What is Silicon Valley in Europe

Not in the mood for Silicon Valley: Startups prefer to grow in Europe

European venture capitalist Index Ventures asked 275 startups about their US expansion.

In the past five years, interest in the US as a startup epicenter has therefore decreased significantly. More and more startups prefer to grow in Europe in the early stages.

The main reason is better access to capital and skilled workers. Europe has made significant progress here.

The USA has always been a place of longing for startup founders. Silicon Valley in particular is seen as a source of abundant finance and talented IT staff. If you want to achieve something, sooner or later you have to take the plunge across the Atlantic, according to a common thesis in the scene. In 2020, however, this belief seems to be finding fewer and fewer followers. The attraction of the US as a startup epicenter has declined significantly, as a study by European venture capitalist Index Ventures shows.

The investment firm analyzed the US expansion of 275 European startups. Over the course of the past decade, the willingness to expand or relocate to the USA before the first major financing round (the so-called Series A) has fallen by around a third. While almost two thirds (59 percent) of European startups went to the US between 2008 and 2014, it was only a third (33 percent) between 2015 and 2019, according to a study.

"Made in Europe" on the upswing

“Fifteen years ago it was extremely difficult to build a major technology company in Europe. With a small talent pool and limited capital available, founders were often forced to move their businesses to the US very early on, ”says Danny Rimer, Partner at Index Ventures. In the meantime, however, the signs have changed.

Success stories like those of the Swedish streaming service Spotify or the Dutch payment service provider Adyen would show that global startup success stories are also possible from Europe. Both companies reached a market value of $ 50 billion this summer. And both control their business from the European company headquarters. In Germany, too, there are examples of international champions based in their home market, including the Munich-based process optimizer Celonis, the Göppingen software company Teamviewer and the Berlin-based food startup Hellofresh.

The authors of the study at Index Ventures attribute the reluctance to leap across the Atlantic to one factor: Europe is now much more competitive as a startup location than it used to be.

Europe is catching up in access to capital and skilled workers

On the one hand, it is about access to skilled workers. The salaries of IT specialists in Silicon Valley have skyrocketed in recent years and it is becoming more and more difficult to recruit skilled workers from abroad. At the same time, Europe's talent pool has grown. Index Ventures refers to figures from the programming platform StackOverflow, according to which the old continent with around six million developers now has more experts on the job market than the USA with around 4.3 million developers. Against this background, it hardly makes sense to move to the USA just because of the growth in personnel. Of the companies surveyed, only one in five startups would have a development or research team in the United States.

In addition to the skilled workers, access to growth capital also plays an important role in the location decision, especially in the early phase of a start-up. According to the study, a lot has also happened. The amount of growth capital that flows to Europe has more than doubled in the past four years, from 15 to 34 billion US dollars, according to the analysts at Index Ventures. This is also due to the fact that American donors are increasingly looking to Europe. "It is no longer necessary to actually be in the US to get access to the leading US investors - they all operate internationally," the analysts write.

Analysts warn against "conservative culture"

Although competitiveness has improved, the authors of the study confirm that Europe has some catching up to do in terms of openness to innovation. Software companies in particular would not find enough buyers in Europe. The leap across the Atlantic is often unavoidable for them in order to grow significantly in the corporate customer segment. The “conservative culture” among European companies is stifling the region's potential, sums up Index Venture partner Jan Hammer. “Until that changes, we will continue to see entrepreneurs crossing the Atlantic to scale their companies and go public . And the global competitiveness of European companies will continue to suffer. "

For the moment, however, most of the transatlantic plans are frozen. The travel restrictions in the wake of Covid-19 and the ongoing economic uncertainty make US expansion almost impossible - this could also prove to be an advantage for Europe as a location.