Yeah, Where are all the %&*#$@ Startups?
A while ago, Tom Coates posted a caustic rant asking “Where are all the UK start-ups?” His thesis was simple: Brits are as creative and ambitious as the best of them, so why are there so few truly exciting British startups? (A corollary might be: why do Brits use so many spurious hyphens, but we won’t go there.) There are a number of insightful observations in the comments for this post that suggest various plausible explanations.
From my perspective, the most important thing to add to this is that it ain’t just about Britain. I can only comment on what I know, but I would say with some confidence that this problem is shared by all of Europe. In fact, the real question may not be “Where are all the European startups?” but rather “Why does the United States have so damn many startups?”
I have an opinion about this, naturally, and Paul Graham’s latest essay sums it up nicely in a way that makes the big picture crystal clear. While I feel that Paul has been a bit over-the-top recently in seeming to advocate that everyone run out and start their own company, in this case he really hits the nail on the head. It’s a great essay, and an important one at that. What makes it so powerful is that he starts with a premise that most (and certainly most granola-munching Linux hackers) wouldn’t dream of objecting to, namely that reducing inequality of wealth is a Good Thing. He then proceeds to illustrate why this goal results inexorably in a corresponding reduction in business innovation, in the form of start-up businesses.
I would answer Tom’s question (or rather, my generalized version) in exactly those terms. There aren’t more European startups because European governments have gone out of there way to distort the risk/reward ratio of starting a startup, all in the name of reducing inequality. As any European entrepreneur knows, it’s much harder to raise early-stage financing over here because the (so-called) VCs are far more risk-averse. It’s harder to make ends meet in the first few years because you don’t get the same fabulous tax breaks as your U.S. counterparts. And if your company fails, as the vast majority of startups do, you are penalized far more (financially, legally and reputationally) than you would be over the pond.
We can lament the social inequities of U.S. society, and we can lament the lack of hi-tech innovation here in Europe. But, as Paul ably illustrates, we can’t have it both ways.
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I agree to a certain extent with some of Paul Graham’s commentary - he is certainly cheerleading for startups like nobody’s business (and putting his money where his mouth is!). I think like many people who have been proved right once he has subsequently spent a lot of time being gloriously wrong - see “Hackers and Painters”.
I do however generally agree with your analysis of the European attitude to risk, particularly pertaining to funding software.
Comment by James Bishop — 9/7/2005 @ 10:56 pm