Not in the Valley? At Least Compete With It

Written by Guest Author / July 26, 2009 11:00 AM / 12 Comments

This post is part of our ReadWriteStart channel, which is a resource and guide for first-time entrepreneurs and startups. The channel is sponsored by Microsoft BizSpark. To sign up for BizSpark, click here.

The following is one in a series of guest posts by venture capitalists that we're running on ReadWriteStart. This one is by Paul Jozefak, a VC based in Hamburg, Germany, who used to run SAP AG's European venture activities and is now a managing partner at Neuhaus Partners. The original post can be found on his blog.

One way or another, I've addressed the question of "Where is the Silicon Valley of Europe" a hundred times, be it in interviews, in blog posts, on Twitter, or on panels. Ultimately, there isn't really a "Valley" in Europe, only some places kind of like it. If you want my ideas on that, I have other posts on the topic.

Yet, if you are an entrepreneur in Europe, don't forget that the Valley exists. Measure yourself by "Valley standards," not just by your peers in Europe. It irks me a bit when I speak with start-ups that compare themselves only to local competition. So often I will hear a pitch and ask what the company's competition is in the US. Often enough, the answer (unfortunately, never directly) is, "We haven't taken the time to figure that out yet."

If you share this approach, you'd have to be nuts. There is likely an entrepreneur in California who would have, if need be, swam to the US and worked four jobs for the money to launch their venture, without giving a second thought to "quality of life" or "spending time with the kids." Think what you like about that entrepreneur's priorities in life, but don't doubt that they'll enjoy crushing you if you're competing against them.

The Valley may be sunny and inviting, but everyone is there to win. Those who aren't tend to pack up quickly. Those who stay and continue to start up or finance new businesses have the loftiest of goals. They're probably not all about the money. Sure, they enjoy the perks of an exit, but my experience is that a lot of people in the Valley are out to change the world, or at least try. You hear it in their pitch and you see it in their eyes.

Ask me what I see lacking most in startups in Europe and I'll say hunger, drive, and lofty goals. The few that have it you recognize immediately. They usually end up succeeding quickly, and you chase them to invest in their companies. Those who don't have it probably never will succeed. It's not about being "American," which is another argument that is often made. The Valley is made up of people from every corner of the earth. Each and every startup I have visited there was a pot pourri of backgrounds, often European.

So, do we need a "Valley" per se in Europe? No, who cares. It's only a term. Do we need entrepreneurs who are hungry, who are passionate, and who aim high? Yes, and to remain competitive and know where to aim, we have to know what our true competition is.

Read Paul Jozefak's last post on ReadWriteStart: What Should You Ask VCs?

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Comments

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Paul -

Nicely stated. I think that many people have the opinion that Silicon Valley is magical and will somehow ensure the success of your start-up. What it DOES offer is a huge infrastructure to support the initiation of a new business - from VCs to law firms to PR firms. That said, I think this infrastructure also tends to make it easier to start up (and be supported) some really, really bad businesses.

On the other hand, if you are in a place other than the SF bay area, you have less of a support structure around you. I tend to view that as a good thing - if you can get a start-up up and running WITHOUT the benefit of that enormous infrastructure, you've got something special. In my case, I've made it a point to try to connect with some of the Boulder, Colorado-area support structure, but otherwise have been going it on my own. Had I been in the SF area, I likely would have sought out VC funding and ended up with a very different business model. I'm actually quite happy that my lack of proximity to SF forced me to make the tough decisions that I did.

Posted by: Kevin Smith | July 26, 2009 11:22 AM

Hi Paul!

Thanks for writing about the German/European startup scene. There are not many people in Germany writing meaningful things and provide some insights.
After I left SAP I experienced everything you mentioned here. Also I swam to the valley to see how people do this VC thing which was like an injection in the end of how to change the world. BTW it was much easier to get funding in Germany adfterwards.
The lack of information which is provided here in Germany about how to do this makes it very difficult for companies. In the meantime every week people visit our office to ask what to do to get VC, how to write a business plan, what is angel capital etc.
Especially the businss angel as first investor is unknown. Nearly everybody tries to get VC from one of the big companies like SAP Ventures. I got help by your former colleague who told me how to do this right.
I hope that you will continue posting here!
Greets from the Rhine-Neckar region which is also one of these regions in Germany with hundreds of startups from IT & Biotech.

Posted by: Michael Altendorf | July 26, 2009 2:22 PM

A good post Paul!

Let me just add a few ideas:

1. I live in Czech Republic but am surrounded by Silicon Valley environment. I consume the leading tech/startup/socnet news on a daily basis. Most of conversations I join is in English. It is quite easy to jump in, be it Twitter, Facebook or FriendFeed, and "talk" (after you have listened carefully of course). This way I can keep up with the industry news and trends although I live in Europe.

2. I also believe there are many great startups in Europe overlooked by top VC funds. True, these businesses are harder to find thus it might be risky for VCs. On the other hand such smart and innovative European companies could generate higher returns for investors, especially the startups from Central and Eastern Europe built on cheap.

Posted by: Jan | July 26, 2009 4:47 PM

In my case, I've made it a point to try to connect with some of the Boulder, Colorado-area support structure, but otherwise have been going it on my own. Had I been in the SF area

Posted by: runescape gold | July 26, 2009 6:43 PM

In the meantime every week people visit our office to ask what to do to get VC, how to write a business plan, what is angel capital etc.

Posted by: rs gold | July 26, 2009 6:57 PM

@Kevin, I couldn't agree more!

@Michael you were very prudent to go to the Valley to get a sense of it and then come back. After having seen how things work over there, you're in a much better position to raise funding in Europe. A lot of the guys whom I have seen that did this were much quicker to get money.

@Jan the only problem with Eastern Europe and Europe in general is that exit multiples still remain lower than in the US. When the markets do come back, Europe will hopefully continue catching up but it'll still take some time. It won't happen immediately but we are all working to get there! :-)

Posted by: Paul | July 27, 2009 12:09 AM

As a French person married to an American woman, I have to say... it's sad but it's true.

I hope no one sees any racism or imperialism there, it's just plain true. Europeans value quality of life a lot more, and you can tell by the way they commit to work.

I'm not giving lessons to anybody, I feel like I'm lazy too.

Posted by: Mikael | July 27, 2009 1:07 AM

Great points Paul. Especially liked the following bit:

"So, do we need a "Valley" per se in Europe? No, who cares. It's only a term. Do we need entrepreneurs who are hungry, who are passionate, and who aim high? Yes, and to remain competitive and know where to aim, we have to know what our true competition is."

I think it's really important to note that it's not where you are, it's what you make of your surroundings and how passionate/driven you are about your business. I work at a startup located in Toronto and although it's not the tech hub of North America (or even Canada - that's Waterloo) we've built up a great community of like-minded people who care about us and our company. You can do that anywhere, but you're right, it takes time, effort, and a hunger for success.

Thanks!

Posted by: Erin Bury | July 27, 2009 7:46 AM

@Paul: I got the recommendation several times from people who have been there before. But with little money before you raise capital it is not such easy to spend xy percent of the money to fly to california and check who it works. Without good connections it would not have been possible or very expensive. And the risk is still there that is will not work.
But sure I will go back after summer with the finished product and have some coffees in cupa cafe. (where I was sent by a guy from Sequioa to find venture capitalists) and check our competitive position.
@Erin: What Europe needs is not a single region but better collaboration and connections between the different hubs in Europe.
The information is not as easy to get as in the valley and the conferences with these entrepreneur/VC visitors are not around the corner, not every week, but often very expensive as well compared to some latte macchiato in palo alto.

Posted by: Michael Altendorf | July 27, 2009 2:42 PM

thanks for article very

Posted by: nusret | August 1, 2009 1:37 AM

thanks for article very

Posted by: nusret | August 2, 2009 7:04 AM

Great post Paul!

I remember chatting with you about the fantasy of Barcelona being the 'Silicon Valley of Europe' last year. On the positive side - yes - this city has 300 days of sunshine a year, extensive flight connections to major cities & cheap cost of living & doing business.

However something no city in Europe can compete with is talent on a mass scale 'if you are building a global company that requires a global mindset'. Once you need to expand beyond 10 key people your talent pool is scarce.

Most European cities are great to incubate a start-up due to the focus, quality of life and minimal distractions. But when the tailwind catches you, it's wiser to be where your needs will be met - fast!

Posted by: Maria Sipka | August 16, 2009 1:24 AM