist. 
 Nuno: Yeah. The position of the economist is that basically the U S has taken over, right? You have companies like apple that are worth more in their view than 30 firms in the German blue-chip Dax index combined. Obviously we have Amazon, we have Microsoft, we have Google all these are multi-trillion dollar companies now, actually. 
 And so their point is, in some ways, Europe has lagged behind. I think their point was very focused also on the old Europe and where, even the big emerging tech winners, like SAP took a long time to get to fruition, took a long time to get to a certain scale. Whereas it seemed like magically in the US, they popped up not just like mushrooms, but they also got to valuations that were ridiculous much faster. 
 So that was their position. I don't think their position is totally wrong in some ways. And I believe it was an editor letter actually. So it was a letter to the editor by Patrick Collison, I guess if it wasn't Patrick, they wouldn't have published it. But it was a letter to the editor where he was saying well, you sort of missed the optimism case. And we will talk about it a little bit later in our section two and beyond, that there is definitely a lot of great stuff happening in Europe in terms of investment landscape ,startups swift changes in mindset from everyone concerned, all the key stakeholders around government, venture capital, private equity, the entrepreneurs themselves. So all of that I think is a case to be made. 
 So it was a little bit of a semi controversy because the economist's obviously is incredibly well-respected, and rightfully so, publication, and Patrick is also a very well-respected entrepreneur, very smart, very sharp someone who's blazed the nuances very well, obviously with a very successful company in Stripe. 
 But at the end of the day, I feel the case we're going to make around the European landscape is a little bit along the side of Patrick, there was a lot of optimism to be had around what's happening in Europe.  
 Bertrand: Definitely. And let's not forget Stripe might be the highest valued private company in the US at this stage. I'm not sure what's the latest private valuation, but it's a biggest as far as I know. So he's not any random entrepreneur, it's not any random company. And for me it felt, what the Economist publish was a vision of Europe five or 10 years ago. It's a vision you could have of China maybe in 2000. But without thinking, where is it going? And we will see the landscape in Europe has changed dramatically in the past five years. And it's not coming from nowhere obviously there was a gradual buildup over the years over decades. 
 Let's not forget how many engineers, scientists are trained in Europe. So there was a huge base of talent that was in Europe, but that was not directed towards entrepreneurship, towards tech. Europe is starting from I would say a very strong base and we will talk more about it. 
 But yeah, I think there has been a dramatic change in trajectories in the past five years. I am personally pretty optimistic about where this is going. And actually these are some data points where you could argue that Europe is actually is the next big thing after US, after China. It might be Europe that's next in term of how many unicorns are being shaped. Obviously we don't just want to go to unicorns, but to real exits. Be they IPO or acquisition. And that might be the one piece that's still a bit missing from Europe, but we can talk more about that later. 
 Nuno: And dipping a little bit into the past. And I won't go into the fact that I actually met John, Patrick's brother, and still very much involved in Stripe at a panel many moons ago and failed to invest in Stripe. So that's definitely very high on my list of antis. So I won't go into that. 
 That's still very sore but going into the entrepreneurial approach in Europe and what it has been over the last few decades, if we go back in time, Europe in some ways was built on small and medium businesses. If we look at the best of the best the real companies that are the backbone of Europe we typically talk a lot about the famous mittelstand companies in Germany, the sort of small and medium business of Germany that really fuel the economy and that whole engine that, obviously some of them are cyclic some of them are not so cyclic, but that of which stood the test of time, but rarely we've associated Europe with fundamental entrepreneurial behavior from a very high risk-taking perspective. 
 If we look at the origins of a company like SAP we see it as almost like an emergence of a really good software house that then at some point figured out that there was a productization around that they're doing. And then maybe a couple of decades later just hit product market fit at a scale, probably never before seen in Europe and went to that next mile. 
 So this whole notion of very rapid growing tech companies, startups, is a little bit more recent. The entrepreneurial approach in Europe has been to businesses that are self-sustaining. Normally relatively revenue generating even from very early on in the development of the company, which is, we will go back to that when we talk about the investment approach in Europe in the past versus today, is very different from the U S so this notion that you start making money earlier, that almost you're like cashflow positive earlier, that you need to generate cash earlier. And this is not only true in B2B. It's also true in B2C, which has been actually a big issue in particularly in consumer plays in Europe, because there wasn't that much of a focus on traction and retention engagement of users. 
 Actually very early on there's a focus on monetization. And so the entrepreneurial approach has been very much around that, around building solid businesses relatively early on. And there's nothing wrong with that. The problem is when you're building very solid businesses early on, and you're very focused on monetization and making the company profitable, you're missing growth. 
 You're not being as aggressive on, on growth as you should be for reasons maybe Bertrand you want to talk a little bit about, but certainly that is very different from sort of your classic, in particular Silicon Valley / Bay Area, company that thinks through growth in a very different way, thinks through profitability in a very different way. 
 Profitability is something that will emanate later on, product market fit is not always linked to profitability. It's actually in many cases,...