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 “It’s cool to be in a startup there,” said Cralan Deutsch, a
44-year-old founder whose Rockstart-backed company has been ticking
over for a decade but joined the incubator for a revamp and access
to new contacts. “It used to be, I go to a party and I tell the
girls I’m in a startup and they walk away – that’s changing now.”
It’s an increasingly familiar story in Europe, where hundreds of
entrepreneurs have set up incubators that are adapting the Silicon
Valley model to fast-track new companies.
For Europe’s politicians, the trend represents an economic bright
spot, bringing life to disused office space, new jobs, and reflected
geek chic. One EU-funded study from March, by database Seed-DB,
estimated startups have created 3,500-4,500 jobs in Europe.
Few, if any, of these firms will ever be Google or Facebook. Some
will make money replicating successful ideas. Most will go nowhere,
neither growing nor failing but limping along. But every year
100-200 in Europe are bought by rivals or much bigger firms.
The value of those deals is often not disclosed, but where it has
been, the average purchase prices have jumped, suggesting that the
type of ecosystem found in California’s Silicon Valley may finally
be taking off in parts of Europe.
The $2.5 billion that Mojang, the Swedish game developer behind
Minecraft, collected from Microsoft earlier this week is far from
typical. But in the first eight months of 2014, more than 100
European venture-backed firms were sold to others in the industry.
The average value of each deal where a price was given - $420
million - is 80 percent higher than the 10-year average of $233
million, according to Thomson Reuters data.
Prices are volatile, and the number of deals is still far short of
the United States, but prices have been higher for European firms.
In the United States the average value so far this year, at $398
million, is about 70 percent up on the 10-year average.
The data is partial and no clear trends are discernible. Even so,
incubators like Rockstart – there are around 100 of them in Europe,
according to website tech.eu – certainly help feed the market.
Funded variously by private wealth, government support and
multinationals, they consolidate teams of talent and plug young
businesses into investment and expertise.
As incubators seed more ventures, they build an environment where
businesses can buy others, innovate and grow. That’s needed. Tech
talent is in short supply. The European Commission has said almost
half a million tech vacancies may come up next year.
“We’re not breeding startups to be bought,” said Rockstart founder
Oscar Kneppers. “We do see a growing interest in corporates in
getting access to startups.”
Bootcamps are no panacea. They may start things, but economists say
Europe needs more firms to then grow bigger independently, instead
of just becoming acquisitions. A recent report by the Economist
Intelligence Unit for Barclays Bank warned that the UK - far and
away Europe’s most successful startup hub – risked becoming “a
national start-up incubator supplying foreign multinationals.”
“The potential downsides relate to the negotiating ability of the
startups to get a good deal with the multinationals,” said Mike
Wright, professor of entrepreneurship at Imperial College, London,
who contributed to the report. “It could be that the startups
basically get screwed because the terms of the deal are very much in
the multinationals’ favor.”
“ROCK BANDS OF BUSINESS”
Seed and venture capital has financed young tech firms for decades.
Bootcamps like Rockstart offer added support, replicating a model
that started in 2005 with Silicon Valley firm Y Combinator, whose
700 alumni include Dropbox, Reddit and Airbnb.
In Europe, big names include TechStars London and Startupbootcamp.
Incubators have also been funded directly by multinationals such as
Telefonica of Spain, Deutsche Telecom and Barclays.
A few cultivate a celebrity vibe. Kneppers, a magazine publisher who
flunked journalism school in the mid-1980s, calls startups “the rock
bands of business.”
Each Rockstart incubator program is essentially an investment fund
which devotes 20,000 to 25,000 euros in cash to each startup and
takes an eight percent stake in each. This is split 25:75 between
the accelerator and its investors. It has had applications from 56
countries: firms compete for places. None of its potential returns
have yet been realized but on paper, it says the return on
investment on its two initial funds is about 185 percent.
It shares its canalside home in a 400-year-old former merchant bank
with an advertising agency. A poster marks the young companies’
shared space with the mantra, “I have not failed.” It’s a recurring
theme in many bootcamps. When things go wrong, accept it, change
your approach, and learn.
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The young entrepreneurs - many bearded and in headphones - tap away
quietly at laptops. An Italian snoozes in a beanbag after lunch. A
whiteboard carries graffiti mocking different founders or their
companies’ names.
The founders are a motley bunch. Deutsch, the 44-year-old now
impressing women at parties, grew up in 1980s Silicon Valley,
studied anthropology, and keeps a diary of his failures. Another
entrepreneur wants to teach children to code through an app called
Bomberbot – a play on an old Atari game, not combat drones. A third
has a Ph.D. in neuroscience and is building an e-learning business
around the theory that seven minutes is the optimal attention-span.
The businesses focus on a simple mantra: Find a problem, propose a
solution. Each team – Rockstart does not take on individuals - has a
wall poster with neon post-it notes in boxes, some reading
“high-level concept” or “unfair advantage.” Another piece of jargon
reflects the defining moment of many a startup’s career: “pivot.”
That’s what startups do when things go wrong.
Teams get a total of six months, including a trip to Silicon Valley,
at the shared office. “In 10 weeks I’m getting 10 years’ worth of
exposure,” Deutsch said. “If I wanted to raise 50k tomorrow I’d ask
a mentor and they’d arrange an interview.”
Roughly every six months there is a “Demo Day” where each cohort
gets to pitch their businesses live. Venture capital investments in
Europe are weak - running at $7.6 billion last year, less than half
their 2000 peak of around $20 billion – and Rockstart, like many
other bootcamps, hooks up with multinationals, including giants such
as Microsoft.
SECRET SAUCE
Though startups are hyped as disruptive and revolutionary, only a
few have totally new business ideas. Rockstart’s firms are no
different. Deutsch’s company, which generates sales leads from
tracking web visits, competes with one now owned by Google. Another
Rockstart company is a bit like crowdfunding site Kickstarter. A
business from Colombia wants to help traditional taxi companies
rival Uber, the car-sharing business that is encroaching on many
European markets.
Rockstart founder Kneppers and program director Rune Theill say the
lack of originality doesn’t matter: The bootcamp is more about
people than products.
Often, the people are the products. Many big companies buy startups
because they want their founders to work for them, bringing in
skills or innovative blood.
Italian Alberto Onetti runs a Brussels-backed effort to help
introduce startups to investors, particularly multinationals.
“The real secret sauce of Silicon Valley is not Facebook and
Google,” said Onetti, who also owns a mobile tech firm in
California. Instead it is the so-called ‘acqui-hires’ big companies
make each week, usually for between $5 and $25 million apiece.
Typically, the product is “thrown away.”
By fostering acqui-hires, Onetti said he is helping “the wheel of
innovation move fast.” If investors have an exit, they achieve
returns and are happy to reinvest. A startup that has been acquired,
if staffed by genuinely entrepreneurial people, will feed the
process and its founders will move on and begin again. Company
life-cycles are getting shorter.
Onetti said that concept has been slower to take root in Europe.
Europeans are raised to favor stability and security. But “Prince
Charming is not coming so we need to wake up the Sleeping Beauty and
say ‘come on, what’s your Plan B?’”
The lack of finance beyond incubators means few companies grow big
independently, and most end up selling. Riccardo Osti, CEO of a
Rockstart-backed e-commerce startup which recently sealed a 200,000
euros investment, thinks that’s fine.
“I mean, we all run these companies because of a passion about a
certain topic but, on the other side, we do this for business,” said
Osti. “I'd be happy to sell if a big brand would come and buy my
company, if they offer a very good amount of money.”
(Edited by Simon Robinson)
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