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Comment by zmmmmm | Hacker News Reader

The glaring number to me is only 5% of VC funds vs 52% in the US. That's 10x more opportunity despite roughly comparable economies. As long as that is true, it seems like it will always be impossible to get an organic startup industry working in the EU. Any startup that is any good will almost certainly end up getting a round of investment from the US and most likely move their base of operations there.

I wonder if recent US actions will start to influence this as there now appears to be more risk in sending your money to the US or founding your company there as a foreign entity than there used to be.

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Not just startups or funding. Google alone has more AI compute than China and the EU combined.

There's no shortage of capital in Europe. But nobody wants to take the risk. Meanwhile in the US, people are putting 10-100x the capital at risk. So you can say what you want about it looking scary to you to invest in the US, but the people with capital to invest clearly don't see it that way.

More often when you hear VCs give interviews, they are saying the opposite: that never-ending EU regulations introduce more business risk than anything the US president could possibly do.

I’m not all that convinced on the regulation part.

Ultimately it’s all about investing money to create real assets that generate cash flows. One can side step regulations to some extent whilst developing a product (nobody cares/notices until you are actually growing fast) and then deal with regulations later. Uber already showed this and the leading AI firms are following the same act - having ripped off a lot of content but nobody threw a fit until a legit asset came out of it.

Yes, let's ignore regulations that provide people with stable jobs, societies, and countries. Afterall what good is democracy when the alternative is making more money?

A lot of these are mostly well-meaning but have backfired. The only way an international business is going to consider investing in French workers, for example, is with relatively low salaries to offset the inability to fire them.

It's counterintuitive but if you allow "failing fast", you lower risk of new engagements, and this allows for more speculative bets on ideas and people.

Make it difficult to evict tenants? Expect more stringent requirements from landlords

Enact rent control? Initial rents are going up, new builds are are disincentivized.

Strong worker protection? Expect fewer highly paid roles (wage compression)

I'm not saying these regulations are unilaterally bad - I'm saying don't be surprised that there are 2nd-order effects that are arguably just as bad, if not worse.

This is something you talk to people about that are in the western world but outside of the US (which includes me) but whenever I have the conversation people just can't grasp it.

The US, by having bad worker protections and privacy abusing tech companies, etc. have been able to pave the way for extreme amounts of innovation that just wouldn't happen anywhere else. The rest of the world then effectively has innovation subsidized since they import the finished product.

I also found most US startup opportunities to be practically enabled by shitty service provided by the incumbents, whether it is the state or the banks or the healthcare system.

Take Cost Plus Drugs, for instance. Or companies enabling faster cash transfers over the internet, like Paypal. Or healthcare insurance plans from Oscar Health or prescriptions from Truepill. Or videos made by Khan Academy, which are currently in use in many schools across the US.

I would push back on a few things from what you mentioned.

> The only way an international business is going to consider investing in French workers, for example, is with relatively low salaries to offset the inability to fire them.

> Strong worker protection? Expect fewer highly paid roles (wage compression)

For European startups it’s different motivation. Lower salaries than in USA are an advantage, but job security isn’t a show stopper. First team is hired in fixed contracts, which may be converted to permanent with growth. In scaling phase you add external support, with e.c. 20% of workforce coming from outstaffing, so that you can react on the market and scale down when needed. If you are big enough to be called international business, you will not hire in one of the most expensive locations in the world (USA) unless you have a good reason. There exist other easy-to-fire tech hubs, and it’s not a big problem in Europe anyway (it’s just some more effort to execute, but even with payouts it’s probably cheaper than in US).

> Make it difficult to evict tenants? Expect more stringent requirements from landlords

In Europe there’s less homeless people. It doesn’t work like that.

>Enact rent control? Initial rents are going up, new builds are disincentivized.

It’s not rent controls that make markets inefficient. They are reaction to NIMBY regulations and disincentivized home ownership like in Germany. Root cause is uncontrolled extraction of scarce resource (land) and the solution is actually to scale down for-profit rental market while aggressively subsidizing ownership and construction.

You can not regulate either of the above into existence. What good are rhetorical questions when they are nonsensical?

No one is saying "ignore regulations". The US has regulations also. Every country does.

The EU has taken it to another level.

Yes, let's ignore all nuance in the discussion and presume that the people saying EU has too many regulations must be saying that the only alternative is ZERO regulations.

Makes sense. You’re saying why would regulations matter when clearly they can just be ignored.

For venture ultimately it’s a soulless moneyman’s game. Really they have to pick winners, and anybody can look at the landscape and see there’s just not gonna be a Pierre Zuckerberg or a Klaus Kalanick. And if there ever is, he’ll need to raise lots of money anyway, which would come from venture.

> there’s just not gonna be a Pierre Zuckerberg or a Klaus Kalanick

Which is very much a positive. Those two aren’t a boon to humanity, they very much made everything worse at a global scale. We need fewer people emulating them, not more.

> never-ending EU regulations

Does anyone ever say what these regulations are? Or are they like "red tape" / "regulations on bendy bananas" / "WMDs" / "the war on christmas"?

There needs to be a signal for bureaucracy critics to use if they’re not bullshitting.

Because without it, they will quickly be grouped into the “I want to do things which SHOULD be forbidden” crowd, which is a pretty vocal one.

Laws are laws. Regulations aren't laws. Usually they are just extra hoops you have to jump through to do normal things. Paperwork, studies, government reviews, agency approvals, etc. These things slow down and encumber normal business. Some of them are important and necessary. Many are not.

I am not arguing for any law to be changed to allow someone to do things most people wouldn't want them to do. I don't think the VCs are arguing for that either. And that's not the case in the EU anyhow: laws are pretty similar on the major stuff among western countries.

I don't know why you're assuming that's my position, and I don't know why it's on me to avoid being "grouped" in with anyone. Assuming things that aren't true when you get defensive is your own personal issue, not mine.

My dad was a farmer under EU regulation and there was a stack of paper about 1 ft think to grow some barley. I don't know how that relates to AI. Another thing in Italy it's near impossible to fire people which makes people very reluctant to set up some business where cashflow for employment varies much.

I live in the UK where we seem quite good at inventing things but not that good at global profit making with a result that companies like DeepMind and ARM get bought by foreign investors.

> Another thing in Italy it's near impossible to fire people

It's just as impossible to fire people in Japan and Korea yet I'm quite sure they're doing quite a lot better at the startup per capita ratio when compared to population under 40.

Italy is also infamous in the EU for its bureaucracy, together with Germany. Look at how half of Italy's football stadiums are falling apart to a degree not seen in neighboring Spain or France.

Farming is unrelated to tech. I believe your dad.

They are exactly like the things you named. If you talk to a bunch of EU founders (not just a single loud one on X) you'll find regulations are low down on the priority list of things that make it harder in the EU.

Just one example of a series of regulations (that the EU has decided to relax today): https://www.ft.com/content/75073836-d923-4b3f-a1ca-5ae83dcd7...

I don’t consider VC investments to be particularly beneficial to the world. This idea of “let’s use capital to make it faster for people to exploit others with the only goal of generating more capital” does more harm than good.

Venture Capital is how entrepreneurs get off the ground and are able to try out new ideas. It is of both the entrepreneur's interest and the investors' interest that the product or service being developed captures value in the market, so they can reimburse their original investments. Without Venture Capital, we are limiting business creation to people who are already wealthy, which severely limits the pool of potential creativity that the society can utilize.

We have regulations in place to make it more difficult and more risky for businesses to engage in immoral behavior, but these regulations usually appear after observing bad behavior.

The funding allocation is a reflection of different cultures really.

I’m from the UK but there’s no way there’s the same density, drive, and hunger to take risk, to the extent that you find in US. Also there’s a lot more synergy in the US vs a fragmented Europe.

Yet the UK did produce Deepmind. Which you can look at both ways since it got gobbled up by Google. But it at least came from the UK.

I assume the article excludes the UK, I feel like UK has much more of a startup and VC scene than Europe does and I wonder if that is part of the issue : if you do want to create a startup, the London is a better place than mainland Europe. So even startups that for whatever reason won't take US funding still land outside Europe.

> Yet the UK did produce Deepmind

That was a long time ago. That UK is not the UK of today.

Deepmind was not a viable business at the time Google acquired it. Today, it is probably even less viable. It functions as R&D-lab for Google which has its own products and datacenters.

There are places with the same entrepreneurial drive that are part of the EU. But look at an LP-facing deck for a VC fund in Europe, and I can't recall ever seeing an investment with a little flag of Poland.

My belief is the underlying dynamics are less about, generalizing about cultures. Like you're right that that's what US VCs say, and collective belief is truth in markets even if it is not truth in reality. The bigger factor is EU, meaning French, Dutch, German, Swiss and Italian capital, are concentrated into the hands of large, opaque family trusts, structured primarily around tax evasion first and foremost, and other feudal issues, rather than minimizing the downsides of real risk or whatever, and that feudal stuff means, why do early stage investing? Without that there's little innovation. Hence Mistral, a growth stage company that everyone is happy making the growth stage, "dot AI" and "dot EU" winner. Presumably for EU sovereign wealth to be forced to buy.

> There are places with the same entrepreneurial drive that are part of the EU.

Name them rather than being vague, clearly people here want to hear where they are.

I’m also from the UK and I think this is a self-fulfilling prophecy.

As a UK founder that has raised in the UK, I have seen our US competitors raise substantially more with substantially less traction, so in future I’m significantly more tempted to look across the pond for raising. It has little to do with my culture vs theirs, and all to do with where the opportunity sits.

Many of the other founders I know with the “drive and hunger” as you put it, have already made the same jump.

there's probably a high correlation between people with the "drive and hunger" to build a startup in the first place with those that would have the "drive and hunger" to relocate overseas to make it successful.

> It has little to do with my culture vs theirs, and all to do with where the opportunity sits.

So it does have to do with culture. The US has better culture for starting a business. You can't just divorce the opportunity that came from the culture just to make a point.

This seems pretty limited to tech. For example in domains like media and marketing - I mean startups in these fields, not "marketing team of a tech startup" which is tech - the amount of "drive" feels the same whether the US or the EU.

So it's purely tech. And there, that extra "drive" that leads to the US and modern VC culture seems to largely be based on a hunger for power and immense wealth, when it comes down to it. I know everyone pretends it doesn't, changing the world for the positive, blah blah. But when push comes to shove, that's the outcomes we're seeing.

That's why Mistral is not focused on raising venture capital. Instead, they prioritize securing government contracts; hence their significant political lobbying efforts.

This assumes one would want a startup industry. It's a bit like wishing your country had more private equity.

Imagine all the great investments the US VCs are missing outside of AI.

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