Thu, Sep 24, 2015 - Page 9 News List

EU working to encourage start-up growth, but will it be enough?

By Matti Huutanen  /  AP, HELSINKI

Micha Benoliel grew up in France and launched his first technology start-up there, but he never forgot the atmosphere of adventure and optimism in San Francisco, where he studied in the early 1990s.

So when he came up with an idea for a smartphone app that could send messages without Internet or cellular connections, he went back to California in 2011 to pursue his dream.

“I knew the only way to change the world was from here,” said Benoliel, the CEO of Open Garden, the maker of the FireChat messaging app.

As technology upends industries and lifestyles at breakneck pace, the old continent is not producing any of the online giants like Google, eBay or Facebook. Its best and brightest prefer to emigrate to Silicon Valley, or sell their ideas on to US firms before they have a chance to establish themselves.

The EU’s top executives in Brussels are trying to rectify that with a long-term plan of reforms and incentives, but face an uphill battle. The 28-nation bloc is, above all, lacking in the risk-taking culture and financial networks needed to grow Internet start-ups into globally dominant companies.

“In the US, especially in Silicon Valley, they are up for any crazy idea,” 43-year-old Benoliel said. “Successful businesses often come from crazy ideas.”

Europe’s relatively cautious attitude to investment stands out as one of the biggest hurdles — and among the most difficult to change.

Investors in Europe want to see that a young company can generate revenue from the start. Europe’s many high-technology companies are focused on manufactured goods that can be sold right away to generate revenue — industrial equipment, energy turbines, high-speed trains, medical devices and nuclear energy.

By contrast, Internet companies often have little to no revenue at the beginning. For example, Twitter and Facebook first focused on building up their user numbers. Only once they were established as global forces did they put more attention to making money, through advertising and other strategies.

This difference in mentality stands out as one of the key reasons why Europe has fewer venture capital firms and less investment in start-ups than the US or Asia.

Over the past five years, US venture capitalists spent US$167 billion on new business ideas compared with about US$20 billion by their European counterparts, according to the US’ National Venture Capital Association.

Last year alone, US investment in start-up companies was US$50 billion, with nearly half of that amount in Silicon Valley. The European equivalent paled at US$4 billion.

Asia, which has seen the rise of Internet retailer Alibaba Group Holding Ltd (阿里巴巴) in recent years, also outshone Europe, with venture capital totaling US$22.5 billion last year, according to Preqin, a data analysis company. That figure is set to surge further this year, with US$23 billion invested already by the end of last month.

Early investment is crucial for start-ups to be able to get their products to market quickly. With technology, several competitors often work on the same idea and race to get out their product first and make it stand out.

“These are very fast-moving, winner-take-all industries, so if you are slow on the uptake then you will be done from the beginning,” said Anand Sanwal, CEO of CB Insights, a New York research firm that tracks Internet start-ups.

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