As Europe falls apart financially and otherwise, the start up scene in Europe thrives. This new era of start ups makes sense because the new European survival strategy must rely on entrepreneurship, and now it is up to every individual in Europe to be at least an entrepreneur of their own lives. In this new world two winning cities emerge: London and Berlin. They are great for different reasons.
Berlin has low rents, low housing costs, lower salaries, a high quality labor force, great engineers and it is a fun and creative place. It would probably lead Europe if it weren’t for some key drawbacks. Compared to London, Berlin has two big negatives: access to funding and a tax/labor framework that fails to recognize the uniqueness of start ups.
The natural aversion of Germans to risk makes it hard for their financial system to find a good way to consistently finance failures. And as Silicon Valley has shown, you need a financial industry willing to finance failures until the successes come. While the British themselves do not have amazing VC firms willing to take American style risks, the largest US VCs go to London and pump the eco system up. Even the Continental European VCs like Atomico go to London because the UK also has the best tax/legal regime for start ups. Moreover, the new tax and labor law in the UK makes it easier to give stock options and hire and fire, which is in the nature of start ups. Start ups try talent out as frequently as they try themselves out. So even if salaries and rents are higher in London, financing and the ability to “try things out” make London a more favorable place. And as cosmopolitan as Berlin is, the German language is still a barrier for many who have not grown up with it.
I see good prospects for both cities but if I had to bet on the winner, I’d choose London to follow Silicon Valley and NYC as the third best start up hub. While Berlin has some of the qualities that a city needs to attract start ups, London, although behind the USA, still has more of what it takes to compete with its American counterparts.
This article was also published in LinkedIn. You can follow Martin by clicking below:
After years of organizing the Menorca TechTalk I am interested in organizing the Co Working Menorca TechHub. If you don’t know what co working spaces are read this article about them and you will get a good picture. The idea is simple: to make deals with all the TechHub type work spaces around the world, places like General Assembly of NYC, or TechHub in London and its many counterparts in cities around Europe and the world, and to offer exchange programs so developers can work for weeks or months in an extremely relaxed/different environment that can allow them to focus on their work. It is the concept of work and vacation but applied to start ups where people are never really on vacation but can like the possibility of leaving say the London winter and spend 6 months working out of Menorca to see finish that beta version.
Menorca is a beautiful island, a perfect work environment off season for Northern Europeans and Americans, with direct flights to London and other European cities and connecting flights via Madrid, Palma, Barcelona and London to anywhere around the world. Start ups operating out of co working spaces around Europe can work in Menorca for a few months or as long as they need and have their seed money last longer. Have a longer runway. Desks in Menorca TechHub will go initially for €150 euros a month, electricity and internet included, and accommodation can be found in Menorca for as little as €650 euros a month including health insurance which is free in Spain, room, board (food) and monthly mobile service. So an engineer can live in a great environment, leading a simple life focused on work and recreation, riding her or his bike for less than €900 euros a month. This is unimaginable in the North of Europe, especially if you give a price to hours of sunlight 🙂
After trying unsuccessfully with the government of the Island to promote this initiative I am now seeing if this project can take off as a private initiative, whether it be profit or not for profit.
So the first thing I need is 500m2 to get this project going. Possibly with expansion space available. Possibly already furnished and ready to go from offices that some company has vacated. Could be anywhere in the island. Has to be reasonably priced. I can also offer the owner of this space a revenue share. Please write to claire(at)fon.com with ideas. Let’s see if the private version of TechHub can get going!
The majority of start ups are not competing against other start ups. They are competing against the indifference of consumers, many of which couldn’t care less about their innovation. And this is true even when you, the founder, thinks that what you have come up is something totally revolutionary that will greatly help people. Look at our case at Fon. Fon is a huge success in countries like the UK, Belgium, Japan and others and with 7.5 million hotspots we are now the largest WiFi network in the world. Now what is the paradox of our technology that turns everyone’s WiFi into public WiFi? Fon happens to be an innovation that almost everyone wants if given to them but very few will do anything to get it. So at the beginning Fon was a consumer company who gave away or sold WiFi routers that shared WiFI and we almost failed as a consumer company. When we asked consumers to share a little WiFi at home and roam the world for free connecting to other Foneros or WiFI sharing members we only got 300K people around the world to do this. But when we pivoted and we started working together with telecom companies like BT, Belgacom, SFR, Zon and others, these companies made Fon a standard feature of their DSL/Cable WiFi services (meaning that people became Foneros by default) and if they did not want to be they could opt, out almost nobody opted out! And the telcos started working with us because they saw that we lowered their capex, their churn, their customer acquisition costs and increased their ARPU. So the partnerships keep growing around the world. Consumers benefit, we benefit, the telcos benefit.
So the paradox of WiFi everywhere is that if people are asked to do something to have a big benefit, to roam the world for free, they don’t. But if it’s given to them without asking and then asked the opposite, if they don’t want to be part of a WiFi everywhere community that gives them free global roaming, almost everyone wants to stay in. This “opt in vs opt out” paradox (a phenomenon proven highly relevant in the market for organ donations) symbolizes the struggle of start ups, even those who have truly innovative and beneficial products such as Fon.
As innovative as people think they are, there is only a small group of us geeks who enjoy testing and using whatever is new. For massive success indifference is the biggest enemy of start ups, and your role as CEO is to fight this indifference, to evangelize, to reach people in the best possible ways so they finally find themselves using your innovation and liking it. Your most important role is to fight indifference through whatever channel works best to promote your innovation.
This article was also published in LinkedIn. You can follow Martin by clicking below
On Monday we celebrated Nina’s birthday in the desert of Arizona. I love deserts, I proposed to Nina in another desert, the desert of Southern Morocco. I have been trying to understand the appeal of deserts to me and I think I have come up with something meaningful.
As opposed to a jungle, in the desert, you get the feeling that each plant, each cactus was a huge accomplishment. Each plant in the desert is…a start up!
Growing up without water, that’s what building a company feels like to me. Especially my start ups, in Spain, a desert in entrepreneurship. And that’s why I appreciate the gigantic cacti in the pictures. They grew up against all odds. Like Jazztel, Ya.com and now Fon.
I have 5 children. They go from 21 to a 6 month baby. My 21 year old daughter, has come up with an idea for a start up. She is implementing it. This was a surprise for me because until recently she had not shown interest in the start up world. She studies history at Columbia College in NYC.
I will not go into detail on what her Internet start up as that is for her to share and she will at the right moment. What I can say is that I heard what the plan is and it looks very feasible to me. And this is only partly because I think all my children are stars. It is actually a great, original idea and she could execute it very well. But while not sharing with you what her business is I will share with you what I said to her.
My daughter, I said, what you have is the “start up bug”. It is a bug so powerful that once infected with it you carry it for life. The dream of turning an idea into a company that millions use and enjoy never goes away. I don’t know if this start up will be successful but what I do know is that sooner or later you will be. Go for it!
I just spent a week in NYC. What the city did vis a vis crime reduction between the 80s and 90s it did vis a vis start ups between the 00s and the 10s. It’s a whole new tech scene here. And it’s very new.
I remember when I invested in the first round of Tumblr with John Borthwick the tech scene in NYC was minimal. And that was as recently as 2007. On this trip I visited General Assembly and it was buzzing, and they are not the only nurturing grounds for entrepreneurship, there are many as well as many start ups who are making it big. Also what has happened in the last decade is that now Brooklyn is not a lesser cousin but an integral part of NYC as well and there are a lot of start ups and tech people who live there. It is interesting to see how Brooklyn has made it and NJ has not considering that they are both a river crossing away, but Brooklyn has a history and beauty that is tough to compete with.
Here’s a short and random list of reasons why I believe NYC is making it:
-when you leave work you have a lot to do.
-NYC is more environmental than the life in your car Silicon Valley. The ecofootprint of a New Yorker in his high rise apartment is lower than that one of a SV techie in his house in Palo Alto.
-NYC is way more than tech.
-NYC is half way between SV and Europe and SV is in theory closer to Asia but flying times are the same.
-Bloomberg, who had his own financial internet before the internet really gets it and is promoting NYC as a tech town every week, indeed this week he was at Tumblr promoting his tech friendly policies.
NYC is now a true rival to Silicon Valley and that is great news. Chicago is also happening I hear, thanks to GroupOn, not my favorite start up but still a force. And then there is London with Spotify, Badoo and many others. Overall I think that what happened to USA in the last few decades is happening to Silicon Valley now. SV is still number one but in relative terms shrinking in relevance. NYC, London, Berlin, TelAviv, Tokyo, Shanghai/Beijing/Taipei, Bangalore, all valid alternative places for tech start ups.
I lived in NYC for 18 years, between 1977 and 1995. Now when I visit I realize that I owe a lot to that city, my education, my first successful ventures. Would I move Fon to NYC? Well we decided to open our US office there and not in SV. But for us, the engineering talent we find in Spain would be hard to replicate in NYC. Spain as troubled as it is, is a great place in which to have your start up. With 47% youth unemployment and many talented young people if you have a great project you can get the engineers you need for it. It is true that Spanish work ethics are not as good as the American work ethic, but people are realizing that either they truly work or the country will sink. And the attitude is better now than a few years ago. So while I won’t move back to NYC for now I will go more frequently. There are too many admirable people there!
Correction, after writing this post Daniel Ek contacted me to say that NY has become so attractive for Spotify that now they have more employees in NYC than London. I also forgot to mention that large companies like Google and now Facebook have very sizable offices in NYC.
Last night we had dinner with Nina, my wife, Alexis Bonte and his wife, Jimena. Alexis is the French entrepreneur settled in Madrid who is creating the successful game, which I highly recommend by the way, called eRepublik. After dinner we went to the Busuu party. Busuu is another Madrilian start up created by the Austrian Bernhard Niesner and the Swiss/Liechtensteinian Adrian Hilti. I am an investor in Busuu. Busuu is a social net to learn new languages, which I use to learn German. I also recommend it to learn English, German, French and other languages. During the party, which took place in the Puerta de America hotel, several awards were given (all of them as a joke) and there were several entrepreneurs. Here is the video.
After getting back, and preparing a lecture I will be giving at the Red Innova, the Latin-American start up conference in Madrid, I wanted to find out how many “latin” start ups exist, considering a start up any company that has funding, an online product or which is in the market until it makes it to the stock exchange. To give an example from one of the companies I started, I would say Jazztel is no longer a start up but Fon still is (even though it is reaching longevity, size and profit value enough to graduate into a company). So I logged into Twitter and asked about start ups in Madrid, then in Spain, and then, thinking about the Red Innova, in all of Latin-America. The first comment came from @technalia who said that there were so many they would not all fit into a tweet. Made sense. So around 2am I made a simple Google Doc and I asked voluntaries on Twitter to fill it up. You can see how it happened on my Twitter stream. The request was retweeted first across Spain and then across Latin-America.
The result is here. It’s a work in progress and it is still being edited, so if you know of any start up from Latin-America which does not appear on the list, access the form – Wikipedia style – and add it. Or if you have the details on any of the start ups that are already on the list, you may add them as well. The goal is to achieve a sort of Latin-American Crunchbase which serves all of us and where data can be updated and improved by anyone. I also got this map of Start Ups.
Now, what was impressive is that this database was created a Saturday night. And that’s how it is: we entrepreneurs never stop. 2am, 3am and we all work to add data. Now @marcosbl has offered to help improve the Google Doc and use a program to better fit the task at hand. We are waiting for the result. I thank all of you who helped out to make the Google Doc of the Latin-American dreams; the dream to transform an idea into a start up, and a start up into an established and leading company.
What follows is my talk at IE on why European and all non US start ups may not want to move to Silicon Valley, at least not the whole company.
When I left the USA in 1995 and moved to Europe, the start-up scene on the Continent was pretty dead. But a lot has changed since then, and events like TechTour 09 are further proof that there is great talent, capital and great ideas in Europe too. And in a crisis, surprisingly, these three elements are more likely to ignite into a successful start-up.
Last night I spoke at the TechTour dinner thanks to a kind invitation by fomer Fon European, MD Robert Lang, now at Result (disclosure: I am an investor in Result). Nina and I left Madrid around 4pm and arrived in Lausanne at 7pm, stayed until 10pm and then flew back to Madrid. It was a short stay but in those 3 hours we had enough time both to speak and to learn from some of the 150 entrepreneurs and VCs gathered at the event.
My speech was about how the crisis is negative for most but a boom for entrepreneurs. More concretely, it was about how the unique European system of high severance pay and welfare payments (in Europe stock options are not common but extremely large severance pay packages are) constitute a source of capital that can allow a former executive to become an entrepreneur. Many unemployed European executives find themselves unemployed with enough money to devote, say, a year of their lives to a start up without additional compensation. Also in Europe, some very talented people get laid off because it is cheaper to fire them than less talented but older colleagues. And those people are exactly the ones who may be needed in a start up. Lastly, the crisis reduces the difference between large companies, as providers of stable employment and start ups. As people realize that there’s risk anywhere, being the master of their own destinies becomes more attractive.
After my speech I was able to speak with some VCs and entrepreneurs that make the European start up ecosystem very lively. There were many VCs of small funds, funds of say less than 100 million euros, generally funded by Family Offices or holding companies of wealthy European families. What distinguishes Europe from America is that institutional funds are less into start-ups, but fortunately wealthy families whose fortunes came from start ups are more active investors in the area. I end with Poken, a Lausanne based start-up that deserves special mention. Poken is a little device that “shakes hands” with other like devices and in so doing exchanges information about their respective owners. Pokens are great for conferences and events as they are time savers for people exchanging information.
Here are some pictures of the event.
Last Spring we cut our burn rate at Fon. We reduced our head count from close to 100 to 60. It was painful. It was sad. But it had to be done, since then Fon has grown faster than ever. Not because the people we let go were not doing anything. Quite the contrary, they had been doing a lot. But many times, a start up is about first building a platform and then managing it. And just as it takes hundreds of people to build an office building but less to run it, it also takes less people to run a platform like Fon than it took to build it. Bottom line is that when we went from 100 people to 60 we managed to grow revenues faster than ever before and to cut losses from over 1 million euros per month to 350 thousand. We also grew to one million foneros around the world. Our revenues grew from 20K euros per week to 50K and the good news is that these sales are mostly cash into the company (Fon is like a telco without capex or opex). What we also achieved is to stretch our investor´s money into 09 and to need a very small round to break even.
Looking back, I am very pleased we did our adjustments in the Spring, because if we had had to be raising money this October we would be in serious trouble. The markets simply suck right now, and even though VCs tell you that they are in this for the long run with Google, Yahoo, Apple down over 50% and no exit horizon, believe me, either they will pass or ask for a 50% or more haircut in valuation themselves.
My advice to CEOs of start ups then it´s tough, really tough, but it is to do what we did at Fon. We cut our burn rate by 70% mainly by reducing headcount, raising revenues, raising margins, and particularily by raising margins on the sale of the foneras themselves, which we used to give away practically for free. In our case, we discovered that the free mentality of the internet was not especially good for a wireless community, as most people who got their routers for free did not connect them, while those who paid were more serious about the whole thing. Moreover, we are now about to raise the rates we charge Aliens who connect to Fon. Partly because we need the money but also again to show the value of becoming a fonero and share and never have to pay. We only charge $2 per day while other WiFi companies charge way over $10. Plus the value of our passes increases as we have more hotspots. Fon now has 10 times more hotspots around the world than our second closest rival. In the UK and Japan our coverage is especially good. With this crisis, Fon cannot think of deep pocketed investors continuing to cover high burn rates, regardless of the fact that our investors are BT, Google, eBay, Itochu, and some of the largest VCs in the world. eBay for example, announced today that they are letting go 10% of their workforce and this is probably the beginning of many job reduction programs that will happen in the next 12 months at the big companies.
I know it´s hard to tell a start up CEO to fire half of the people he or she has in the company, because in a start up environment groups are small and strong emotional bonds develop. But the way I see things, we are on to a period similar to 2001-2005 and it´s either half, or all. And maybe it´s first half and then all but it´s worth the try.