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Comment by pilsetnieks | Hacker News Reader

I take offense at such massive overgeneralizations as "Europe lacks imagination."

What it lacks is freely flowing funding such that risky enterprises can be funded even if 1 out of ten or 1 out of hundred actually are successful. This kills business models which cannot show any profit whatsoever, and a large portion of the remainder are killed by data regulations forbidding "alternate paths of monetization" (to put it charitably.)

Rather, a problem is that once a European project becomes successful enough, it soon becomes an American project, either by acquisition or by moving to where the investment money is.

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The reason the US has freely flowing funding is because the VC has an immense amount of cash from the previous generations of successful Unicorns. So why was it (and still is) easier to raise unicorns in the USA ?

The thing that separate the internet economy with the traditional is the massive network effects that makes it a winner take all game. And at that game the USA has a massive home advantage with a huge cultural, legal and financially unified market. In Europe you start in a small country then face big barriers to expand out of it, which slows growth enough that you never get to get competitive by the time the much better funded American competitor comes to crush you.

And then it's game over, because you only get one shot at being the monopoly. Once you have a Facebook, you can't have a second one, even with all the VC cash, talent & creativity in the world. Notice that the USA did not succeed in building a competitor to Google, Youtube, Facebook, or Amazon, so how could Europe, or anybody else ?

Well the Chinese and the Russian could, by banning American monopolies from their own markets, which let them built monopolies on their own, & then attempt to conquer the rest of the world with them.

The USA is perfectly aware of this dynamic because faced with TikTok, their first reflex was to try to ban them.

And that's what Europe should do, ban American Monopolies. If we would ban facebook, instagram, youtube, etc, we'd have solid equivalents in a year, and from there enough cash flow to fund a next generation of startups.

As another comment pointed out, the small countries vs US Network effects excuse doesn't really fare well when you look at the successful startup environment of Israel.

The USA is perfectly aware of this dynamic because faced with TikTok, their first reflex was to try to ban them.

And this take is just hot garbage.

How many unicorns are from Israel, though?

Israel should be lauded for managing to be an intensely vibrant and high-tech country, and European countries should try to learn from that, but even that is apparently not quite sufficient. So I think GP has a point.

None. But they have tons of startups that provide services to the military-industrial complex which is why they're so successful. They copied the USA's SBIR system but provide much bigger grants.

https://www.techaviv.com/unicorns

Annoyingly, that list includes companies with Israeli founders that aren’t companies founded in Israel (e.g., WeWork). There’s no need to do that though, there are plenty of Israeli companies! (Oh, I see they have a pie chart of companies in Israel and it’s about 25% by value)

It’s also too bad that it excludes public companies or large exits (e.g., Wix and Waze) since those are even better retorts to the “can’t build companies” claim.

> Once you have a Facebook, you can't have a second one, even with all the VC cash, talent & creativity in the world.

That's not how it works, just look at MySpace. Even sites with a lot of market share are sometimes overtaken by a competitor.

The best alternative to Facebook in a fragmented market like Europe is federation across multiple social "hosting" sites with a regional focus, based on standards that are either in place already or being worked on. This can exploit even stronger platform effects than a conventional one-size-fits-all solution like Facebook.

Google and YT are in a different position since they're actually solving hard resource problems (Video streaming at scale is hard; building a usable crawl of the Web is also hard); much of their success comes from addressing these in a way that is compelling for users.

>That's not how it works, just look at MySpace.

It recently blew my mind to learn just how small MySpace was. Peak user count was ~75.9 million, total. Facebook has ~2.85 billion active users.

need to clear up the misconception here: China is not simply banning US companies. With social media and internet content products, there is Chinese law "Measures on the Administration of Internet Information Services". Whether one agrees with the provisions in this law is another story. Lets just talk about purely from a commerce perspective. This law is applied equally to everyone, whether it is a Chinese company or US company. If Google, Facebook and anyone else, want to have a specific product operate in Chinese market, that product need to be compliant to local laws. They will be able to operate if they are in accordance to the law. And many US companies do comply with Chinese laws and have products present in China, such as Microsoft (office365, Azure, Bing, Linkedin etc), Amazon(AWS, Amazon.com, Kindle), Airbnb, Apple (Icloud, app store etc). This law concerns with Internet Information services. There are other digital products too. Database services are very much available in China, Oracle DBs has a dominating market share in China. Adobe, Autodesk, etc. Even for Facebook and Google, I believe they have business operations in China. I know Google have ad sales in China, and have significant revenue. By adhering to this law, the internet information product could have significant differences from the product operating in another country, resulting in companies make two versions of the product, one for international, one for china's market. So Bytedance having douying for China and tiktok for international, is not different from Microsoft having Linkedin China and Linkedin international, or Bing China, Bing international, or Amazon.com China or Amazon.com international. From a pure commerce standpoint, this law is non-discriminatory. Whether its company headquartered in China or foreign, anyone have to do the same thing according to the law. It does not provide any advantages for Chinese over foreign companies. Also how do you define what is Chinese/Foregin company? Bytedance is registered in Cayman Islands and 40% is owned by foreign investors. Maybe you could have Chinese nationals running a company in another country and tried to offer a product in China. For running a product in China, both cases is the same, comply to Chinese laws and regulation then the product can operate in China.

The appearance that Chinese companies have advantages over foreign companies comes from a combination of factors: local culture, understanding of the market, much much faster and fierce competition (If speed and competition in international market is 2, in China its 10. For example, Uber left China's market not because of regulatory, regulatory was equal to Didi and uber at the time, but Uber and Didi was locked into extremely heated competition at that time, both sides were pouring money down the drain. It was most likely a business decision. Alibaba's taobao vs Amazon.com, taobao was very competitive and played to the Chinese culture advantage very well. Taobao created 11/11 singles day in 2009 and hit a cord with Chinese people, even becoming a cultural phenomenon). But let say if Google/Facebook funded a team in China to create a targeted product for the Chinese market, they could have a a significant presence in the market.

> The reason the US has freely flowing funding is because the VC has an immense amount of cash from the previous generations of successful Unicorns. So why was it (and still is) easier to raise unicorns in the USA ?

You're ignoring that all of this money initially came from massive investment by the Defense Advanced Projects Administration (DARPA) which funded the semiconductor industry in its infancy, which funded the creation of the Internet, which funded the creation of mainframes, which funded the creation of personal computers, and continues to provide massive funding to tech companies. Heck, their decision to choose Microsoft DOS over IBM OS/2 for the US DOD literally solidified its rise as the dominant operating system. It's requirement that all parts must be multi-source-able is why AMD and Via were created as additional manufacturers of x86 processors. But it also funded PowerPC and even provided significant funding to ARM.

Sure, we don't have much socialism here (USDA farm "subsidies" not included), but we do have very strong, protectionist-welfare capitalism.

So you had the combined might of the US government founding the creation of the computing industry. That let companies take massive risks which left tons of people making tons of money before private VC even really became interested. The IPOs of the original tech companies funded the creation of half of the current major VC funds.

Apple was funded by DARPA? I don't think so.

Apple was a zombie before Steve Jobs was rehired. Also, it was initially funded by Mike Markkula who was from Intel which was a company founded with DOD and DARPA backing.

I guess that means that since my father was in the military, I owe everything to the military. Right?

Europe, at least Sweden, used to have this approach for the traditional industry, e.g. companies like Ericsson, SAAB, Volvo, is/was all heavily involved in the Swedish defense industry with government backing and at the same time they sold consumer products.

Perhaps the ending of the cold war ended this policy, thus a boom of new companies never took place.

I see this comment often and it strikes me as conspiracy nonsense.

For example, AMD was founded within a year of Intel - years before either manufactured a CPU. You're blurring lines with antitrust lawsuits in the 90s.

Now if you want to talk about the Federal government single handedly propping up the market for semiconductors until the end of the Apollo program, that's a different story and includes more players than DARPA.

> Well the Chinese and the Russian could, by banning American monopolies from their own markets, which let them built monopolies on their own, & then attempt to conquer the rest of the world with them.

Russia didn't ban American monopolies, they were outcompeted fair and square by the more focused local companies. For some time, at least. It took years for Google to catch up with Yandex in search quality in Russian language, and Facebook's clone is imo still better than Facebook itself in every way, no wonder it's still more popular there.

> What it lacks is freely flowing funding such that risky enterprises can be funded even if 1 out of ten or 1 out of hundred actually are successful

Might this be a flip side of regulations that combat economic inequality?

If so, the two should not be addressed as separate issues. But frontpage HN posts tend to be "Applauding Europes' long vacations and progressive taxes" and "Bemoaning Europe's lack of VCs with fuck you money".

Maybe, but I might need actual evidence as to that being the case.

Evidence is hard: a double blind randomized control trial would be unrealistic and at a high level there would be innumerable confounders.

However, the mechanism seems simple:

1. Regulation is designed to combat inequality

2. Lower inequality is achieved thanks to this regulation

3. As inequality is lower, fewer people have spare capital for risky investments

Meanwhile, if this mechanism doesn’t work as above, that might imply we don’t (yet) have an effective way to regulate inequality down.

Sweden has more billionaires per capita than the USA. Similar to the US, they also pay less in taxes than the middle class.

I wonder if Sweden has higher funding than the rest of the continent?

Sweden has higher funding per capita, but does not answer why it became this way.

https://www.statista.com/statistics/1071105/value-of-investm...

Wow, thanks for the link! Four times Germany and almost the same as the USA.

You are using a false equivalence. Almost none of Swedish billionaires are in high tech.

Almost all of them are old people outside of tech

https://en.wikipedia.org/wiki/List_of_Swedish_billionaires_b...

Overall, little of Europe's VC goes into the kind of things we talk about on this site. But if levels are much smaller than the USA it just produces another burden. Looking at these numbers, if I was going to get funding I would try Sweden before France.

> In the 2013 list, approximately 40 percent of Sweden’s billionaires are self-made while 60 percent inherited their wealth. In the United States, by contrast, 70 percent of billionaires are self-made while around 30 percent inherited their wealth. Once we exclude inherited wealth, the United States has around 1 self-made billionaire per million inhabitants compared to 0.6 for Sweden.

https://www.nationalreview.com/the-agenda/guest-post-tino-sa...

50% of all wealth in the United States is inherited by the top 5% wealthiest families.

60% of all wealth in the United States is inherited.

Not particularly relevant. A significant chunk of that inherited wealth comes in the form of housing. The US has a total wealth of $105t, $36.2t of that is housing, which then ends up getting inherited by homeowners' children.

We're talking about how billionaires make their wealth as a proxy for entrepreneurship. It makes no sense to talk about how many billionaires Sweden has as a measure for their entrepreneurship if most of them inherited their wealth.

> > 50% of all wealth in the United States is inherited by the top 5% wealthiest families.

> Not particularly relevant. A significant chunk of that inherited wealth comes in the form of housing. The US has a total wealth of $105t, $36.2t of that is housing, which then ends up getting inherited by homeowners' children.

Feels utterly relevant; what's irrelevant is your fact that much of US wealth is bound up in housing: The top 5% wealthiest families are hardly likely to live in 50% of all housing.

Gates/Allen/Bezos/Jobs/Ellison/Google/Netflix/etc did not inherit their wealth.

Of the top 15, 5 inherited. You are right that billionaires are less likely to have inherited wealth.

...but they are still extremely likely to come from families with very strong political connections. Wealth is the byproduct.

Sweden is unusual in that way. You often hear about that it's one of the countries with the most equal income distribution but at the same time it has one of the highest wealth inequalities. Basically it's hard to make any money by working you have to own things.

While it may seem connected, it isn’t. Just look at history. America has been infamous as a country of get-rich-fast people almost since it was founded. Long before progressive taxes and social welfare. It is a cultural difference.

This was at a time when the US was actually more egalitarian than Europe.

Some parts are probably cultural. The type of economy that the article is describing, rent-seeking, doesn't feel like it culturally could work in Europe when trying to build something large like Google or Facebook, that is at least my subjective feeling.

That is why I'm somewhat skeptical against the article's proposition, offer it for free and then later come up with a scheme to extort users. I think there are other steps that can be taken first.

It could well be the opposite.

For example free education improves a software company's hiring prospects as there are lots of employee candidates available with good education. In some countries social mobility is a real thing. As a practical counter example, Sweden has massive taxation and something like most billionaires per capita and a very vibrant software and startup scene.

One could actually do some kind of survey what happens to European software companies. Take for example this one started by three Danish guys: https://en.wikipedia.org/wiki/Borland

Sweden does not have the highest billionaires per capita. Hong Kong, Monaco, Switzerland all have higher rates for example. There are several additional places as well.

Is Borland actually a European company? It looks like it was started in California and has a headquarters in Texas. It is now owned by a company in the UK, but it doesnt really seem European to me.

From the wikipedia article:

> Borland Ltd. was founded in August 1981 by three Danish citizens, Niels Jensen, Ole Henriksen, and Mogens Glad, to develop [...] However, response to the company's products at the CP/M-82 show in San Francisco showed that a U.S. company would be needed to reach the American market. They met Philippe Kahn, who had just moved to Silicon Valley...

So yes, Borland is a US company, but founded by 3 Danish folks. That might indicate that Europe doesn't lack innovation or talent, but a large unified market with high purchasing power.

Well in 1981 if you wanted to sell stuff for personal computers you would have to be in the Valley. No question about it.

I'd say it would have been hard to sell anything that specific even elsewhere in the US at the time.

You could have been in NY near NYC too. But yes, at the time, you were either in the valley or by NYC if you were starting a personal computer related business.

Sweden has failed to build almost any new big company since the last 100 years. Just look at OMX30 (30 most traded companies at Stockholm stock exchange). Almost all of them are companies older than 100 years.

Simplified, many great old successes (old money, i.e the billionaires) and many new promising, but few in-between.

>risky enterprises can be funded even if 1 out of ten or 1 out of hundred actually are successful

correct me if i'm wrong, Europe is dominated by legacy business/banks that normally won't take such risk. legacy business like BMW. European and Asian want to see you have some success or already making money before they invest. while American will throw money into something that just an idea.

The entire culture is based around "legacy" and "experience". Truth is, Europeans are extremely risk-averse and favor legacy, with grants, laws and such reflecting that. That said, Europeans will throw money at an "idea", as long as that idea is approved by peers. They'll even die with that idea, once invested.

Three problem is, these institutional investors lack the ability to evaluate risk:reward on entrepreneurial projects.

It's dominated by businesses where network effects are not in play; commodities, specialist equipment, medicine, biotech, hardware, etc. If there's a cultural, legal, or network element to the business, then the fragmentation of the European market puts it at a massive disadvantage. Investor knows it and thus avoid investing in those sectors because they don't want to fight uphill battles

And I take a bit offense with selective quotes, because the original:

" For one, we lack the imagination and vision to launch something without knowing how it might eventually make money. "

tells a different message, than just

"Europe lacks imagination."

> Rather, a problem is that once a European project becomes successful enough, it soon becomes an American project, either by acquisition or by moving to where the investment money is.

That's not a problem, that's the solution. There's some other problems causing the need for this solution.

> I take offense at such massive overgeneralizations as "Europe lacks imagination."

It also strikes me as really inaccurate. If anything, a lot of Europeans value creativity and cultural interests over raw productivity or money.

In some countries, if your startup fails you're legally obliged to pay back all money that was invested in it, and you won't be able to start another until you've done so.

... it's not the case in the US ? Wtf

It's not a loan from a bank. It's an investment, and the nature of investments are that some fail.

It's pretty wild that founders would need to pay back this money. That would have a massive drag on any risk taking or innovation.

The entire point of venture capital and similar funding mechanisms is that in exchange for a potential massive return on investment, funders are willing to lose everything.

Loans from the bank if they are tied to you personally. A delaware c-corp has pretty good protections.

Which also means that banks would be very hesitant to giving them any loan.

Bank strategy is to avoid risk, while VC strategy is to take risks.

Which countries?

Which countries? I've never heard of this, sounds insane!

It depends on what kind of company you start. One with limited liability often requires more upfront investment.

> What it lacks is freely flowing funding such that risky enterprises can be funded even if 1 out of ten or 1 out of hundred actually are successful.

Or that people pay great % in tax and they cannot afford to save their own money to start a business. They need to apply for government grants instead (which people who decided about them can be corrupt) or share their business with someone from the start. That's a buzz killer.

Funnily big corporation are free to avoid tax as they please, because the high earners won't even turn to the streets to protest so they can be taxed through the nose.

> I take offense at such massive overgeneralizations...

Boy, you would make one offended American...

> I take offence at such massive overgeneralizations as "Europe lacks imagination."

Why then did Airbus put their VC arm [1] right slap-bang in the middle of Silicon Valley?

Note. In this case, its Europe bringing/managing the capital - they are choosing - all by themselves - where to find the talent.

[1] https://airbusventures.vc/

.. and if you look at the list of companies, it looks fairly global. Some, but far from all of them, are in SV.

You'd have to ask them, but I'd posit that it's simply because SV is where all the meetings are.

Not to mention a lot of very skilled European engineers move to US (sometimes Canada). It's easy to brag about talent when being on the receiving side of the brain drain.

Large US companies to have offices over the world.

It's extremely common to siphon the most promising projects or ideas to the HQ. Keep the golden egg hen close to home.

Once the project becomes successful people will ignore or quickly forget where the idea came from.

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