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Factors that act(ed) as drag on the European tech/startup scene
- PeterStuer 3y agoNo reserve currency status is what lies at the root imho. Hard to compete with free money. Also, in this climate regulation and local market heterogenity create specific local niches in which many startups can initially thrive.
- AlchemistCamp 3y agoThat's a fairly weak excuse, IMO. Neither Singapore and Israel has a dominant currency, and yet both far, far outperform EU countries of similar size. The problem is cultural and, as a result, the regulatory environment.
- disgruntledphd2 3y ago> Neither Singapore and Israel has a dominant currency, and yet both far, far outperform EU countries of similar siz Can't really speak to Singapore, but Israel gets way more funding than basically any country in the EU. Now, a bunch of that is because it's had more successful startups and have been doing it longer, but some of it is extremely large investments in the country from US VCs.
- AlchemistCamp 3y agoIt's part of a VC's job to go where investments pay off. Israeli startup investments have had an excellent ROI in aggregate, so of course foreign VCs go there. In contrast, the EU's regulatory environment is extremely difficult for startups. I have multiple entrepreneurial French and German friends who have told me their businesses (which they started while living in here in E. Asia) would have been impossible to do in their home countries without significant starting capital. In fact, three of them incorporated in Singapore, despite living elsewhere. Forming a US business via Stripe Atlas or Firstbase is also common and relatively painless, especially if it's an LLC.
- PeterStuer 3y agoSingapore is hardware focused, not easily transposed to the US. Israel's niche is defense and surveillance. Given Israel's extreme ties to the US, it is convenient to have these outside of the judiciary but basically under US agency.
- nugget 3y agoI’d say brain drain is the root problem. It’s hard to build a competitive ecosystem when the most ambitious and skilled people move away. From Europe, they move to the US. From within the US, they move to one of a few cities, most notably San Francisco.
- tommiegannert 3y agoThe brain is probably draining because there's more money available, though, linking your answer to the parent's.
- ta988 3y agoThere is a brain drain because there are little to no opportunities if you are skilled and less skilled people keep trying to push you down the ladder. If you stop people from moving, they will grow discontent and will probably not be working in tech anyway and prefer a more sane environment. I don't think most U.S. people realize how bad, inefficient and crooked the tech scene can be in some countries.
- alexashka 3y agoHow do you explain Russia's success in tech?
- cherryteastain 3y agoAgree. This whole "EU is too fragmented/too risk averse" rhetoric in my opinion is insufficient to address why other advanced economies (Canada, Australia, NZ, Japan) also had regressions in the competitiveness of their tech sectors like Europe, and why US weaknesses don't seem to hold US businesses back. In the end, it all boils down to whether you can get the $$$ to build at scale, and US businesses can get the most $$$ because US controls the world reserve currency (cf. Seigniorage). It's not surprising that the start of US outperformance correlates with the beginning of massive QE in 2008.
- kyriakos 3y agoThe example countries you mentioned also have much smaller populations than EU and USA which may be a different limiting factor.
- cherryteastain 3y agoJapan has a fairly sizeable 130m population. They used to have the world's most advanced tech industry in the 80s/part of the 90s. Also do not discount Canada. At almost 40m people (comparable to say, Spain), access to US+Mexico market via NAFTA and a historically strong tech sector (Ati, Blackberry etc) you'd expect them to be very strong. However, despite these strengths, today Canada's tech sector pretty much devolved to a nearby location for US companies to temporarily relocate employees that had H1B issues. Canadian-origin tech companies are now basically gone from the big leagues.
- ghaff 3y agoIn the 80s, the rhetoric was that Japan was going to buy everything. And, if not the most advanced tech industry, a very advanced one.
- LAC-Tech 3y agoI'm from NZ. It's also risk averse, and a single economy and currency of 5 million people 2100km away from any other economy of note sounds a lot more 'fragmented' than anything in the EU.
- deleted 3y ago[deleted]
- miguelazo 3y agoThe reserve currency/low cost of capital angle is huge.
- Aloisius 3y agoThe Euro is a major global reserve currency.
- disgruntledphd2 3y ago> The Euro is a major global reserve currency. It really, really isn't. Like, how many Euro bonds can I buy today? Compare to the size of the treasury market. The Euro could certainly be a reserve currency, but a majority of eurozone members don't want the tradeoffs that would come with that.
- dukeyukey 3y agoAs true as that is, the Euro has about a 20% market shares of countries' forex reserves, quite literally making it a major reserve currency.
- disgruntledphd2 3y agoYeah, I figured that someone would respond stating something like that. It's nowhere near the dollar, but it is a strong number 2 (because people buy lots of stuff from the Eurozone).
- PeterStuer 3y agoTry buying oil in Euros.
- golergka 3y agoWhy would it be hard for an american investor with "free money" to invest it in European startups, if there were no other reasons for them to be a worse investment?
- PeterStuer 3y agoThey do, and even more so they just outright buy the succesfull ones.
- golergka 3y agoThis kind of contradicts your original comment where you claimed that the free money is the reason for this discrepancy. But if american investors would be able to use this free money for american and european startups, then they would compete on common capital market and this difference wouldn't matter.
- PeterStuer 3y agoThey are bought and transposed, turning them into succesfull US startups or absorbed into US corporations.
- robertlagrant 3y ago> Also, given that this post has a strong resonance with extreme "anti government" and "libertarian" types, please be aware that I am very much on a different area of the political spectrum (centre-left, somewhere where the social democrats used to reside historically in Germany). I am strongly in favor of good and competent regulation to ensure markets function, competition works, and customers are protected. I think this is a really good thing to add, other than the word "extreme". I see so often, even on HN, that more regulation would be a cure-all. I'm not against regulation either, but there is so much of it in some areas, and the practicalities of proving compliance so onerous, that it slows things down massively. And once your product is certified, procurement of your product is also extremely risk-averse and often department members over-interpret all the regulations they have to follow, also take a vast amount of time and expense to green light a purchase. Anyway; rant over. I will continue making regulated products because I love the impact.
- deleted 3y ago[deleted]
- bwanab 3y agoTo the cultural point I'd add one. I'm an American who worked in Europe in the 2003-2004 era for an American company managing European developers. There was a very strong feeling - as in much stronger than I'd ever experienced in the US - that for a successful career, one had to get out of programming into management. From European upper management types, I had the strong feeling that they considered programmers to be glorified typists. Except at American companies, pay for developers was abysmal comparative to the US.
- nudgeee 3y agoGranted that was 20 years ago, many orgs offer IC tracks now. Pay is still lower compared to US based roles. Same goes for Australia, where I studied and worked in the mid-2000s. The expectation was to work for a few years with the intention to move into management.
- cbozeman 3y agoWelp, there you have it... The beatings will continue until wages improve.
- mrj 3y agoI've been bought out by a French company twice in my career and worked closely with developers in Paris for years, and at least in my experience, this is still very much the case. There wasn't a track for senior IC and at the time I was a Principal Engineer who had reported directly to my (exited) company's CTO. I was used to pretty much free range, being treated as equals to the front line management. Paris managers didn't know what to do with me, why this keyboard jockey kept requesting meetings and taking on projects. One manager treated me like I was lost and even tried to add me to his Jira board. After quite a few conflicts I finally asked for a title change. Boom, instant cred, no more weird issues. Super generalization of course, but my experience was harsh and blatant. I could tell a lot more stories to back it up mainly because I thought it was so odd.
- ianmcgowan 3y ago
- LAC-Tech 3y agoIt's a shame because Europe seems to have top notch compsci research. It's not like there's not talent there.
- justajokerelax 3y agoDesigned in America Made in China Regulated in Europe
- toyg 3y agoGlobalization in a nutshell.
- jez 3y agoThis is the first I’ve heard the point that it’s hard to give employees equity at EU-based startups. - If you’ve worked in tech in the EU, can you share examples of this affecting you? - Does this also extend to US companies that want to give equity to EU-based employees?
- braza 3y agoThe main issue in the article is that the author assumes that those factors "drag" EU startups, but as others pointed out, there are fundamental differences in values, cultures, and principles between those places. > - If you’ve worked in tech in the EU, can you share examples of this affecting you? As I have worked in both ecosystems, some things that I have on top of my mind are: 1) The taxation on unrealized stock options: For me, it's the worst. Roughly speaking, if you have stock options, you have to pay for the appreciation of that stock, even if it is an illiquid asset. And since in Europe we do not have some clear equivalent of 409A, it's a no-go to pay for something that has no intrinsic value. 2) Salaries: Since companies cannot pay with SO, some of them use some synthetic mechanisms like phantom stocks or virtual stock options, but all of them have a small issue: The returns are not so great, maybe 1.05x-1.10x. It's better to be in a big company with a great upfront salary than to run for something that will not provide even a 20% downpayment on a house. 3) Low payment with no learning: People underestimate this aspect, but for me, startups are an environment to deliver and learn at the same time with some cap on the salary. In the US, this is not something controversial, but here in Europe, I know startups where the average developer cannot even choose to work on a Linux workstation and most of the founders have little knowledge of how 4) Talent density: The tech diversity in talent is great here, and it's awesome to work in a multicultural environment, but the problem is that, at least in some places in central Europe, the talent density is not as great as some places in the USA, especially in cultures where the least denominator reigns in terms of accelerating and fostering talents. It's more or less the Procustes bed: if you're short, they will stretch you out; if you're big, they will cut your legs. 5) Talent culture: This is a big difference that I see in comparison with the US. Most of the founders in US see developers as expensive talent but they fundamentally understand that without 6) Low probability of exit; more likely to go and be acquired: Self-explanatory: no one will run to build something that will end up acquired by some other tech company in central/western Europe or have a very low probability of exit. I saw cases where a scaleup was just afloat and meanwhile, the founder and the executive team were enjoying the nice things in Europe while underpaying people with illiquid, non-valuable stock 7) A secondary market is non-existent; most of the contracts do not have the right of first refusal. Once you have this illiquid asset/liability in your hands, it's almost impossible to get rid of it. Due to the cap-table structure here in Europe, there is no culture of selling shares outside.
- EdwardDiego 3y agoSure GDPR sucked for adtech, I was working for an EU adtech company when it came through, it took a year or two to ween the BAs and bidders off their addiction to the previously finely detailed user tracking. But GDPR encapsulates rights consumers deserve.
- isodev 3y agoThese days you can ever hear folks asking questions like "do we really need to collect that" or "can we make it so we never have to process this bit of information" which, in retrospect, should have been the default for the tech industry.
- danjac 3y agoDespite these factors, the US has actually less social mobility than many European nations e.g. https://www.weforum.org/agenda/2020/01/these-are-the-10-countries-with-the-best-social-mobility/ https://www.weforum.org/agenda/2020/01/these-are-the-10-coun... When wealth is inceasingly locked up in dynastic families, they will try and control the legislature and economic system to maintain their privilege and stifle innovation from upstarts. This is the problem Europe traditionally has struggled with, and it is saddening to the the US fall into this trap. So while Europe has a lot to learn, the US is not exactly trending in the right direction. Perhaps this is why much of the current generation of VC is hype-driven, pump-and-dump schemes and attempts to create monopolies rather than genuine, long-term innovation.
- opportune 3y agoThose are income-based and the quoted generational figures look at mobility from poor to median, not median (or above median) to rich. I would like to see these figures for wealth. I have a hard time believing it’s easier to climb from the top 20% to top 1% of wealth in any European country vs the US or China. Wealth is a more consequential measure of socioeconomic status than income anyway.
- dukeyukey 3y agoAt a guess wealth is _probably_ quite a lot worse - average American wealth is very high (~ $551k), but the median American wealth is quite bad (~ 107k, on par with Spain or Italy. Whereas median British wealth is $151k and in Canada it's $131k. But once you remove sterotypes, what makes you think it's easier to climb to the top in America?
- procgen 3y agoI'd be interested to see a comparison of the median wealth by age bracket.
- opportune 3y agoYou're still focusing on median which I think is a valid measure on its own but not wholly representative of mobility at all. I'm personally very biased, but I think social mobility is most important between upper-middle (usually the most educated and hard-working) and upper-classes because that's where the most value creation happens, and personally I think that it's much more motivating to have a chance to become very wealthy than it is to increase your income by $10k > But once you remove sterotypes, what makes you think it's easier to climb to the top in America? We have lower marginal income taxes, self-funded retirements, and proportionately less capital tied up in generational assets like buildings. My impression of the EU is that most of the upper class and upper-middle class are land/building/family business inheritors, whereas in the US equity in large businesses take a larger share of the upper/upper-middle class asssets.
- isodev 3y agoI think many of the listed factor are, in fact, advantages. For example, the cultural differences - the author forgets that most europeans speak two or more foreign languages. Thanks to the EU frame legislation offering products and services across borders is not only feasible, but quite painless compared to the challenges you'd face trying to setup shop in just any foreign nation. When it comes to labor laws and privacy, they're practically invisible as long as you Do The Right Thing.
- tschwimmer 3y agoYour point about languages and cross border regulations may be true, but is doubly so for the United States. In some (narrow sense) the US is like a highly devolved EU - you have 50 different countries but they all speak the same language (not even really different dialects), use the same currency and largely have the same legal requirements for technology firms.
- isodev 3y agoYeah that was kind of my point - there is no significant friction to expand as a business across the EU.
- nvm0n2 3y agoThat's clearly not true. To take just one example, US states all exempt small businesses from dealing with sales tax until they cross a threshold even for foreign businesses. EU does not meaning that if you make even one single sale of even a very cheap thing to a single German or Spanish, you are expected to actually fill out VAT returns in Germany and Spain, regardless of where your company is actually located. Of course this is impossible as they are all in languages you don't speak at minimum, so some countries provide what they call a "mini one stop shop" where for a fee the local government will fill out the tax returns for you. But not everyone selling to Europe has access to such "MOSS" offices, and naturally they don't work for free. There are also insane rules for working out which country gets to claim a sale. Including for example what to do in cases like someone buying something whilst on a boat. Obvious solutions like thresholding are not interesting to the EU. Brussels doesn't really care about startups and sees them as a curiosity. If they can extract another few billion from Google or Amazon at the cost of sacrificing millions of startups-to-be across the continent, they will do it in an eyeblink.
- dehrmann 3y ago> in the US, you build a product and you tap into a market of 340m people For better or worse, California is changing this around privacy regulation. It already did it for car emissions. Well-crafted rules can drive industries to change. Poorly-crafted ones can scare them away.
- FullyFunctional 3y agoGood list, but as a european in SV I’ll share my $0.02: I’d distinguish “how SV started” from “why it persists”; there are some excellent histories of the genesis of SV and what perhaps few understand is that it wasn’t an organic accident but a very deliberate effort by DARPA to forster this environment of easy funding. Without this SV would still be orchards. Of course why it still endures despite the eternal “SV is over” proclamations are everything he lists. In France, initiatives are very often top-down - bureaucrats invent a project and try to rally organizations. Even when it works, it’s almost alway useless and fizzles. In Denmark I saw more SV mentally but the economic and tax climate is such the big rewards are heavily neutered.
- zer00eyz 3y ago>In France, initiatives are very often top-down - bureaucrats invent a project and try to rally organizations. Even when it works, it’s almost alway useless If you do this in the us you get Shockley -> Fairchild -> Intel OR Engineering Research Associates/Univac -> Control Data Corporation -> Cray Research If you put a bunch of smart people together, and manage them like shit, they will go start their own company in the US.
- zer00eyz 3y agoWhats missing: Employment law: US makes hiring and firing much easier. Ramp up, ramp down, get rid of a bad employee as needed. Not that easy in EU Intersection of culture and stock: In SV, its all about skin in the game. Its an incentive to skip vacations, and work late. When you have the notion of a massive pay day it can be motivating. I dont know many folks from the EU who skip vacations... China tried to just make working insane hours a rule (996 culture). It did not give them the desired results.
- isodev 3y agoYou mean in the US it's easier to exploit people?
- zer00eyz 3y agoIm sorry where are the exploited tech workers in the US? Then there is this gem from the article: > In many European countries, running a limited liability construct into insolvency effectively bans you from running another one in the foreseeable future. The mentality of "start a company in your 20s, and if you fail, you can either try again or get a job" wasn't a thing. So we are operating from a risk-averse base, due to a labor market with then-sluggish job creation and strong incumbent effects.
- isodev 3y agoThe fact that the parent comment believes people would overwork themselves if you provide the right "incentive" (translation: bully them into an economic situation that makes them want to keep their job or else...). Not taking vacation, working overtime etc are all signs of unhealthy work environment. It's not something to cherish, it's something that tells you your business is need of adjustment.
- zer00eyz 3y ago>>> Not taking vacation, working overtime etc are all signs of unhealthy work environment. If I worked in a factory, sure. IF I own my business, if I have a stake in what is going on then NO, none of these things are a sign of "unhealthy". I want to be rich and I want to punch the clock will forever be antithetical as long as there is someone more ambitious than someone else.
- p-e-w 3y agoLike most articles on this topic, this one makes the implicit assumption that Europe not having grown huge tech corporations that rule over people's lives is a problem, rather than an accomplishment. Kind of like assuming that there must be something wrong with urban planning in Paris or Berlin, because there aren't any skyscrapers in those cities. The first and foremost purpose of a state is to enable (all of) its people to live safe, prosperous, and dignified lives. Europe is light years ahead of the United States in that regard. Until proven otherwise, I treat every cultural and regulatory difference between the two places as a contributing factor to that, rather than an obstacle to be overcome. The US is a nightmarish country to live in, unless of course your wealth is significantly above average.
- csdvrx 3y ago> Europe is light years ahead of the United States in that regard. The available data doesn't support your conclusions: > Until proven otherwise, I treat every cultural and regulatory difference between the two places as a contributing factor to that, rather than an obstacle to be overcome. The US is a nightmarish country to live in, unless of course your wealth is significantly above average. Their richest country is slightly richer than our poorest state, even if comparing GDP per capita. > Kind of like assuming that there must be something wrong with urban planning in Paris or Berlin, because there aren't any skyscrapers in those cities. Skyscrapers are expansive, while Europe growth over the last 20 years has been only a fraction of ours. > The US is a nightmarish country to live in, unless of course your wealth is significantly above average. Then why do we have a net immigration from Europe, instead of a net emigration? What extra evidence do you need to recognize that poorer countries, with fewer opportunities than we have, less infrastructure (skyscaper...), and an active immigration to the US are maybe not good places to live? People voting with their feet is the only indicator I'd trust.
- p-e-w 3y ago> Their richest country is slightly richer than our poorest state, even if comparing GDP per capita. I consider such economic figures to be at best a very loose correlate to quality of life, and thus essentially irrelevant. > Then why do we have a net immigration from Europe, instead of a net emigration? Because the vast majority of Americans have no idea how much better life can be in Europe, especially for average people. > What extra evidence do you need to recognize that poorer countries, with fewer opportunities than we have, less infrastructure (skyscaper...), and an active immigration to the US are maybe not good places to live? I don't need any external evidence. I have personal experience living in both places.
- laydn 3y agoI've read all the comments and looks like no one has mentioned this, but as someone who worked a total of ~25 years, on both continents (10+15 years), I have the following observation, and it really is a simple one: American hardware/software engineers work really, really hard, compared to their European counterparts. Given identical goals, same level of funding, same underlying tech, and similar market size, a US startup will almost always be more successful then its European counterpart, simply because of the difference of total amount of work done in a given month/year. I've worked with outstanding people in both continents. Top-notch, impressive engineers. I can easily say, the output of my US colleagues were significantly higher.
- twothreeone 3y agoLess experience overall (5+5 years), but I strongly agree. I think the main reason for this are the incentives, which halvarflake mentioned briefly in his post.. if you can directly affect valuation of your company (which in turn directly drives your own net worth through ISOs/RSUs etc), working hard actually becomes fun and rewarding. Take that away and a 10-3, 4 weekdays, 60+ days vacation, work life balance kind-of-job starts looking a whole lot more appealing in comparison.
- deleted 3y ago[deleted]
- nvm0n2 3y agoYes and now compare to Asia... one of TSMC's complaints about how hard it is to run a top-tier fab in the USA is that Americans don't work as hard as Taiwanese people do. So compare Taiwan to Europe and imagine the gap!
- cookiengineer 3y ago(In response) 1. These are not separate markets. Incorporate in Germany, calculate the added value tax differently, add some i18n to be sure, and that's it. Trade union ftw. Your online SaaS product is pretty much the same everywhere. Where things are getting complicated is different taxes for different types of products; so in general the trade of physical products. 11. A lot of VC funds use the structure of a Kommanditgesellschaft (GmbH & Co KG) because they cannot be taxed once the shareholders move to a different country. This avoids the potential double taxation problem. Gmbh & Co KG > Holding GmbH > Operative GmbH is usually the tax layout. But I agree, it's a burden for startups that cannot afford to waste 80k + legal fees just for the legal setup. What I like to add to the problems: - capital is owned by banks, not by tech VCs and neither by tech people that got rich by doing tech stuff in the past. In a state wide competition, the best voted startup was doing an online email phishing presentation for corporates. Place number 2 was a hobby baker that needed a second oven. (Not kidding you, it's _that_ absurd). All startups with actual potential in terms of scalability and impact usually get lost in the first pitch competitions in the lower ranks, and they cannot get up because the regional village bank manager who is part of the jury doesn't know shit about computers or smartphones. - usually the incentive for lead devs or early engineers to join the startup isn't existing. If you cannot pay a competitive salary (which you can't as a startup) they won't join, or rather go back to their cushy consultancy jobs. - ...which leads to the next problem. A lot of people abuse startups as a jump in their career path, where their immediate goal is to work for "the big five" which are consultancies like KPMG, Accenture, PwC Global and the like. Those types have grown in size over the last years and the response usually is "I heard this is how to get hired by them..." - angel investors are a joke here. The offers are as ridiculous as "20% for 50k", because they have no idea how quickly a software dev can make that kind of money while freelancing. And they specifically target early stage startups fresh from university. It's almost a scam scheme.
- dougmwne 3y agoI think this list misses the biggest reason of them all. Europe is very culturally different from the US. There is no European dream and Europeans do not, as a rule, desire to move beyond their station in life. The culture is obsessed with appearing rich, but does not value actually having money. Money is somthing you are born into, not something you try to make. The aristocracy still quietly runs the show and the technocrats know better than the dirty populists. The culture does not value the kind of bullshit that makes hype cycles and gold rushes. Moonshots are the kind of high risk endeavors best left to the people who actually went there. The flip side of this is that instead of being obsessed with success , dreams and money, Europeans focus on the human and how best to live, which explains all the attempts to legislate a better world rather than build it. Live in Europe, invest in America.