by Jonathan Gebauer (@jogebauer)
First, I need to apologize – this is a social media and marketing blog, and I constantly drift into the topics of startups and Venture Capital. But hey: I run a startup, I love running a startup, and I do believe that I have something to say.
Now – let’s get started.
I recently wrote an article about the availability of venture capital to German startups – or rather the lack of real venture capital.
I also recently came across this amazing and eye-opening article about the differences between startup fundraising in Europe and the US. In this article, Mathilde Collin, CEO and founder of Front, highlights her personal experiences when fundraising, both in Europe and the US.
What she experienced in Europe is not coincidental, it is part of a situation that we Europeans created for ourselves. We fell for a marketing campaign – led by VC’s – that can kill our startup ecosystem in the long run if we are not careful.
Wait… WTF? This guy is crazy! The startup ecosystem in Europe is booming everywhere, isn’t it? Go home with your conspiracy theories!
Startups get founded everywhere – but the money to start up simply isn’t available
I admit it, I fell for this myself.
If you have a good idea you will find the money to launch it, grow it and scale it. Right?
Wrong. Not here, not in Europe. Why?
Because there simply isn’t enough money available for all the startups that get launched. If you read Mathilde’s article you will find that the key difference between fundraising in the valley and in Europe is the sheer amount of money that is available for startups. Every single of her other differentiators can be traced back to this single fact.
In Europe startups compete for money, in the US they do as well, but VC’s also compete for startups. In Europe, VC’s decide who gets funded, in the US, they have to see that they can spend their money somewhere.
In Europe, VC’s make safe investments because they can, while in the US they are forced to take risks – invest because something could work and not because something already works.
Didn’t you say something about a marketing campaign? Where is your conspiracy?
VC’s want you to start more companies
Ok, calling it a marketing campaign might have not have done it justice.
But, VC’s in Europe have found a cash cow. There are many startups and little money. And they profit from that. And they want it to stay this way.
It’s like any profitable market – when you are one of the few in the market, you want to protect your position. So you invest in protecting it and you also try to grow your market.
So VCs tell us: If your idea is good, you will find a way to the money.
Nope, you won’t.
To find a way to the money in Germany – you need to be better than almost anybody else. Sure, you will find angel investments, small rounds, etc. But for every single € that gets invested, you need to give out more shares, show more ROI and survive longer than in the US.
Did you know that Soundcloud (yep, the most hip Berlin startup ever) had trouble raising an A-Round?
This is not a conspiracy – just normal market behavior.
So, they got their cash cow, right?
Right… not quite.
In the past, venture capitalists in Europe have not been performing that well. Some were running ok, many weren’t.
That is not really creating a situation where you would invest in risky business, is it. At least not when no one forces you…
The problem here is: Not many will, but at the same time, the VC industry on the whole level will never perform in the same way as it does in the US. No Facebook from Berlin this way. Just StudiVZ.
This won’t grow a healthy startup ecosystem.
Ok, you said less startups would be better right? Why? And, that wouldn’t really be fair, would it?
When we want to build a healthy and competitive startup ecosystem in Europe, we need less, not more startups.
Why? Business 101:
When you want to create a new ecosystem, you need to do something different and hopefully better than your competitors – in this case the valley. We won’t be able to compete on quantity, simply because the capital for that is not available.
So, let’s create fewer, but higher quality startups. Let’s create an ecosystem that has a balance between available capital and fundable startups.
I’m not saying that the available startups are bad – or worse than in Silicon Valley. I am saying: We simply need to be better than them.
That also means that not every developer with a simple idea needs to start his business. Before you dive in head first – start with your research. Assemble a team. A startup in the ecosystem that we should create (instead of the one that is there) should be more than just an idea and a developer.
That isn’t really fair, is it? Isn’t the whole point of starting companies that everyone should be able to follow his dream?
Less startups does not mean less founders
In an ecosystem like this, less startups doesn’t mean less founders. When you want to go big from Europe, you need a team. You need more than one developer. You need marketers and growth hackers. You need the sales guy. Content creators. …
6 Wunderkinder was not named by accident – when they started they were six founders.
If you follow my assumption that we need to build better things and scale faster than the Valley, you also need a better team – and more expertise on your team.
Today the typical startup team is a developer, or two developers. Or a “founder” and a developer. Marketers are hired later.
What could we achieve if instead of building 3 startups with one developer, we built 1 startup with a founding team of 2 developers, one designer and 2 marketers?
Sure, that means dividing the fame in case of success. It also means dividing the pain that comes before the success. And there is going to be a lot of that – I’ve been there. I am there. I would gladly accept dividing it a bit more (@Susanna: This is not criticism).
We in Europe are in for a lot more pain when we want to go big. So, let’s start working together.
And by doing this, we also create a balance between startups and VCs – we enforce an ecosystem that we all need and want. The current ecosystem in Europe is a joke.
Just a thought. Let me know whether you agree.