RATHER THAN ONE CENTRAL "SILICON VALLEY," THERE ARE CENTERS OF INNOVATION ALL OVER EUROPE.
As Brexit continues to make headlines, entrepreneurs are watching closely to understand the potential ramifications on regulations and opportunities for business expansion in Europe.
Beyond the Valley
Unlike the US, where Silicon Valley dominates the tech sector, Europe's digital entrepreneurs are not concentrated in a single city or region, rather they are spread across many countries. Cities such as Paris, Berlin and Lisbon have become hubs for a variety of industries. Plamen Russev, founder of Webit, a series of international tech conferences, notes that his native Bulgaria has developed a reputation for its work in cyber security and artificial intelligence.
Although members of the European Union dominate the continent, three non-EU countries are included in the discussion: Russia and Armenia for their work in robotics; and Israel—with close alliances throughout Europe—for its expertise in mobile tech.
Serial entrepreneur and investor Debu Purkayastha, managing partner of venture capital firm 3rd Eye, says the West has an advantage when it comes to launching successful product companies, but that innovation isn't geographically limited. The future will be shaped by entrepreneurs from all over the world pursuing the next great out-of-the-box ideas. The critical challenge is to find ways to support and fund the transformation of those ideas into viable businesses.
The Fifth Freedom
In 1957 the Treaty of Rome established the European Economic Community, the precursor to the European Union, listing "four freedoms" essential for trade: movement of goods, services, people and capital. Many argue that in the digital age, a fifth freedom is needed to ensure the protected movement of data.
In contrast to the US where data, governed by federal rules, moves seamlessly from state to state, the free flow of information—essential to the development of an entrepreneurial economy—is more complicated in Europe. For example, privacy rights such as the right to be forgotten can block any mention of the person to be forgotten, which makes due diligence that much more difficult.
The Case for Social Impact
Impact investing, which measures success both in terms of social and environmental benefits as well as financial returns, has taken root in the US among individual investors and philanthropies. By contrast, in many European countries, the government is in the best position to spearhead investment. Since private foundations are less likely to be established when cities and states are tasked with supporting social impact projects, the system is self-perpetuating. Given philanthropy's critical role within the entrepreneurial ecosystem, the panel sees a need to improve charity sustainability.
Regulations, Taxes & Time
In the UK and in Central and Eastern Europe, regulations make it easy to hire and fire at will. This is more difficult to do in Western Europe. Also, countries such as France provide temporary financial support to the recently unemployed. While such programs tend to translate into higher taxes, they also make is easier for would-be entrepreneurs to take a risk starting businesses.
From an investor's perspective, there are pros and cons to both systems. Fewer workforce regulations generally translate to lower labor costs and more flexible workforce. Low corporate taxes are another draw since it means more capital either to invest in the business or to distribute among investors.
Russev says Europe is filled with hardworking people with undervalued ideas waiting for the right opportunity. Investor Marcus Goldberg, founder of Maslow Capital and co-host of the transdisciplinary innovation "unconference" KINNERNET Avalon, agrees. He believes government's role is to provide infrastructure and a stable legal system, which are essential to attract international investors who will support entrepreneurs. The difference between investing money and allocating money, he observes, is who benefits and who carries the loss.
Whichever system or region, Purkayastha notes being based in Europe comes with an added perk: a time zone position that makes it easier to work with colleagues from North America to Asia.
The Speed of Innovation
Another challenge facing startups in Europe is that Europeans tend to expect investments to succeed, which translates into an aversion for risk. This limits the opportunities for truly game-changing innovation since the past can be a poor proxy for future wants and needs (see smart phones). By contrast, American investors have a higher tolerance for failure, spreading their bets in the hopes that even if some businesses fold, others will more than make up the difference.
The panelists agree that European investors need to take bigger risks and that deals need to be closed more quickly in order to keep up with the pace of innovation. This is becoming even more urgent given increased competition from China.
by Carson Brown, Medill School of Journalism
Co-host, KINNERNET Avallon
Board Member, Cambridge Enterprise, Cambridge University
Managing Partner, 3rd Eye
Founder & Chairman
Advisor, Technology Partner Network
Bill & Melinda Gates Foundation
Advisor, World Economic Forum