Ajay Chowdhury: Is Europe really a slacker continent?

Ajay Chowdhury, CEO of Seatwave on why European VCs are finding it harder and harder to raise new funds

“Europe is a “slacker with low expectations”, held back by the poor work ethic of its people and run by politicians that strangle technological progress with regulations that are a “cure worse than the disease”.”

These sentiments were attributed to Peter Thiel – one of Silicon Valley’s most savvy investors (he was one of the first into Facebook) and entrepreneurs (he co-founded Paypal).   

Another investor I spoke to recently said that investing in European technology was ‘returns-free risk’.

So what is going on here? On one side we have the European tech success stories of Shazam, FairFX, Lionhead, Spotify, Skype, Citymapper, Graze, Mojang (Minecraft), King (Candy Crush), Vent Privee, Zoopla, ASOS, DeepMind (Peter Thiel actually invested in that!)….the list is actually pretty long.

But on the other side European VCs are finding it harder and harder to raise new funds and the number of successful European VCs can probably be counted on the fingers of a couple of hands.

I think there is some truth in Thiel’s comments but also a lot of misperceptions. First, Continental Europe is not the UK and the UK is not London. The UK and London have a much more vibrant startup tech sector than the rest of Europe with entrepreneurs and investors prepared to take more risks in this country. This is somewhat paradoxical because the social safety net is much stronger in Europe and if an entrepreneur fails, they can always fall back on that, so one would have thought they would be more prepared to take risks. However, the fear and stigma of failure is also generally higher in Europe, which leads to the risk aversion.

While I don’t agree with the comments regarding the ‘slacker’ I think the ‘low expectations’ may have some merit. In Silicon Valley investors and entrepreneurs go after the ‘Moon Shot’ – the billion dollar company that is going to change the world. European entrepreneurs and VCs tend to sell out much earlier to preserve their risk and get a small return rather than bet the farm. So you see a lot of earlier exits where the returns are often reaped by the acquirer rather than the original investors and entrepreneurs.

The other key attitude to risk is in the funding of companies. As a rule US companies tend to raise a lot more money than European companies. Here the buzzwords amongst investors are ‘capital-efficient’, ‘fast track to profitability’, ‘rapid cash on cash return’ and so on. A CEO of a successful US company I spoke to recently was asked, ‘Are you profitable yet?’, and his response was, ‘What am I, an amateur?’

While obviously being profitable is a good thing, the trade-off between investing for growth and getting to rapid profitability is a tough one. The focus in the US tends to be growth while here it tends to be cash preservation and profitability. This race for profitability changes the way businesses are run in Europe versus the US and underpins a lot of the differences.

I don’t have much to say on Thiel’s views on politicians. I don’t believe they have a huge impact on the startup scene (although commitments to infrastructure like Tech City, superfast broadband rollout etc. create the conditions for growth) but they certainly do try and regulate the successful companies a lot more – which has pluses and minuses. Certainly if they don’t add value they need to get out of the way. Germany’s regulations on privacy and payments for instance could strangle a lot of promising startups, should they be implemented. Again, it comes out of the politicians’ fear of losing control.

This debate can really be summed up in the greed versus fear equation that governs much of life. The higher level of risk aversion in Europe amongst entrepreneurs, investors and politicians probably accounts for a lot of the difference between the continents. This may change as we see more successful European tech companies on the world scene; participants see that there are stellar returns to be made and European companies can change the world…or if there is another cash crunch we may retreat again.

Ajay Chowdhury is the CEO of ticket marketplace Seatwave. He is the former chairman of Shazam Entertainment and ex-CEO and executive chairman of cloud-based retail company ComQi. He is also a non-executive director on the board of the Department of Culture, Media and Sport advising on media and technology issues.