Hjalmar Winbladh, a partner at EQT Ventures, on why European tech entrepreneurs should embrace failure.
Over the last few decades, Europe has established itself as a hotbed of bold innovation and exceptional talent. Spotify’s IPO, Supercell, Adyen, Skype, Farfetch and TransferWise are just some of the European success stories that spring to mind, it’s clear that Europe doesn’t lack entrepreneurship – and it never has. Moreover, European entrepreneurs are often leading the pack when it comes to innovation; Britain specifically is globally renowned for its AI innovations, as seen with Google’s acquisition of DeepMind. However, to stand on their own two feet, European entrepreneurs need to think bigger; they must have the stamina and ambition to build a global champion.
The reason why Europe hasn’t produced as many stand-alone global tech powerhouses as the US can be explained partly by funding issues. While early-stage capital has been abundant enough, the same couldn’t be said for later-stage until recently. Compared with the US, our startups have often struggled to access the capital needed to grow from bright ideas into proven businesses with revenues and profits. A consequence was that many companies were forced to sell too early, move to Silicon Valley to access deeper pools of VC funding and better market opportunities, or they simply ran out of capital and collapsed.
Recently, that’s all changed; a record €19.4bn in venture capital was invested into European companies in 2017, which is a staggering 36% increase from €14.3bn in 2016. Nonetheless, it’s important to remember that it’s not just about the money. There’s a bigger cultural barrier that has been holding European entrepreneurs back: fear of the f-word – ‘failure’.
In the US, it’s almost a badge of honour to have a series of ex-startups left in your wake. This is because it can give the impression of growth and progress within a founder, rather than seeming like a one-hit wonder. Above all, the mantra seems to be: try again, and try harder. Indeed, the cliché goes ‘‘fail often, fail fast,’ despite the objections of some to the oversimplification of the phrase.
The root of this attitude can be traced in the founding story of the US itself, with thousands of families moving across coasts in the 19th century at immense personal risk (from health to crop failures to land rights), all in pursuit of the American dream. Today, Silicon Valley is full of entrepreneurs who’ve also chosen to migrate to the West Coast, seeking success through innovation and grappling to create a better world. Failure is embraced because the more mistakes that are made earlier on, the faster entrepreneurs will learn, thereby revolutionising their business models for future attempts.
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In Europe, by contrast, it’s more common to have a wary or embarrassed attitude to failure, which negatively impacts entrepreneurship. Among Europeans, the shameful stigma attached to failure has permeated for decades. As such, many would-be entrepreneurs opt for employment with established companies instead because, as our US counterparts have shown, it may take several attempts before entrepreneurs can create a successful business. Beyond funding, this helps to explain why so many European companies sell to bigger US corporates, rather than expand in their own right. Beyond DeepMind, prime examples of this include Magic Pony selling to Twitter and SwiftKey to Microsoft.
However, the US and the UK may be finding themselves increasingly aligned in their attitudes to failure. In the US, for example, IPOs have recently dropped compared to years gone by. While 2017 saw 189 companies floating on the US stock market and raising nearly $50bn – almost double the amount in 2016 – these numbers were still higher way back in the 1980s, when the US averaged more than 200 IPOs per year. During the dotcom boom, these numbers shot up to 547 in 1999 and 439 in 2000, where proof of previous success was shunned in favour of a swift public listing based on brilliant ideas and enthusiasm.
These days, companies seem to delay going public indefinitely rather than listing too soon, which suggests that the elevation of ideas and enthusiasm has been abandoned in favour of a record of success. In turn, this implies a fear of failure. While it’s certainly interesting that the US seems to be adopting more of a European attitude when it comes to failure, this shouldn’t be something that European entrepreneurs should subscribe to. Back in the days when later-stage capital was scarce and the VC ecosystem was in its infancy, such hesitation was of course more understandable.
But no longer. Throughout Europe, entrepreneurs can now access not only capital – anything from angel and seed to Series D and exits – but also expertise. Beyond money, startup success very much depends on the support ecosystem. Now, there is a much stronger community of serial entrepreneurs in Europe. By passing on lessons learned from challenges faced and mistakes made when building products, scaling businesses, and hiring teams, Europe can create its own tech giants to rival those produced anywhere else in the world — firmly putting fears of failure to rest, once and for all.