Why Europe Is Struggling to Foster a Startup Culture

The good news for Europe is not that risk-taking is significantly increasing there but that it is significantly decreasing in the US. JL

Tom Fairless reports in the Wall Street Journal:

European culture has long been unfriendly to entrepreneurs, valuing prudence, professionalism and leisure time over flamboyant risk-taking. Europe has yet to produce a single Internet company valued at more than $10 billion.
When Adrian Johnson saw a request for volunteers to speak at his children’s career fair, the high-tech entrepreneur jumped at the chance to explain his profession. But the school in Fontainebleau, France, turned him down.
“They wanted doctors or people who worked at BNP Paribas,” said Mr. Johnson, a Briton who has started Web companies in France, Germany and the U.K. “The idea of having a weird guy who started companies—they didn’t want their kids to hear that.”
As Internet firms push farther into the terrain of mainstream industries, from publishing to telecoms, policy makers in Europe are increasingly concerned about the lack of home-grown rivals to compete against dominant U.S. players like Google Inc. GOOG -0.43 % and Facebook Inc. Their solution: knit the region’s 28 national ecosystems together into a vast digital market that could become a breeding ground for the Web giants of the future.
But these grand plans may not be enough to overcome a European culture that has long been unfriendly to entrepreneurs, valuing prudence, professionalism and leisure time over flamboyant risk-taking.
That culture is a particular liability when it comes to the increasingly crucial high-tech field, whose culture and lore are wrapped up in startups, from Steve Jobs in his garage to Mark Zuckerberg in his dorm room.
Europe has yet to produce a single Internet company valued at more than $10 billion. Six privately owned startups in the U.S. are currently worth $10 billion or more, and two in Asia, but none in Europe, according to Dow Jones VentureSource. Spotify AB, the biggest private European startup, was valued at $8.4 billion in a fundraising round last month, according to people familiar with the matter.

“Before I went to Stanford I had never envisaged that entrepreneurship was a possibility for me,” said Frédéric Mazzella, the French-born founder of Blablacar, a ride-sharing network that is challenging the state-run railway monopoly SNCF.
Mr. Mazzella studied at the École Normale Supérieure, one of France’s elite “grandes écoles” that provide a fast route into big business and government. But while these schools spin out world-class mathematicians and engineers, experts say it is hard to persuade graduates to leave the traditional gilded path for the uncertain life of an entrepreneur.
“If you have a degree from one of these schools, your career is set for you,” said Mr. Johnson, who also works as an adjunct professor at the Insead business school.
The grandes écoles also teach students to “contest against others, with no right to fail,” said Marie Ekeland, a French venture capitalist whose investments have included the Nasdaq-listed advertising firm Criteo. “The digital world is all about sharing and working together, experimenting and failing,” Ms. Ekeland said. “This is the opposite of the grandes écoles.”
Across the Channel, Britain is home to some of the world’s most prestigious universities, but high-flying students gravitate toward the City of London, Europe’s financial hub. Less than 2% of British senior-year students aspire to join an IT company, while 20% want to join consultancies, accounting firms or investment banks, according to a 2013 survey by Loughborough University.
Germany has long venerated its so-called Mittelstand, the ranks of world-class mid-sized firms that are crucial suppliers to major companies like Audi and Siemens. But the Mittelstand is also “very slow, very risk averse,” said Christian Miele, a scion of the Miele group, which makes high-end domestic appliances.
Rather than join the family firm, Mr. Miele moved into the startup world and now works for the Bundesverband Deutsche Startups, a lobbying group.
He said he hopes to change the perception of risk in Germany, in part by teaching schoolchildren that “you can fail.”
“Americans are fine with selling something that is 50% done,” he said. “The German guy waits until it is 100% done.”
Only 2% of Germans aged 14 to 34 years old have started a business, compared with 9% in the U.S., according to a recent survey by the U.S. direct-selling company Amway Corp. and the Technical University Munich.
Jens Begemann is among the 2%. Six years ago he founded Wooga, a mobile-gaming company that has since grown to about 270 employees in Berlin.
Wooga hasn’t raised any new capital since a $24 million funding round in 2011, and it has been profitable since 2012, just three years after its launch, according to Mr. Begemann. “I don’t want to go much bigger,” he said. “The current size is a sweet spot.”
To be sure, the buzz around European startup hubs like London, Berlin and Stockholm has never been greater, and venture-capital investment in the region hit a post-dot-com high last year.
Investors agree that building a vast domestic market would help EU firms, and they highlight positive changes in Europe’s startup culture, driven in part by the arrival of investors and entrepreneurs from Silicon Valley.
Young German graduates used to bolt straight to McKinsey and Daimler, but now many are taking seed money and building companies. Even older workers want to be engineers at a startup, said Jason Whitmire, an investor with Earlybird in Berlin.
But the capital divide with Silicon Valley is still gaping. European companies raised €2.6 billion ($2.9 billion) from venture-capital funds in the first three months of this year. That was 41% more than in the previous quarter but just a fraction of the $15.7 billion raised by U.S.-based companies in the same period, according to Dow Jones VentureSource.
Peter Smith was forced to look outside Europe when investors he approached in London balked at investing $30 million in his bitcoin company Blockchain. He raised the money mainly on the West Coast. He says his company now processes transactions valued at $2 billion a month.
“Anytime you’re raising over $8-$12 million, you need to leave Europe,” Mr. Smith said.