Saturday, March 18, 2006

No startup culture in Europe

The lack of a culture supportive of risk taking is one of the worst handicaps Europe faces in economic competition with the US and developing countries like India and China. Americans are descended from a population of immigrant risk takers, and the US may produce more hypomanic entrepreneurs per capita than other countries. We also continue to attract many from abroad, thanks to our forgiving attitudes toward failure and repeated attempts at success.

For those who know portfolio theory, risk adjusted return is optimized by having a certain balance of assets, some more risky, some less. Perhaps counterintuitively, return can sometimes be enhanced at no cost to overall risk by increasing the volatile component of the portfolio -- if the behavior of the additional assets is uncorrelated with the others. A country without entrepreneurs can't be near its "efficient frontier" in economic or technological development. It is not placing enough risky bets.
NYTimes: Skype survived its early tests as a European start-up to become a world leader in Internet telephony but the region's aversion to risk means many other fledging companies are doomed, Skype's founder said.

Ahead of meeting next week of European Union leaders to discuss long-delayed reforms to make Europe more competitive, Niklas Zennstroem told business and EU officials that Europe still has the wrong culture when it comes to entrepreneurship.

``In the U.S. for example, if you have a start-up and it doesn't work out, you have gained an experience,'' he told the conference. ``In Europe, you have made a mistake.''

Skype became one of the hottest takeover stories of last year when it was snapped up by the Internet auctioneer eBay for $4 billion, less than three years since the launch of its software enabling free phone calls over the Internet.

Zennstroem, a 40-year-old Swede, and co-founder Janus Friis of Denmark are a rare success story in a continent that lags behind the United States in research spending and offers little help to young innovators.

EU policymakers have long highlighted the need to accelerate research and innovation and support small and medium-sized enterprises (SMEs) to make the bloc more competitive against the United States and Asia.

Yet industry leaders and politicians admit the bloc has fallen short of its own 10-year Lisbon Agenda programme for a knowledge-based economy driven by research and development.

Technology start-up companies still face obstacles, chief among them scarce funding, Zennstroem said.

``We went round Europe trying to raise money for one year to close our first round. If we were a Silicon Valley company, it probably would have taken us one month,'' he said, referring to the area in California that is home to many high-tech start-ups.

Then, as the company began to be a success -- by last count Skype had 68 million users worldwide -- and was looking for a buyer, ``not a single European company was interested in even talking to us,'' Zennstroem said.

But it is not just the venture capitalists who are wary of risk in Europe. With unemployment high, young people are demanding job security in some countries.

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