Why haven’t European investors fully accepted the failure is good mentality yet?
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This is a loaded assertion. And, sincerely very cliché.
Oh Europe is bureaucratic and expensive? And yet there's nothing like this: http://en.wikipedia.org/wiki/Giro in the US. Ridiculous
Funny how several of these big US companies open offices in Dublin (offices, not merely a mailbox and a shell company) guess they didn't get the memo.
Cell phone plans are way cheaper in Europe (no paying to receive calls).
Overall quality of life in bigger European cities, mass transit is ubiquitous.
So, in overall, I think the US has a lot to learn from Europe. But I understand, while in the US people think "Why not, let's do it!" in Europe people think "What can go wrong"
This is not all bad, since it would be harder for them to invest in companies like Color
They still invest in risky stuff, like a Sound startup in the most picky country w.r.t. intellectual property online http://en.wikipedia.org/wiki/Soundcloud (and what are the issues in Germany can be summed by this: http://en.wikipedia.org/wiki/Gesellschaft_f%C3%BCr_musikalis... )
I get the distinct impression that Europe cares more about tradition and therefore less about disruption. As such, there is not as big a desire to try something new, and therefore no reason to consider whether failure is good. In fact, if the emphasis is on tradition, failure is frowned on not because it is bad, but rather, because it is evidence that someone tried to do something new.
My thoughts on this come from a chapter of Alan Greenspan's memoirs on his experience in Vienna and thoughts on cultural differences, especially when it came to Vienna's timelessness and beauty.
Then you're talking about Austria, not all of Europe.
The fact that I used a weaker word like conjecture instead of something stronger should say a lot about what I really think on the matter. I'm used to constructing comments a bit more carefully for serious opinions if you look at my comment history. :) No harm, no foul, I hope.
investors dont write blank cheques is the main difference. we are blunt and dont flower up potential so monetry failiure is more relative to business size.
This nails it. You're not going to even investigate potential - your investors don't have that kind of vision (or interest). Not a snowball's chance in Hell a Brit VC would have acted as Peter Thiel did when he came on board with Facebook. Because that would have been "flowering up potential".
Or as I like to call it, vision.
That is a cool anecdote and all but it smells like confirmation bias. I'm sure the one guy who won the lottery yesterday had a vision too. Maybe I'll have a vision tomorrow when I play a slot machine or maybe I'll have whatever-its-called when you dump a bunch of money on a long shot and it doesn't come through (were there no visionaries to see the social graph for myspace and friendster?). There's a line somewhere where a can-do attitude becomes naive and the other side of it is where practical sensibilities become choking to fresh ideas, right now I feel we are in a place where having a go is a good thing but it won't always be that way (at least in our industry).
When I heard that only half of venture-funded companies live 5 years, to me that sounded like excellent odds. I would kill to find a job where there's a 50/50 chance that it's still worth coming to work after 5 years. My experience is that unless you can convince someone in upper management to take you on as a protege (and that's 95% luck, because they're usually not technical people) you are wasting time after one year. Internal mobility (i.e. the ability to self-allocate to something better suited to one's talents and shine) should fix this in theory, but in practice most large companies do a terrible job on that front: bad performers (whether they are actually bad, or just have a shitty manager) can't move because no one wants them, but good performers' managers won't let them. You have to be exactly 51st percentile to move internally at most companies.
I've heard of similar laws throughout Europe.
I think you have probably heard a partial truth, perhaps related to some kind of bankruptcy procedure, and inferred too much.
It's true that there is typically more regulation of businesses in Europe than in the US, but often it relates to fields like employment rights, consumer protection, data protection, etc. The actual cost and effort required to operate a business (edit: in the sense of setting up a legal entity to use for trading purposes, filing the mandatory paperwork, and paying the associated fees/taxes) varies widely among EU nations, but with a very low lower bound.
1. The size of the US market is a huge advantage. Startups targeting and operating in the US market can grow bigger. China has the same advantage.
2. Americans are less risk-averse because Americans are mostly descendants of immigrants. And immigrants are more likely to have a less risk-averse DNA.
Do you have any evidence that this is a genetic trait, and not a cultural factor? I have never heard this postulated before, but it would certainly be interesting if true.
Yes, after someone explicitly asked you to back up your initial statement.
> The biggest assumption, that immigrants are less risk-averse, sounds very plausible to me.
And that's my point. All you need to talk about hereditary traits in these contexts is some vague notion of what seems plausible and believable, and not any actual data. And yet, people are probably going to find it more believable because genetics are involved than someone who explicitly bases it on some purely sociological theory, because genes sound more tangible than sociological theory and the statistics based on that.
It's not that there is anything wrong with making up theories. But by stating that it has to do with genes - without any initial disclaimer that it is just a theory - makes it sound like it is based on data and not just a theory.
To the extent that's true, that would make it much more difficult to find good, "risk-seeking" or at least risk tolerant employees.
1) a cohesive market, which is also your first point. EU is huge, bigger than US, but the market isn't very cohesive at all. The first time I heard about the EU Commission wanting to push for turning EU into a "federation of states", much like US, I was pretty pissed off, because I know that just means increased corruption at the top, with fewer people having more power over a huge region.
And I still think that's going to happen, unfortunately. But now I also think we can't turn down the advantage of having a cohesive market like US. Maybe if we can delay it into 2020's, by then the Internet will make things a lot more democratic, and it wouldn't be so easy to be corrupt at the top of EU.
2) I'm not so sure it's genetics. I think it's the culture, but not even the "entrepreneurial American culture", but the Silicon Valley culture.
First off, there's no "start-up center" in Europe, certainly not one as concentrated with entrepreneurs and especially investors, as Silicon Valley.
And second, people aren't used to "pitch their ideas" to investors, which are few and hard to find to begin with. There may be a lot of rich people, but they aren't actively seeking entrepreneurs to invest in their ideas.
So it very rarely happens. That's why you don't see start-ups that "change the world" from Europe, because while a start-up getting millions of dollars just based off an idea is kind of a daily occurrence in Silicon Valley, it almost never happens in Europe.
So if they did they would quickly be out of money.
This is why the Samwer Brothers from Rocket Internet is doing things the way they are and can have so many startups they do.
Their copy-cat approach is very un-european but in reality the only way for European investors to be less risk-averse.
The safty-net comes with a price. Even in Denmark which is rated as on of the easiest ways to start a business the reality is that it might be easy to start a business, but it's very hard to scale it.
Why? Could you explain this further?
a) Different cultures
b) Different languages
c) Different tax systems
d) Different company types
e) Different legality
All these in combination creates a lot of friction that makes it harder. There are obviously exceptions (ex. skype) but in general it's just very hard to navigate compared to the US.
Address systems, payment systems, "simply taking credit cards" may not cut it.
But in the end you have to launch targeting one or more countries, whatever comes beyond that is "free".
And of course, you start from day 0 to make your system Unicode compliant.
But otherwise I agree with your sentiments - Language is just one of several problems. Most of which are external to the product.
And who do you think enforces commercial licensing agreements?
Wow!, Simply wow! You've tried to make an argument on an issue you have no data for, and now you need to make up stories to justify your believes. Wow!
There are two main reasons why companies set up European HQs in Dublin/Ireland:
1. Avoiding tax. Ireland has a low rate of corporation tax and some fairly large loopholes. See the Double Irish arrangement and the Dutch Sandwich[0] set-ups.
2. Avoiding privacy protection. The data protection authority in Ireland is tiny[1] and severely under-resourced, so finds it hard to enforce European data protection standards which are significantly higher than in the US (which has pretty much zero regulation when it comes to privacy)
[0] https://en.wikipedia.org/wiki/Double_Irish_arrangement
[1] http://i.imgur.com/IKHC2Ud.png - This is the office of the Data Protection Commissioner in Ireland. A tiny office next to a supermarket. This is the authority responsible for policing privacy for dozens of huge multinations in Europe, including Facebook.
The more obvious factors are almost certainly the case - more complex regulatory environment, smaller market, a lower concentration of capital sloshing around than in SV… and myriad other reasons.
Blaming this on an artificial 'European' culture is facile.
Facebook is essentially a marketing company and time-wasting website, both of which are not exactly highly regarded as businesses go. On the other hand, there are many highly successful and innovative European companies building actual stuff, often founded decades ago as small family businesses and growing slowly and steadily until they firmly occupy some niche on a global scale.
And, yes, if you don’t have a PhD, how exactly are you going to be different from your secretary?
While americans were chilling in the 80s and 90s, many countries of Europe were facing communism. People had a harsh life, the parents-grandparents had it, so of course they're not gonna have a Peter Thiel mentality when they don't even know how to shut down a PC. Some countries have an avg. salary of 200$. What the hell are you gonna buy with that? And I'm talking 2013 not 1990. So it's not like they're gonna tell their kids "sure son, after I worked at a farm all my life for 200$/month I strongly believe you'll make an 80 bill.$ company out of a damn computer. Let me go grab my savings and good luck!".
Too much to talk about but europeans know what I mean.
At a superficial level, for example, Americans seem to believe they are better (possibly due to genetics) than others. This kind of exceptionalism/patriotism is bad.
You've mentioned yourself why this whole article and comments are bollocks. Europe is is no way homogeneous and referring to startups in "Europe" is kind of pointless.
To be honest, even treating Europe as a collective is silly. When each country has different tax laws, traditions, outlook on life; how can you really, meaningfully compare them?
The cherry-picked 2011 was about the peak of the Eurozone crisis and austerity measures, obviously a special time.
Compare the EBAN 2011 slide in the article with optimism of the 2012 slide:
http://www.eban.org/e5-1-billion-market-shows-european-angel...
Check out this article.
If you compare Europe and US, I think there are hotbeds in each one.
However, the articles seem to compare Europe with Silicon Valley / San Francisco, which is silly.
Obviously San Francisco is special, even within the US.
Edit: Also, the Economist article doesn't address Europeans having a fear of failure.
At least those that I know, and I do know quite a lot.
Being a member of the HN community for a while now has made me feel much more connected to this than was possible 5 years ago (I'm in Europe). In the co-working space where I work, everybody talks about lean startups, nodejs, go, etc. and a random discussion is basically indistinguishable from my few experiences in SF offices.
Now, when it comes to funding everybody knows that trying to do it locally is ridiculous if you don't have a good specific reason to do so, but this applies to major US cities as well, perhaps with NYC slowly catching up. I think this will change as well, as more and more entrepreneurs have succeeded by the SV model and go into investing themselves. It probably won't even out completely but I think it will become more uniform.
I actually come away from this article inspired to try another start-up, after a pretty significant failure last year.
Learning from failures is good, and might help entrepreneurs to develop a more viable proposition if they try again. But that still doesn't make failures good. It just means there is a silver lining for some of the participants, if they have enough left to try again later.
Hit-it-out-of-the-park success is good, and from an investing perspective funding a number of failures may be a reasonable cost of doing business if it means you get the occasional smash hit as well. But that still doesn't make failures good. It just makes them tolerable.
Moreover, the hit-it-out-of-the-park outliers in SV are mostly part of one big pyramid scheme these days. It may be a while before the bubble bursts, because at the top of the chain you've got the outlying outliers like Google and Facebook that really have managed to bring in actual revenues and build up huge war chests, but even then the theoretical valuations for some of these giants are dubious. There literally aren't enough people in the world to continue growing their core offering at historical rates in some cases, and attempts at diversification have mostly been failures propped up by those core offerings. Even if these weren't the case, the biggest giants in technology rarely manage to remain dominant for more than a decade or two before newer ideas from more nimble competitors start to intrude.
Meanwhile, smaller companies being bought for staggering sums of money when they have yet to demonstrate a viable business model for monetizing what they do is just silly in most cases. In the ones where it isn't, the acquisition is often for strategic reasons rather than a genuine investment in expected actual value.
So the bottom line is that European investors have less time for boom and bust than US ones. SV couldn't happen here, and we don't want it to. Culturally, while there are start-up incubators and the like around, we tend to be more interested in investing to grow something after its foundations and basic viability are already established. That could be demonstrated either through having a working business model that only needs cash immediately to accelerate growth that could have happened anyway, or through at least having a plan with clear potential to generate real money, for example. While I don't have any hard data to back this up, I suspect we also tend to put more emphasis on bootstrapping your own business or going to the bank for a loan rather than taking angel investment, and use more informal support networks such as old university connections here in Cambridge for the non-monetary benefits that angels might provide in somewhere like SV.
I didn't like the article. It felt shallow. The real issue is that in the US we have a tendency to not second-guess people's decisions about how to invest their money. Yes, this means that some people will be ripped off, but it also means that they, and the society as a whole can be in rapid learning cycles about what makes a good investment.
It's clear that the US has a very different take on acceptable risk and as a result they more big wins and big losses. Can't have one without the other.
Is that really true? If you ever make a big loss, in the sense that backing something like Google or Facebook would have been a big win, you're probably doing investment wrong. The dominant US tech investment strategy today appears to be accepting many relatively small losses on the basis that one smash hit will outweigh them all.
I've noticed that in US-centric discussions, the distinction often seems to be stated in terms of "risk-aversion", with a focus on how much downside is acceptable and how US investors tend to accept more risk. In discussions on this side of the pond, we might rather distinguish based on "expected returns", with a focus on how much upside is likely across all outcomes and an emphasis on the mean rather than modal return.
I don't like the fact that we don't have much of a social safety net in the US but that can be considered one of the larger risks founders face as well.
What are the total number of start ups in Europe versus the US? How many succeed, for some various metrics of success? What is the total revenue of companies started in the last X years? What are the returns to investors, both absolute and relative to the size of their investments?
Without knowing the outcomes of the different investment strategies, you can't pick a winner.
Look, I'm all for removing the social penalties to good-faith failure. I've failed before (in good faith) and I'm a good guy. Some problems are harder than they look, and sometimes the solution is brilliant but no one wants it. However, I can't share that cavalier attitude toward failure that I often encounter in the HN-sphere. I would love to see society become more tolerant of good-faith failure or just bad luck, on the small scale (R&D efforts within companies) as well as the large (bankruptcy laws, a healthcare system that isn't psychotic and mean-spirited like US insurance). However, I've also seen what bad-faith failure looks like: businesses that might start with earnest intention but evolve into long cons. People who call themselves "entrepreneurs" are not all ethical. Some are, some aren't.
Failure hurts people. Money disappears, jobs are lost, and sometimes peoples' careers get ruined. I've lost about $500,000 (mostly, opportunity cost and career retardation) to bad startups.
Sometimes failure is no one's fault and a learning experience. Sometimes, there's some serious malfeasance behind it. If you've been around tech as long as I have (and I'm only 30) you know that there are some really wonderful people, but also some really terrible people, in it.
There are some severe issues involved in the question of how to handle business failure: moral hazard, asymmetric risk. Most people attack these hard ethical questions by falling back on instinct and social proof: the way they separate bad-faith and good-faith failure is by asking around, checking references, reading news articles. That's how the Valley works: it tolerates failure if you can convince it that you failed in good faith, but the waters are so murky that social proof rules the day. That, predictably, makes the worst kinds of people (social influence peddlers) powerful, and they evolve into extortionists and manipulators. It turns into a feudalistic reputation economy. It's not a scalable solution. It's actually hypocritical, because a world in which reputation and social access matter that much is exactly the sort of world that becomes risk-averse and sclerotic. (That takes time, but you see it happening in the Valley.)
The happy medium is somewhere in between the risk-averse conservatism of Europe and the Midwest, and the pro-failure attitude of California, which arrives either at recklessness or hypocrisy. Maybe Seattle? (I'm considering moving to the PNW in 2015, so I've given this a lot of thought.)