All in all, 2021 has been a great year for European unicorn creation with some media speaking of a ‘European unicorn boom’. To date, more than 70 European private companies have boasted a $1 billion plus valuation, bringing the total number of unicorns produced since 1990 to 296, slightly more than China.
But there’s still a long way to go. While Europe may be pulling ahead of China in terms of fresh unicorns, the US managed to mint 184 in the first eight months of 2021, with more on the way in the months after.
What’s one thing that could hold Europe back from competing in the unicorn market? A lack of ambition.
A recent report by Techleap.nl, a Dutch organization that strives to build a “thriving Dutch startup ecosystem,” and the University of Utrecht, found a startling paradox. Using data collected by the Global Entrepreneurship Monitor, they concluded that while the country has a high number of entrepreneurs, few have ambitions to grow their business on a larger scale.
The researchers behind the report posit:
Is the Dutch culture of ‘just act normal, that is crazy enough as it is’ limiting us? The Netherlands has become one of the best startup ecosystems in the world, but few startups transform into scaleups and unicorns.
“Ambition is something the country is going to have to attack if the goal is to grow more unicorns,” said Joe Wilson, a US native and CEO of Dutch company Risenu. He’s now one of Techleap.nl’s entrepreneurs in residence, providing mentoring for the organization’s Rise program cohorts.
Being from a country where ambitious (and at times cocky) founder personalities are the norm, Wilson provides a unique perspective on the very different Dutch ecosystem. He shares a story a Dutch scaleup founder shared with him that illustrates the problem with ambition in The Netherlands.
If you open one pizza shop, everybody in the room is excited. They’re like, ‘wow, that’s so great. Nice job.’ You open two pizza shops, and they’re like, ‘you’re doing so well. We’re so proud of you.’ You open three pizza shops, and they’re like, ‘why are you so fucking greedy?’
This isn’t a purely Dutch problem either. His Danish counterpart Nicolaj Christensen, Director of Digital Operations at Digital Hub Denmark, agrees, “that mindset shift is something that we’ve been struggling with.”
So how can we solve this success complex? The three gentlemen have some ideas.
Mentorship from previously successful startup founders
Maturity of the ecosystem is something all three national startup cheerleaders mention as part of the cause for the recent success of Europe. What this meant was unclear to me, until Christensen put it in very simple terms.
You had the first generation of founders who had to leave Denmark and go to the US to build their startup, companies like Unity and JustEat. They went abroad, made it big, and have these massive success stories. Then they came back home, reinvested their money but, more importantly, they also reinvested their knowledge. This helped reinvigorate the whole ecosystem.
Now we’re also seeing a second wave of founders doing the same thing. They’re CEOs who are still operational, still building, but they’re also taking the time out to go help the next generation of founders.
This reflects some pretty decent academic research, which concludes that knowledge imparted by investors, advisors, other entrepreneurs, and, in particular, corporate venture funds, are more important than the money they bring into the company due to the operational value they add. And the inspiration, of course.
Wilson sees this in the Dutch ecosystem as well:
I think the money is almost less important than these CEOs sharing their experience. Every time we have one of these guys talk at Techleap.nl, everybody’s eyes light up with the possibility that there isn’t a ceiling for success. Every time a great technical Dutch company breaks through, it’s a sign that it can be done.
He continues, “the key is that we recognize and shine the light on those people who are willing to take a chance, who are willing to show their ambition. We should celebrate ambition rather than criticizing it.”
This feeling can be even stronger when a founder’s personal proximity to a fellow founder who reached unicorn status is smaller – like if they went to the same university.
Both Wilson and Christensen share the view that a strong academic foundation breeds more innovative companies with huge potential.
“I think there’s a real specialty in the Netherlands around deeptech, like biotech. And your love of academia does create pockets of super cool developments. There’s plenty of cool shit being created in this country. I think the ideation to MVP is probably per capita one of the best in the world,” Wilson gushes, while also raising two big issues.
The first is that connecting the initial innovation to a successful business model doesn’t always happen as smoothly as it could. And second, there are just not enough students enrolling in areas with high unicorn-potential.
As Christensen puts it:
Talent, talent, talent, right? When we talk to the startups and scaleups and ask them what is really hindering their growth right now, it’s the lack of talent.
There’s no such thing as doing too much in this space, because the demand here is so big, and it’s only going to get bigger. It’s hindering companies’ growth today, will continue tomorrow, and become even bigger in the future. So we can never do ‘too much’ in terms of talent attraction and education.
Take a global perspective as soon as possible
Christensen thinks that part of the success of Denmark’s ecosystem is thanks to ambitious startups being forced to quickly take a more global outlook. “You need to go wherever it suits your business model,” he says. “That could be the Nordics, UK, or Germany, depending on your market. We could still be better at that. We can still go abroad much, much earlier.”
When it comes to The Netherlands, Wilson says, “I really believe that the Dutch have this great ability to start interesting things, but for some reason they don’t try to explode their business across the planet.”
Red tape might be one reason startups don’t more readily expand abroad. Multiple startup organizations mention that startups sometimes skip over expansion in Europe to move to the US, simply because complying with regulations in 27 different countries is way more of a hassle.
While this might sound like a nightmare, Wilson actually sees this as an opportunity.
“So I mentioned ChannelEngine, they wanted to run a European business first. There are different rules and languages in each country, and they just went out and mastered those. Then, when they wanted to expand to South America, the US, and Australia, they already had structures in place to learn and adapt to different cultures, regulations, and languages.”
But you don’t have to go so far away to make it big, he adds. “I do think there is a growing number of companies that believe you can make a unicorn in Europe, and you don’t have to go to the US. We’ve seen Polish companies who created a unicorn just in the domestic market.”
This is what I imagine the EU is aiming for with the newly announced Startup Nations Standard, a set of practices to create a “growth friendly environment,” which includes a bunch of things from this article as well. But also some points we have not touched on, like equity.
Stocks for everyone!
Both the German and Danish startup reps wouldn’t touch this policy detail on the record, but in most European countries it’s basically bad news to give your employees stock. Options or actual stock are treated as possessions by tax authorities, even though the valuation of the stock is completely virtual and the ‘possession’ is totally illiquid. Which in turn might limit the ambitions of both startup founders, and early employees who could be the driving force for more ambitious outlooks.
Wilson would go on the record saying that this awkward equity taxation, “reverts the compensation systems in the company to being about the salary as opposed to about the shared vision and contribution goal. So you don’t get to promote your belief system quite as strongly as when employees directly benefit from increased valuations.”
Although it does seem some countries, like The Netherlands, are taking a closer look at the current tax policy, it could still be a long time before European unicorns actually mint a bunch of new millionaires – who can then go on and invest their money and knowledge into new startups, creating a flywheel effect.
The Startup Nation Standard does seem like a well thought out document that addresses many of the issues reflected in this article, if adopted by enough European countries.
And maybe, considering Europe’s unicorn growth rate, we’re doing somewhat great already? Ugh, I’m so Dutch I can’t even say it without the question mark.
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This post is brought to you by Techleap.nl.