EXCLUSIVE/ European Union tech is no longer falling behind its international competitors, Skype’s co-founder told EURACTIV. Instead, it is picking up the pace at the “best time” to be a tech investor or entrepreneur in the bloc.
Niklas Zennström is co-founder of Skype and CEO of Atomico. In 2005, Skype was sold to eBay for $3.1 billion, the largest EU venture capital exit to date. Niklas is also president of the European Tech Alliance, which launched yesterday (27 October) in the European Parliament in Strasbourg. He spoke to EURACTIV deputy news editor James Crisp.
You can listen to the interview on Soundcloud or read the transcript below.
Why have you set up the European Tech Alliance?
We set up European Tech Alliance because today there are so many successful technology companies coming out of Europe. But there has not yet been a single voice for the European Commission to speak to these companies.
We may have these great companies, but are the conditions right for a successful exit [when investors leave a project by selling it or making it public], such as the one you enjoyed with Skype?
Today is the best time to be a tech entrepreneur and tech investor in Europe. We have really created very, very strong tech ecosystems and we have tech hubs in places like London, Stockholm, Berlin, and great companies coming from other places.
You have capital, you have talent, you have experienced people, and you have successful entrepreneurs investing in new start-ups.
But are we having the exits? Are we having the initial public offerings (IPOs)?
In 2014, Europe had both more tech IPOs than US and also raised more capital from the IPOs. So yes, it’s happening.
There’s a perception that Europe prefers the status quo to innovation. Do you think that is fair?
I think it is very hard to say Europe, because it is hundreds of millions of different people. For sure there are growing number of entrepreneurs who are disrupters and creating world leading companies. But very much of the public debate is about the status quo and we need to change that. We need to start thinking about the future, instead of thinking about the past.
We have a lot of anxiety about data protection. We have had the European Court of Justice strike down the Safe Harbour agreement. The European Commission is conducting multipole investigations into US tech giant. Does that have an impact on investment in Europe?
These things don’t have a big impact on an investor looking at opportunities here. It’s bigger than just EU and US. We need to have a global mindset. I have never met an entrepreneur in Europe who says we need to have more protectionism. Entrepreneurs here in Europe want to make it easier to build companies, break down national barriers and make it easier to scale up their businesses.
How will the Digital Single Market strategy help them to do it? Will it be a kind of springboard to help these businesses grow globally?
The DSM is a very good initiative, and we support it. It’s about taking away a lot of barriers to scaling up businesses. Having said that, it’s also important to create a platform so companies can grow beyond Europe and become global companies.
Does Europe have the digital infrastructure it needs?
Europe has a very good infrastructure in terms of broadband and smartphone penetration. It can always be better. We still have challenges when you travel between countries for example, and the broadband isn’t as good.
+Punching its weight+
What are the biggest barriers to start-ups scaling up? What’s the first thing that needs to change?
Scaling up any business is always very difficult. There’s competition and that’s a challenge. Very few entrepreneurs are saying they can’t scale up because of regulation. Regulation sometimes makes it harder. In the end it is making it easier to hire people across different geographies and countries, it’s about unifying VAT, which is also very difficult. Those are the biggest challenges.
If those things don’t happen, does Europe risk missing the boat?
Europe is not falling further behind. Europe is growing very, very fast. In the last ten years, we created 33 software companies in Europe with billion dollar valuations. It is not falling behind. Europe is picking up the pace and punching its weight.
But if we look at venture capital fundraising in Europe, a lot of that money is public money. Doesn’t that mean that the market is broken?
The limited partners, the ultimate investors in European VC, are different types of investors…
Like pension funds?
Unfortunately, the public pension funds are not participating as much as they should, which I think is a big problem. Founders want to build companies for a long duration and for that we need long-term capital. And what is more long term capital than public pension funds?
It’s a pity they are not participating more in helping to grow these companies and give the pension system the opportunity to benefit from the value created by them.
Pension funds need returns to meet their liabilities?
For sure. They need stable returns. The other asset classes are not having that great returns, so it’s a pity they are not taking advantage of this opportunity.
But people do not think of start-ups as a long-term investment. They think of them as something you back for five or six years and then exit. Is that an incorrect perception?
If you look at the founders of the companies, they want to build great companies for a long term. Sometimes they exit, but if you compare it to the public market, five to ten years is pretty long-term.
Depending on the asset class, I guess there’s a difference in attitude between founders and investors. A founder may want to stay with his or her baby.
Today there is more possibility for founders to stay with companies. There’s a good market for secondary trades, so early stage investors can exit, but the founders can stay with their companies.
+Digitising the economy+
The digital economy has a broader impact than just the tech sector. It’s relevant for traditional businesses as well.
Those companies are increasingly becoming digital companies. The reality is that all sectors in our economy are being transformed by software. And if they are not becoming software companies, they will have to do so in the near future. That means they too will benefit from the Digital Single Market.
What is the next tech innovation that will stun the world? What’s the next Skype?
Finding the answer to that question is why I wake up early in the morning and meet lots of start-up companies. The reality is it is very difficult to predict what is going to be the next really, really big thing.
If you think back when we started Skype, for example, no one thought it would be the next big thing. When Google started, people didn’t say the next big thing will be search. As a matter of fact, existing search engines were exiting search to become portals. No one foresaw Airbnb, no one foresaw Uber.
We need to be open to great innovation. What is so interesting today is that there are so many enabling technologies that create opportunities for entrepreneurs to disrupt and innovate. Things like mobile, Internet of Things, machine intelligence, Big Data, robotics and so forth. These technologies in combination are toolkits for entrepreneurs to innovate and disrupt markets.