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Comment by jakozaur | Hacker News Reader

Unicorn from Europe (Copenhagen, Denmark). Oh wait, they moved to San Francisco.

It looks like there is a lot of talent and founders around the world, but still there is not enough VC and ecosystem to support them outside of Bay Area.

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Dane here (now expat)

Europe in general have a problem with entrepreneurship. Stockholm, Berlin, London are the exceptions and even they don't really do that well compared to SV.

Zendesk is also Danish originally, Tradeshift is, Podio.. they all end up leaving because the market opportunity in Denmark is very small (6mio) and there isn't easy enough access to talent when you need to scale up

The biggest mistake many entrepreneurs do in Denmark is that they start with Denmark as a test market and so it's very hard for them to actually scale both mentally and practically.

The primary issue in my mind isn't really income taxes (although they do play a role). Denmark have a progressive tax system which means the top bracket pays around 52% or something like that (and cars have 180% taxes on top of the value of the car).

Denmark also have one of the most beneficial holdning company tax rules in Europe which allows for a lot of possibilities for startups.

And keep in mind that it's very easy to be unemployed and build a startup in Denmark. Healthcare is free, education is free, childcare is heavily subsidized, you get social benefits.

What really hinders Denmark is a combination of a small market, small ambitions and the lack of a proper ecosystem with alumni (they leave) and not to forget the in my mind crippling effect of the harmonization of the EU (not the common market which is great) and last but not least. There is very little tradition of scaling a company big (Denmark haven't created a +1000 person company for the last 50 years or something like that)

It's not really unexpected. The road to success was paved a decade or two ago. Stockholm has very few "random" successful startup, it's pretty much all things that Sweden has been traditionally good at. Creative industries (music, games, ads) and infrastructure (telecom, databases, payments).

Yeah and for it's size Denmark is doing pretty good. The problem is Europe in general.

there isn't easy enough access to talent when you need to scale up

Isn't it harder/costlier to find talent in highly competitive SV than it is in Europe?

That's what I would figure, as well. My company moved to Seattle when we needed to expand and hire talent. Still a tech culture, but houses are still in the 6-digit range, and you don't have to pay $200k/year for a fresh graduate with a degree from CodeAcademy.

Maybe you mean a certificate, but they don't even give that.

It was a (lousy) joke.

Sure, but in both places the labor prices are (roughly) market prices.

How could they not be?

It is hard, but when you're an "It" company in hypergrowth it's the only place to be. When you're 20 people, it's easier being in a small city and just finding the best talent available. It's much harder to scale like Google/Facebook/Yahoo elsewhere. (It's possible in Seattle/NY/Boston/Austin, just tougher at the hypergrowth moment)

> Europe in general have a problem with entrepreneurship

Correction: Europe has a problem with hyper-accelerated, Silicon-Valley-style VC-fueled entrepreneurship. I see a lot of bootstrapped/slower-growth entrepreneurship in Europe, and that is in no danger of going away.

The problem is that the US also have those and so Europe is still lacking.

It's a pretty big problem that none of the large tech companies wether social media, search, robotics and so on are built in Europe.

Facebook is cannibalizing all social media and Google is cannibalizing all search. Those markets are practically gone, there isn't much room for a second place and there's definitely no room for a third place. That VCs keep pumping money in such startups, well, that goes to show how irrational the ecosystem is.

VCs aren't pumping money in to neither Facebook or Google, not sure what you are talking about.

We probably speak different English languages, because that's not what I said.

How about Spotify or Dailymotion? There are some.

Of course there are some, but very few.

> crippling effect of the harmonization of the EU

Could you please elaborate on this? I am genuinely curious to know more.

The best way I can elaborate is this essay I wrote last year http://000fff.org/why-is-europe-failing-to-create-more-unico...

The TL;DR of parts of my theory is that harmonization is trying to solve a lot of problems politically which might as well be solved by startups and technology.

Furthermore when you harmonize things you end up turning things that might be a problem in one country a law in a country where it isn't. Sometimes it's good sometimes thats bad. But it's not without problems.

It's a complex issue and I don't claim to have a bullet proof theory but I think there is something to it.

> in my mind crippling effect of the harmonization of the EU

Is it time for #Denexit?

(Hej; fellow Dane here!)

> Zendesk is also Danish originally, Tradeshift is, Podio.. they all end up leaving because the market opportunity in Denmark is very small (6mio) and there isn't easy enough access to talent when you need to scale up

Podio mostly had a sales-office in SF; most development was in Copenhagen (until Citrix moved most of it to North Carolina half a year back or so)

While I'm not aware of their legal statuses, both Zendesk and Tradeshift has non-trivial amounts of development in Copenhagen.

Realm moved (and was part of Ycombinator, even) and then moved back to Copenhagen.

Falcon.io always had most of their development in Copenhagen and only really moved sales elsewhere.

It generally seem to me that they take a few semesters stateside to get known/funding/... and them move back. I've heard access to talent, employee mentality and "founders' wanted kids to grow up sane" amongst reasons for moving wholly/partially back.

Of course there are examples of starups who keep their HQ in Denmark.

But the fact remains that most who go big aren't.

Podio is now a US company not a Danish one.

Tradeshift CEO has a kid and live in SF.

Zendesk is US.

Skype was never even Danish and was bought by US company twice.

And when Danish startups gets bought it's mostly by US companies.

Universal Robot got sold to a US company.

Even Rocket Internet mostly successful deals was selling to US companies.

The idea that they just take a few semesters is wrong and it's missing the point. Where are all the European companies who buy american startups? Where are the Danish companies who buy Danish or European startups?

There is a general lack of activity in the European startup scene. It's not that it's not possible it's just that it's very unlikely to make it.

In general people in Denmark don't have a ton of money to invest after paying taxes. If they do invest in Danish companies, those companies are held back somewhat by rules and further taxes. Some years ago there was a "entrepreneur tax" in Denmark which was an extra tax that affected business angels.

Employees could also be required to pay taxes on employee stocks - money that they had not earned yet because they had not sold them.

http://www.business.dk/navne/ivaerksaetterskat-skal-ses-efte... http://penge.dk/pension-skat/ejere-af-medarbejderaktier-risi...

Employees could also be required to pay taxes on employee stocks - money that they had not earned yet because they had not sold them.

That is a major problem in the US system as well.

It is? I'm pretty ignorant with stocks so please excuse the stupid questions but I thought you weren't taxed until after selling them. Is that not the case? How does it work?

You also get taxed when exercising options even if you don't immediately sell the shares you just bought. Something like the difference between the strike price and the current value being treated as income you earn upon exercising the options, so it's taxable.

The taxation structures around stock options in the United States appear extremely complex. Google for something like "taxation of stock options in private company"...

I'm certainly not an expert, so don't listen to me for any financial or legal advice.

You never dispensed any advice, so your disclaimer is unnecessary.

True! It was a preemptive measure, in case I go crazy and start giving advice anyway ;)

When you receive something of value from your employer, it generally counts as taxable income. This includes grants of stock or other perks such as a housing allowance or a car.

Like most Bay Area tech workers, I'm compensated partially in stock. Every month, X shares of my restricted stock "vest", which means, in practical terms, that I receive those shares. That counts as taxable income at the current market value of those shares. To avoid making me pay a large tax bill come April, my employer actually withholds some of those shares of stock to cover the tax bill.

(I've never been entirely sure how this stock-withholding works from a tax perspective. Do they immediately sell those shares and pay the proceeds to the government along with the rest of my income tax withholding?)

> To avoid making me pay a large tax bill come April, my employer actually withholds some of those shares of stock to cover the tax bill.

I think that your employer actually sells just enough of those shares at the time of vesting to cover the taxes. Any cash remaining difference is given to you in your next paycheck (i.e. 2 shares at $100 ea. are sold to cover $120 of taxes, and $80 is given to you). Could be wrong though.

If you exercise stock options, you get taxed on the difference between the strike price and the market value at the time you exercise, as normal income (not capital gains).

This can be a big problem if you exercise stock options, then the price of the stock drops. You might not be able to sell the stock for enough to pay the taxes you owe, and although you can take a capital loss, you can't use capital losses to offset normal income (beyond a fairly small limit each year).

The same is true if you are given actual stock. You owe taxes when it vests (or hypothetically when you are given it if it is unrestricted stock) not when you sell it.

This can be avoided with an 83b election.

You can file an 83b election with the IRS to avoid this problem, thankfully.

That just moves the point where you have to lay out money to even earlier. That's great if it's an early stage startup where the shares are worth practically nothing, but it's even worse if they are already worth a lot.

Oh sure; but you won't have to lay down any money until you sell your stock; and paying taxes on real money is a lot easier than paying taxes on imaginary money.

That's only true for NQ options. With ISO options you aren't taxed until you actually sell the shares they covert to, and then as a capital gain tax, not as ordinary income.

That's not true, the ISO option spread at exercise is taxed via AMT [1]. In general you shouldn't give out tax advice, and if you do at least make sure you have your facts straight. Plenty of early employees have been bitten by this rule and it doesn't that people perpetuate incorrect information.

[1] https://www.nceo.org/articles/stock-options-alternative-mini...

That's only true when the value of your options is pretty small. ISOs are taxed under the AMT plan as regular income at a rate of 26-28%, and so you might be forced to pay taxes on them anyways.

Source: I had a fat AMT tax bill precisely because of this. :/

I should have said that the above is not always the case, but it can be the case. Talk to a tax attorney.

True, but doesn't Denmark have big tax exemptions for investments you make through retirement accounts (which are limited in withdrawals until you're older)?

Of course, that probably wouldn't apply to non-public investments, and the caps are two low to be usable by Dane angels (far from home in the Bay especially).

    In general people in Denmark don't have a 
    ton of money to invest after paying taxes.

In general people in the US don't have a ton of money to invest after paying healthcare, education, suburban commute, mortage, etc.

The problem is a little bit subtler than that.

Generally speaking, European are more risk adverse than Americans (I'll exclude the UK as Brits are a bit culturally closer to the US).

You will find investors, but it will be very difficult to find someone willing to take risks and bet big. For me they behave more like bankers than VCs.

Don't get me wrong, this kind of investors is fundamental for an economy to function as not all businesses are high risk/high reward and to be honest SV VCs could learn one thing or two about common sense from these folks.

However, it means that if you come with a "crazy idea" or if you are basically saying that you will lose money for several years, it will be very very hard to find an investor in Europe.

The European market being generally also more conservative and much more fragmented, scaling up is also much more expensive.

Last but not least, Americans are very good at finding good European startups and importing them in the USA.

| Last but not least, Americans are very good at finding good European startups and importing them in the USA.

We've had almost 400 years of practice. If we weren't good at it by now then it wasn't meant to be.

Same situation here in Spain. It's very difficult (it's expensive) to be an entrepreneur. I mean, is very difficult for someone who has an idea, to validate it and built it just to see how the market accepts it. You have to register yourself as an independent professional which cost is around €260/month (plus other bureaucratic processes you need to complete [and pay for them of course]).

That's insane - almost like they don't want you to start a company. I assume most people just ignore it though

Well, people don't really start companies (not that easily at least) and it's really a shame because the government should ease things for everyone now that the unemployment level in Spain is around 22% Oh, btw, a couple of days ago the government announced that they will raise the corporation tax. [1]

[1]http://www.ft.com/cms/s/0/55220458-483d-11e6-b387-64ab0a6701...

"You have to register yourself as an independent professional which cost is around €260/month"

I think you're referring to social security contributions for (which pay for healthcare and pension etc.). The amount is in the same ball park as a single freelancer would pay for healthcare in the US.

Do you have to register as a autonomo even if you have zero income? If not, can't you build and start to validate your idea without charging money? That seems to be what a lot of SV startups do.

It is because Bay Area valuations are indefensible by most US standards and any European accounting standard

Or may be outside of Bay Area, not many are willing to put money where the mouth is

Yeah, they'd laugh at you in London for asking for this kind of valuation unfortunately. (Except for the usual caveat of knowing the right people, etc.)

It's got nothing to do with 'accounting' at all, it's a matter of potential. Lots of smug fools laughed at $15 billion valuation for Facebook. A few years later and it's generating more than that in annual revenue.

It seems that many people still find it difficult to comprehend what 1+ billion internet/computer users means for technology companies that are capable of scaling.

How many startups fail every year again? Well let's find out: https://www.quora.com/What-percentage-of-startups-fail?srid=...

Technology solves problems, but it doesn't mean every "problem" is actually a problem, or that it's worth solving. There will always be outliers.

Yes, and? It's exactly that kind of focus - focusing on the average outcome rather than the power law outlier outcomes that return your entire fund - that characterize the people who laughed at FB's valuation, as opposed to the VCs who invested in FB.

I agree that risk is certainly required if you want to make a return on your investments, however, all I'm saying is that for every Facebook, there are hundreds more that don't make it where money gets wasted. If I were an investor I'd want to make sure there was a tangible product doing something innovative out there, rather than just a new way to collect and sell user data. I'm not a VC nor do I really inderstand the mindset though, so if investing in miracles is your thing and has worked for you then more power to you.

Yes. Investing in miracles is what VCs do. Investing in 50 companies and only having 5 of them succeed is what they do.

Investing in 50 companies and expecting 45 of them to succeed is called being a small business bank.

No, it really does have to do with accounting

There are many VC backed companies that never state their valuation.

There are many VC backed companies that do state their valuation after every funding round and buy up all the press releases [on techcrunch, exhibit a] so everybody knows. So their secretaries, banking partners, trophy wives, and sycophants fawn over them more.

All of those companies have completely different 409a valuations, which are MUCH lower, because you can't just say "well 10% was sold for this much, so therefore 100% is this much". Nobody ever posts those.

The FASB accounting standards are also much more intelligent.

These valuations are literally only for impressionable people that don't want an intelligent valuation.

409A is lower because preferred shares have more rights over common shares. Employees want that number to be lower, to enjoy greater gains and lower exercise costs. In any case, as a company approaches an IPO event, the spread between common and preferred disappears. None of this is particularly controversial.

Here's actual data for those curious: https://www.theinformation.com/comparing-common-stock-valuat...

Not controversial, just useless compared to other valuations methods that have utility

Just want to point out that in many industries a revenue multiple of less than 1.0 is expected [1], such that generating greater than $15 billion in revenue does not automatically result in a company worth $15 billion. That being said, FB's net assets are $50 billion (and it's market cap is much, much (holy cow it's alot) higher), so clearly those that got in at a $15 billion valuation are very happy right now.

[1] http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/...

Software, for good reason, is not one of those industries (like aerospace, home furniture, etc.). Incremental capital cost in software per user is vanishingly small compared to building planes or sofas.

Market valuations are not the same as accounting valuations; American companies also have to use the "sane, conservative" figure in the appropriate contexts.

>Lots of smug fools laughed at $15 billion valuation for Facebook

For every Facebook there are at least 10 Pets.coms or, worse yet, Enrons. I'm not sure how pointing out a single success justifies all valuations.

It's not all that bad for the European (and other) countries involved though. A common pattern I've seen in multi-founder companies is for one or more (typically business-oriented) co-founders to move to the Bay and open what is technically the headquarters, while other (usually more technical) co-founders stay in the motherland and keep running a large development shop from there. Kind of like how every US bank needs a big New York office, even if a lot of their work is actually carried out in other parts of the country.

That's a pretty silly statement though. It's like expecting actors not to do movies in Hollywood. Even if they would have stayed (like a number of Swedish game companies) they would have most likely been bought by a US company in the end (like a number of Swedish game companies). If there's anything wrong with Europe it's this defeatist attitude in favor of the US instead of finding ways that gives you an edge.

As someone who has started companies in the US, UK, Sweden and Netherlands I must say that the US startup environment is still way ahead. There are ways of finding your European edge, but it isn't easy to get access to the people who will talk to you about growth funding. And the funds are smaller and often more cautious.

To say we Europeans are all defeatist is a bit of an unnecessary generalisation. ;)

For what its worth, Unity is a pretty global company. They have marketing based in SF but also have an office out of Bellevue. The majority of development though is still based out of Copenhagen and other European companies.

In addition to marketing in SF: (I work there)

Ads, Analytics, Labs (VR), various dev relations, and more.

Lots of lost jobs in Denmark - a shame that so many European jobs are lost due to bad options of funding in EU.

Just be fair they still employ a lot of ppl in Denmark (164 according to LinkedIn), but majority is in USA (323).

I thing this number may be skewed a bit, LinkedIn is more popular in USA than in Europe.

The issue is that you know in what place they are going to grow in the future - it ain't going to be in Denmark.

They're quite different jobs also. Core Unity engine development and most of the tech jobs are in Copenhagen, while the SF office is mostly sales/marketing/accounting. It was kind of a half-move where they moved the "business office" to SF but didn't move the technical team. That happened years ago, initially mostly because of sales: having an "SF" company and a sales team based in SF made it easier to get in contact with the large customers who produced most of their licensing revenue (at least at the time).

Can't this claim be applied to any globalization labor issue? Part of the EU is open borders, why stop with the EU member-state borders?

> Part of the EU is open borders, why stop with the EU member-state borders?

Because of the language borders usually correspond to the national borders of the EU member states. And if not language borders then completely different systems of taxation, employment rights etc.

you can craft all the laws you want, the mega-tech companies will always cluster in SFBay. If you're Dutch and you start a subsea oil exploration robotics company you will certainly open an office in Houston. And then your biggest customers and market will rapidly be Houston, and so your largest office becomes the head office. If you're Colombian and invent a brilliant trading algorithm, you will probably move to New York, regardless of the laws in Colombia.

This is just common sense. The best bet is to proudly foster these small companies which go big overseas and also have an ecosystem of smaller players who don't have huge multinational ambitions, likely also funded by these unicorn exits when the money recycles locally.

Of course, tune and craft laws and regulations to create the most output. But stop trying to fight this clustering effect...

> you can craft all the laws you want, the mega-tech companies will always cluster in SFBay. ... This is just common sense.

What is the word I'm looking for? Hubris? Shortsightedness?

The biggest chunk of their development team is still in Copenhagen (and the rest is scattered all over the world, with little actually happening in SF). You can't beat SF/SV when it comes to funding and networking with the industry. But when it comes to actually hiring engineers, Copenhagen still offers a big pool of highly skilled people with fewer other interesting jobs to choose from. It seems the optimal strategy is to develop in Europe, but have a sales/management presence in SF, maybe even officially re-incorporating there, even if it's mostly a front.

"It" not "they". This is like saying Google moved to Ireland.

Not necessarily: http://ell.stackexchange.com/a/71088

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