Europeans look at the US, particularly Silicon Valley, and wonder why the same recipe for churning out successful global companies can’t be repeated in Europe.
Given that my company has a venture capital arm, I have first-hand experience with the reasons why. And many conversations I’ve had with other European VCs and entrepreneurs have confirmed my sense that there are three primary causes for Europe’s inability to match the US’s level of success when it comes to technology startups.
Here’s a look at those three causes.
1. No tolerance for risk
At a recent tech startup fest in Amsterdam, Eric Schmidt, former CEO of Google and executive chairman of Google’s parent company Alphabet, said it succinctly: “There’s a model for entrepreneurship. It requires risk, capital, serious investments in the universities, and then sort of tolerating the crazy ideas of the young people coming out of it, giving them some seed funding, letting them do it, and getting out of their way.”
Let’s look at what he means by “it requires risk.” If we look at Silicon Valley, we see early stage companies with founders who are totally invested. They are risking it all with nothing to fall back on should they not be successful. There is no Plan B for these founders. In fact, when you think about it, the US was built by people who fled their countries and took the risk to start their lives over in a foreign land.
Contrast that with Europe where there are many social programs that serve as a Plan B. With that safety net, there is not as much incentive for founders to endure the hardships that come with the early days of long hours, little sleep, and no time with family. The concept of capitalism and the risk-taking that goes along with it is not in a European’s mindset as it is in an American’s.
2. No tolerance for life mistakes or failure
A risk-taking mentality is highly respected in the US, where it is almost a badge of honor to fail, pick yourself up, and try again. For some, the fail-try again cycle happens a few times before success occurs. However, in many European countries, failure is a stigma; there is no tolerance. After your company fails, you are likely unable to serve even as a statutory representative of a company for a number of years. Additionally, Central and Eastern European governments charge young startups strict labor and other taxes, collectively called “insurance” against failure, which has the effect of killing the ability for them to succeed financially.
The laws in Europe block many young people from getting into business. Making a mistake when you’re young — even one that has nothing to do with business — can keep you from success later. I’ll use an example I am familiar with. When I was 18 years old, I was driving distracted – no I’m not talking about texting while driving or drinking – I’m talking about a wasp that flew into my car window and caused an accident. Long story short, I was found responsible for the injuries. The strict law in the Czech Republic (and, as I understand it, in other parts of Europe) does not allow one to be named as CEO until the length of the term of the judgment has passed and you have successfully applied to have it removed from your public record. Faced with such a long wait time, most young people who have dreams of starting their own company end up taking another road. By the time their name is cleared many years later, they have started a family or have taken on other responsibilities and are no longer willing to take a risk by starting a company.
No such laws exist in the U.S. You can start a new business while a previous business is still under bankruptcy or if you’re involved in court matters such as the car accident I described.
3. Little tolerance for foreigners
Europe has to contend with many small markets. And even though the European Union is meant to foster movement across borders, the fact remains that each country is very nationalistic with little tolerance for foreigners. Some countries, like France, have even created laws that serve as barriers for young, non-French companies seeking to break into their market. So entrepreneurs looking to find the broadest market for a niche service are often blocked from doing so.
I would argue that there are many good universities in Europe; this is not the problem. What we need is for the VC community to alter its tolerance for risk and for governments to do more to make business across Europe more accessible to everyone, no matter their nationality. Without changing our tolerances, Europe will continue to lose out, and more and more entrepreneurs will begin their businesses abroad in more startup-friendly countries. The few young European founders who are willing to risk it all are going to the US.
Vaclav Muchna is CEO and cofounder of enterprise software company Y Soft, which is headquartered in the Czech Republic and has offices in France, Hungary, Israel, the UK, United Arab Emirates, the US, Japan, Singapore, and Australia.