The European Ecosystem is Entering Puberty

I just read Mike Butcher’s post entitled What is the future for tech VCs in Europe? and thought I’d share a few of my predictions of what I believe is likely to happen in Europe over the next few years; hopefully the predictions will serve to explain my rather crude choice of blog post title.

1. European entrepreneurs will become more sophisticated.

• The annual Silicon Valley Comes to Oxford conference which has been running since 2000 started being copied in Cambridge and London last year — and more people’s lives will change as a result. Having met several of the most successful entrepreneurs and investors from the Valley at the events in 2006 and 2007, I have some insight into the power it is having. A couple of friends of mine whose lifes have changed as a result are:

  Bob Goodson
  Bob met Max Levchin for the first time in 2004 and was headhunted to move to Silicon Valley 3 months later in order to become employee #1 at Yelp. Having helped take Yelp through to taking on $16M venture capital funding and over 4M monthly uniques, Bob recently left to found YouNoodle with Kirill Makharinsky, who was also headhunted by Levchin as an Oxford student. 

  Kulveer Taggar
  Kulveer met Evan Williams for the first time in 2005 and was soon persuaded to quit his job at Deutsche Bank and go full-time on BOSO in March 2006. After getting selected for Y Combinator in 2007, transferring what he’d learnt to Auctomatic and teaming up with Irish hacker Patrick Collison, subsequently raising investment from Chris Sacca and Paul Buchheit, his company was acquired by Live Current Media for $5M last month.

  Kulveer and Bob have now become role models for the younger generation of entrepreneurs – up and coming entrepreneurs such as Aly Chesney (Babuki), AJ Asver (Project Bluespark) and also Andy and I (GroupSpaces) have easily accessible people we can go to for advice and introductions. The foundations for a rich ecosystem are being laid.

• European founders will start reading and applying Venture Hacks. This is a blog/resource come recommendation service founded in March 2007 by serial entrepreneurs Babak Nivi and Naval Ravikant. I recently asked Babak what his motivation for starting Venture Hacks and he said:
  

  “First-time entrepreneurs usually negotiate sub-optimal deals that leave millions of dollars on the table. Or worse, they negotiate awful deals and screw themselves. Startups have one chance to raise money right. You can fix almost any mistake in a startup—but you can’t fix your deal. If you hire the wrong employee, you can fire him—but you can’t fire your investors.We try to level the playing field with knowledge, so entrepreneurs can do this critical job right. In the words of Francis Bacon, “Knowledge is Power.””

I went on to ask Babak what the most common mistake young entrepreneurs make with VCs was. His response was: 

“Entrepreneurs focus on valuation when they should be focusing on controlling the company through board control and limited protective provisions. Valuation is temporary, control is forever. For example, the valuation of your company is irrelevant if the board terminates you and you lose your unvested stock. The easiest way to maintain control of a startup is to create good alternatives while you’re raising money. If you’re not willing to walk away from a deal, you won’t get a good deal. Great alternatives make it easy to walk away.Create alternatives by focusing on fund-raising: pitch and negotiate with all of your prospective investors at once. This may seem obvious but entrepreneurs often meet investors one-after-another, instead of all-at-once.

Focusing on fund-raising creates the scarcity and social proof that close deals. Focus also yields a quick yes or no from investors so entrepreneurs can avoid perpetually raising capital.”

• European entrepreneurs will make stronger connections with and learn from their Valley counterparts. The knowledge and network of the ‘Y Combinator Mafia’ (as Sumon Sadhu has called them) will start propagating throughout the UK and beyond. Out of the 80 startups funded to date, 8 have been from the UK, which include friends of mine at Snaptalent, Auctomatic, Songkick and Clickpass.
• GroupSpaces was recently selected for WebMission which means we’re flying out to San Franisco next Friday. We’ve got an action-packed schedule lined up including the Web 2.0 Expo, presentations to VCs and the Press, and Startup School, for which Andy and I have also been selected. We’ll come back with increased social and intellectual capital, as will the other 19 WebMission companies, and this can only benefit the UK and Europe.

As more European startups immerse themselves in Silicon Valley, our networks and collective knowledge will grow and grow; like lots of neurons firing around a big brain meeting each other at an increasing number of synapses. Via a combination trial and error, face-to-face contact and reading the right blogs, Europeans entrepreneurs will evolve.

2. European Investors’ balls will drop. They’ll become more like Valley Investors.

• In my (limited) experience, speaking to, but mostly hearing/reading about European VCs, they only seem to want to invest in proven concepts. Whether that means a product that already has traction, or an entrepreneur that’s already done it once before, they are pussies when it comes to taking risk. On the West Coast entrepreneurs get funded at concept stage on a regular basis. Loopt raised over $5M from NEA and Sequoia very early on, Xobni raised $4.2M from a dream team of investors pre-launch, and there are countless other less high profile investments at a similar level.
• Why are they pussies? My belief is that it’s down to a lack of confidence and/or experience. Just like a good cook, many Silicon Valley VCs know what combinations of ingredients will make a nice dish; sure, they might need to taste the dish as they cook it, adjusting things along the way, but they’re confident that in the end, it will turn out right. European VCs, on the other hand, just haven’t built up enough experience, or don’t trust their own judgment enough. Index and TAG seem to be the most confident investing at an earlier stage, driven in part by Seedcamp co-founder Saul Klein, which ironically brings me onto my next point.
• Seedcamp will become more like Y Combinator.
  It seems that Y Combinator picks founders and focus on product. However, it seems that Seedcamp picks business ideas and focused on business –- the first time. Having listened to an inspirational 1 hour masterclass by Paul Graham and Jessica Livingston at Silicon Valley Comes to Oxford in November 2007, and also read Founders at Work, I see 2 changes necessary for Seedcamp if they want a ‘Seedcamp Mafia’ to form:

1. Interview the teams face-to-face and focus more on whether the founders are ridiculously hungry, smart, determined nutcases who can and will do everything it takes to succeed.
2. Beat teams up more on their product/idea. 3 of the 4 partners of Y Combinator are product guys. Many of the people attending the weekly dinners are also product guys. Seedcamp’s team and program seem to have too much focus on investment and marketing, and too few good hackers/product guys ensuring teams make things people want.

3. English people will stop being so ‘English’.

By this I mean people will be more open.

If you meet someone who could really do with meeting this other guy you know, well hell, you’ll make an introduction even though you weren’t asked.

If you’re wrestling with a good idea, you won’t get out an NDA with everyone you meet, you’ll trust in the wisdom and good nature of people and share your idea -– for every 1 person that will try to copy you, there are probably another 9999 that will want to help. One of my best buddies AJ Asver has been sharing his journey since day 1 of his new venture, codenamed Project Bluespark, I’m sure he would vouch for the good it’s doing him.

And anyway, you can’t really give away most ideas in a sentence, because they’re dependent on all the experiences and related ideas the founders have –- and no-one can steal that stuff.

The other big drivers I see for openness revolve around groups and events:

• OpenCoffee has been started, again by Saul Klein, to embody these principles of sharing and networking, and if it continues to attract the right people, people will keep evolving.
• Zenopy, a members-only network of young entrepreneurs founded by Sumon Sadhu meets about once per month in London. It too is encouraging a more candid, sharing culture. The current list of members are all on the road to achieving big things, and they acknowledge what a fantastic resource they are for each other. Next month, I’ll be attending my first Zenopy Meeting, and it’s an exciting prospect.
• Oxford Entrepreneurs (OE), Imperial Entrepreneurs (IE) and increasingly more university entrepreneurship societies are providing a platform for experience to be passed down to the younger generations. OE’s now up to 6 funded startups since its inception in 2003; and already this year, I’ve travelled down from Oxford to see Paul Graham, Brent Hoberman, Sutha Kamal, Kieran O’Neill and Steph Bouchet speak at IE in London.

I’m going to finish this post by naming and thanking a few people who I see to be the real catalysts for the paradigm shift which is taking place:

Some European investors who ‘get it’
Danny Rimer, Saul Klein, Niklas Zennstrom, Mattias Ljungman, Paul Fisher, Martin Varvasky, Alex Hoye.

Some young European entrepreneurs who ‘get it’
Jamie Murray Wells, Michael Smith, Sumon Sadhu, Kieran O’Neill, Loic Le Meur (OK, Seesmic is now Loic’s 5th startup, but he definitely gets it and he’s making waves with Le Web 3 amongst other things).

I’m sure there are many others who passionately believe, as I do, that Silicon Valley is more of a state of mind than a place, and you too are the agents of change — the next 5 years are going to be defining for Europe.