America was built in part by swindlers and robber-barons in a system who let them get away with it by design. In many of Europe's different legislations, failure in the bankruptcy way has/had serious consequences for the business person responsible. Play fast and loose with your responsibilities like you might in the US, confident that the corporate veil will bail you as long as you don't do anything criminal, and you might find yourself staring down the barrel of a loaded fiscal gun.
Another quick example from Portugal: Did you know businesses or business-like entities (we have those for smaller entrepreneurs) are required to keep a 10-year archive of paper receipts, regardless of having already filed digital copies with the government or of any other common-sense exception? Most people here don't. But they can get serious fines for not being able to produce almost decade-old records they had no clue were mandatory.
The points are: a) that there is no such thing as "europe" to begin with in a regulatory sense; b) but there are structural reasons why entrepreneurs in the area behave like they do, it's not an accident; c) only the paranoid survive, so do your research because there will be a test later and you don't get a do-over.
Notably, Sweden has a very robust social security network and a lot of entrepreneurship as well, the Swedes I talked to explicitly pointed to it as something that eased their way into taking risks.
There are specific issues with the worker models of Uber et al, but that's an orthogonal point to the general formation of startups.
I think the issue is with the 95% of startups that have no or moderate success who convince employees that lotto ticket equity and beanbag chairs are worth more than work-life balance, healthcare, and cold hard cash.
This statement perfectly encapsulates the difference in work culture from the US and Europe. Exploitation doesn't happen because successes exist. You can get rich, so everything is allowed.
Having less social nets and having more startups aren't independent: they both result from an inherently risk taker culture.
(of course, all generalizations are limited and may not apply to all cases)
It's an accident that the most important bits of corporate and labor law don't distinguish between a 300-person shoe factory and a 20-person series-A startup. They weren't around when these concepts were codified and written in stone. The systemic and personal consequences are unfortunate but impossible to prevent.
2) greater hiring/firing friction due to stronger employee protections,
3) greater fixed operating costs/overhead all around due to increased incorporation costs/bureaucratic requirements.
I don't think these things are necessarily negative, but in a world with competition between markets with high incorporation friction and low incorporation friction you'd expect entrepreneurship to concentrate in lower friction markets.
Say it's rational for some untaxed investor to take a chance on 1% on no less than $10M return. If after taxes somewhere that turns into a $5M outcome then you would need a 2% chance for equivalent expected value.
Even in the United States the conditions for a startup ecosystem to thrive are localized mostly to California, both financially and culturally. Risk intolerance and shortness of ambition is pervasive in our society too, just that a few historical factors have allowed for a business counterculture to thrive in parts of it.
I largely agree with this, and I (mostly) love California for many of these traits.
That said, I think startup ecosystem 2.0 will be centered around Austin. It will look very different than the California startup scene, but it will be just as transformative (if not moreso) imho.
I've heard that before. "look at X, it's the Next Silicon Valley".
Every time, it was someone trying to sell me something [0] and every time the correct move has been to keep investments in the Valley.
Maybe this time it'll be different.
[0] https://en.wikipedia.org/wiki/List_of_technology_centers
Yeah. I don’t think it will be the next Silicon Valley. I do think it will be the center of startup ecosystem 2.0.
I personally think the biggest difference in startup ecosystem 2.0 will be the lack of Silicon Valley-style VCs. Whatever money is used to fuel the fly wheel will have a fundamentally different approach to investing, at least in the beginning.
I’m not sure what your investments are, but if SV works for you, then stick with it. The startup ecosystem 2.0 probably will not be a good fit for you or them.
Where are they going to get investments from?
Great question.
Probably people and organizations who are not looking for a typical SV portfolio (essentially many strike outs and a few home runs that are determined over a specific and relatively short timeline).
SV VCs started out as financiers that were supplying a lot of capital to start capital-intensive businesses (e.g., chip fabs). They are still largely designed to do that, but many businesses can be started and often grown with relatively small amounts of capital. These cheap-to-start businesses are often not served well by the SV VC model.
Some ideas:
1. The companies that are looking to control a complete market will still go to SV VCs.
2. For the companies whose business model doesn’t match the SV VC model, they will go elsewhere. They are doing it now. Specifically, some companies may be capped at growth due to the market size, the nature of the market, etc. When these companies use SG VC, they usually end up just fizzling out, even though the company could have been viable and stable at a small market cap (specifically, a number that would not move VC overall returns but would be large for most founders).
3. I expect the money will come from people and organizations that are happy with consistent, long-term, above average returns — basically focusing on more singles and doubles rather than home runs (to continue the baseball analogy). This might mean more debt rather than equity (unless a company chooses to go public). This might mean that institutional investors could struggle to find a single place or set of places to park large chunks of their money. This might mean that the investors play a key role in the business (e.g., a payment processor supplying short term loans based on historical cash flow).
4. Some of SV’s largest funders (LPs) may find themselves struggling to have significant access to this market, at least at first. Many of the companies and people who are in the best place to make these investments don’t need their money to participate. This could change — for example, payment processors could open up tranches of debt for companies that use their service, or private equity could end up taking a more proactive role in buying and developing businesses. It’s tough to say.
5. If I had to take a stab at what the “end game” of startup ecosystem 2.0 looks like, I would guess that most of these startups remain founder-led until exit. Exits will be relatively small (9 digits or less, usually less). Startups will be purchased by PE and will be developed and flipped. At some point in the chain, the amount of money involved will be high enough to involve substantial institutional money, and the institutional money will get involved though some sort of PE vehicle.
Note that #5 isn’t exactly original — it’s happening now with some PE firms. The main differences I see is that viable small companies won’t be run into the ground trying to hit home runs, and PE will be much more proactive in business building from a much earlier stage.
To build on my original response… why Austin?
- Plenty of land to expand still. This means affordable housing somewhere near Austin should be possible for a long while.
- A great university with a solid engineering department is nearby.
- No state taxes (big strike against CA).
- Interesting city center that is walkable/bikeable if you choose to live there. Overall metropolitan area is desirable — people have been gravitating there for decades now.
- Moderate weather for most of the year (summers are rough but manageable). Definitely not California good, but definitely not Northeast bad either.
- A relatively quiet tech scene that has been growing for decades that can supply mentorship, contacts, and (if necessary) money.
SV has Stanford, Berkeley, and San Jose State. You may not have heard of SJS, but there are more (local) Apple employees who graduated from SJS than from Stanford and Berkeley.
FWIW, Stanford is relatively small. Berkeley's freshman class is larger than Stanford's entire undergraduate program.
Texas A&M and Baylor are probably close enough to be within the Austin sphere, certainly if the Austin metro area expands.
Rice, University of Houston, Trinity, SMU, etc. are also in the broader halo.
[0]: https://www.aarp.org/politics-society/government-elections/i...
I’m guessing you’re European based on your business. Do you live in the US?
I’m guessing you don’t know many people who live in Texas, especially Austin. Startup people and companies are flocking to Austin.
Texas politics are weird because the Republicans have gerrymandered the state to a comical level. It’s allowed to persist because none of the bodies that can serve as a check and balance are doing any checking or balancing (failure of US democracy, imho).
I would not consider what is happening there representative of Texas as a whole, and especially not representative of Austin. The overall feeling of the state is moderate with a wide range of perspectives (like most populous states). The elites, however, are very conservative.
A change in Texas politics/politicians will come at some point, and when it comes, it will be swift. I am not convinced that the politicians in Texas are particularly representative of the people, but they are highly representative of the special interests of the state.
It's better than the states that actively work to harm their citizens but that's not saying much.
In dollar values, in the US, that same amount will go to pay for health insurance and benefits and social security and medicare taxes. Combined with lower wages, and your overall payroll expenses will still be much lower in France.
There aren't a lot of senior engineers making north of $300,000 USD/year in France. But there are a lot in SV.
Most immigrants have to undergo an extremely strong selection filter, before they are allowed in. It would be truly surprising if they weren't more successful on a per-capita basis.
Myself I ran into "problems" when it came to parental leave, parents in Sweden usually gets a combined 480 days of parental leave, of which about 360 are at 80% of your income levels.
Problem is that if you (like me) plan on bootstrapping something then you're not taking out salary during that period, so even if you paid a lot of money in taxes the year before you still get marked down as a zero-earner if you plan to take time off with your kids.
Luckily the Swedish govt realized that this hurts things in the long term so they actually relaxed the rules in this area so you can retain your previous income levels for 3 years if you want to take advantage of parental leave.
(Not entirely sure if they fixed this if you get sick though, regular employees that get sick can retain most of their income for a while but not entirely sure if these 3 years startup grace period applies when getting sick)
Combine this with the lack of 'safety net' for someone who owns the business (you dont qualify the same as if you were a regular non participatory employee) and the lack of angel funding/froth in general... its not as simple as you may imagine, especially for non citizens.
Its possible, but its not as simple :)
Edit typo
Personal bankruptcy is another good example where Europe just has no equivalent.
People in Europe seem to be more focused on what is deemed „safe“. Parents don‘t want their kids to become „entrepreneurs“ - they want them to find a „safe job“.
I‘m sure that many parents in the U.S. want that, too, for their children. But the U.S. is a country that was founded by immigrants. By people who, in the very founding of the country, broke with old traditions and with the „normal way“ of doing things.
Another commenter mentioned that many startups seem to be headed by immigrants, or that many of the „big guys“ in Silicon Valley started out as such (PayPal Mafia, Google guys, WhatsApp...). It‘s the same thing: You need to break with tradition to become an entrepreneur.
So, in a sense, you need to be standing a little „outside“ of the society in which you are moving. People who visit Europe from the U.S. often notice that Europeans tend to seem less open to random encounters with strangers, and that they tend to hang out in tight-nit social groups.
This is, of course, a generalization. But having lived both in Germany and in California I see this as an accurate description.
And I would argue that it‘s a lot harder to do a startup when you‘re inside a tight-knit social circle, where you have to explain yourself, where you face embarrassment if you fail, and where people might say „Who do you think you are, founding your own company?“.
It‘s a lot easier to do that if you, as Steve Jobs once famously said, have freed yourself from the concept that you must do what you are told, and should not bump into the walls too much (i.e. the „rules“ according to which society claims to work). After all, a real startup is an entity designed to break some of those rules, and to replace them with new ones.
Also, it seems to me that Europeans and Americans (especially Californians, East Coasters and Austiners) differ in where they seek salvation from their problems:
In Europe, I would argue, it is still very much more the politicians and the state. And I do not think this is the case as much in those areas of the U.S.. Again, the observations of a better social security net on the one hand and a lagging behind in entrepreneurship seem to me not to be a contradiction, but two sides of the same thing.
That idea that you can fix what you see as broken by doing a startup is slowly becoming a lot more mainstream in Europe, for sure. But, I think, for Europeans this is more a learned behavior, something inspired by what they see in Silicon Valley and in entrepreneurship shows as „Dragon‘s Den“, whereas in the U.S., it‘s always been a way of life and a philosophy for at least some substantial part of the population.
Do not forget, also, that many countries in Europe were dictatorships just two generations before. In Germany, half of the country lived in socialism up until my parent‘s generation.
In such an environment, you do not raise your kids to take risks, to put yourself in the spotlight, or to change the lives of others. And these values of „being safe“ and „fitting in“, they filter down, from grandparents, to parents, to children. It takes generations for them to die out. So there‘s that, too.
After that point in time all the old debts are cleared off (although you might still be stuck with bad credit scores).
Iirc Bankruptcy is technically reserved for companies and other legal entities, and always either ends in reconstitution or liquidation depending on if a court appointed lawyer finds that there are funds, income or other means to continue operating, or if liquidation is the only way that creditors will receive anything back.