Why now is the time for European startups

Why now is the time for European startups

11th June 2012 by Jeff Lynn

It may seem like an odd choice to be launching an investment platform in Europe these days. Granted, for the moment Seedrs is limited to the UK, which is somewhat insulated from the most extreme distresses of the Eurozone. But the economy is in far from ideal condition even here, and and in any event we make no secret of our ambition to expand to the Continent as soon as we can. Are we crazy, or is there method in the madness?

If we were creating a platform for quoted shares of developed companies, or for government bonds, or for any of the other asset classes that face a long and painful period of stagnation in Europe, there would be a compelling case that we should be sectioned.

An investment platform for startups is different, because startups are different. We see tremendous growth ahead in both the number and success of innovative European startups, and we think it will happen not in spite of economic conditions but (largely) because of them. Great businesses are often started in difficult times, and there are three very good reasons why:

1. Decreased opportunity costs

It is said that there are few things in this world more addictive than a regular pay cheque. When times are good, would-be entrepreneurs—the people with great ideas and the energy and ambition to execute them—are often hesitant to leave the security and prestige of a steady job to face the risks and discomforts of startup life. But when times are tough, the lack of enticing opportunities elsewhere changes the risk/reward balance, and suddenly pursuing that brilliantly innovative idea you’ve been mulling over becomes a more acceptable choice. This is true not only for founders but also for employees: the significant pay cut that tends to come with leaving a large company to go work for a startup stings less when it’s not clear if you were even going to have a job at that large company next week.

2. Decreased competition

I am of the school that even in good times, large, established companies are rarely able to compete with agile, entrepreneurial startups when it comes to disruptive innovation. The behemoths may be great at commercialising their products and innovating on an incremental basis, but the bureaucracy and legacy issues they face mean that real game-changers tend come from two guys in a garage. In a difficult economy, this holds even more true: on top of their existing limitations, now the larger players are burdened by the need to rationalise and cost-cut, and allocating resources to long-shot projects with no clear commercial benefit—which is almost always how disruptive innovations start—becomes even more infeasible than in a boom. Startups therefore face a wide open net, as they become the only enterprises even trying to create the next big thing.

3. Increased government support

When growth slows among existing businesses, governments naturally look to new businesses to create society’s new jobs and wealth. Government involvement in supporting startups can be a mixed blessing, and when the man in Whitehall tries to become a venture capitalist and pick the startups to back, it is rarely good news for anyone. But when government provides the right tools and incentives for private investors to invest in startups, and then for those startups to grow, the results can be much more encouraging. The clearest example of this is through tax relief: we think the UK government’s new Seed Enterprise Investment Scheme (SEIS)—a scheme borne of recession—will have a substantial positive impact on getting new businesses off the ground, and hopefully other European nations will follow suit with similar programmes. There are other things that government can do, too, and often without putting a strain on the public purse—the exercise of “soft” power, generating publicity and convening different constituencies around a table being a prime example—and we’re already seeing much of this both in the UK and throughout Europe.

The coming years are going to be difficult for many Europeans: there will be significant suffering in truly destitute nations like Greece, and even in wealthier northern Europe the belt-tightening—and all the social disruption that goes with it—is unlikely to end soon. That is deeply unfortunate, and all of us hope for a speedy return to flusher times.

While the clouds remain, though, we may as well try to find the silver lining, and I believe that it will be found in the great new businesses that get off the ground over the next few years. Britain and Europe have long had the potential to produce the next Google or Apple. I think that current conditions make this an ideal time to achieve that potential.

Thoughts? We’d love to hear your contributions and feedback in the comments below.

Jeff Lynn

Jeff Lynn

I'm Executive Chairman and Co-Founder of Seedrs.

Digital Agency Kent