Silicon Valley, popularly known as the ‘tech capital’ of the world, is also long-revered as the global ‘startup capital,’ beating out cites such as New York and London as the global startup hub.
With an entrepreneurial culture buoyed by the mantra ‘fail fast’ and opportunities for venture capital funding in big funding rounds, Silicon Valley produces the highest number of billion-dollar tech companies per capita.
So, how did music streaming service Spotify disrupt the music industry from Stockholm, Sweden?
“They built a global brand from day one, and that is why they are successful,” said Carlos Diaz General Partner at San Francisco-based Seed Fund program The Refiners, during remarks to attendees at Web Summit 2017.
Europe is fast developing a thriving startup scene; in fact, Stockholm produces the second highest number of billion-dollar tech companies per capita behind Silicon Valley. Elsewhere, Eastern Europe has experienced significant market growth in recent years, and the United Kingdom remains a magnet for startups and tech innovation despite Brexit.
But, Diaz maintains that European startups should not neglect the US market and Silicon Valley due to its overwhelming funding dominance.
Though early stage seed funding is slowing from its peak in mid-2015, the funding gap is still substantial. For example, France invested USD 1.5 billion in tech companies in 2016, whereas U.S.-based venture capital firms invested USD 69 billion in U.S. startups in 2016.
“The magnitude is just crazy,” he said. “I’m not telling you to move to the US – stay in Europe – but be in the US!”
Diaz suggests that startups take the Spotify approach: stay in Europe, but have a foot in the door in the USA.
“Who said you have to be in just one country?” he asked.
“More than ever before, global markets are easier to reach, access and monetise; this means that you can go straight to the market which is most appropriate for your product or service rather than assuming your domestic market will be the one to exploit first,” Professor Vikas Shah, CEO at Swiscot Group and Founder of Thought Economics, told ITU News.
But for him, the idea of startups ‘going global’ should not be limited to the US.
“We think of investment markets as having borders when – in fact – investors and capital are global.” — Vikas Shah
“It’s not for us to see whether Europe can compete with the US in terms of investment, but rather how we can plug into the huge flows of wealth and capital around the world which enable startup growth,” says Shah.
Over 2,000 startups exhibited at Web Summit 2017 – which promotes itself as ‘Europe’s largest and most important technology marketplace’ – hoping to promote their products, find new customers and meet investors.
Those exhibiting hoped to plug into international markets and new capital. Although some hesitation remains – as many prefer to take a traditional, strategic approach by establishing a viable product offering in one market before launching into the next.
“Our main strategy is expanding throughout Europe first through London, and then go overseas as soon as we can,” said Maurits Elzinga, COO at Flexentral, a ‘smart’ universal labour contract on the blockchain, based in Almere, Netherlands. “For now, we think we need to focus on our platform, improving that, before we [are going to] make that step… I don’t think it is a natural strategy to go global at once; you want to build it step by step.”
While some startups have found success by cornering local markets before expanding, the new strategy of going global requires a change in thinking for some founders.
“Thinking globally also means thinking about where you will scale next, and how you will scale your business,” Shah says. But, he maintained that ‘going global’ requires guidance as well as bravery. For some, it simply may not be the right time.
“The number one reason for startups to not go global is a lack of ambition; far too many follow the ‘comfort’ of their domestic market without really considering the opportunities that lie in other markets or, indeed, frontier-type markets. For many others, a lack of good advice on how to globalise is also a huge challenge,” says Shah. “There is also the fact that startups are opportunity-rich, and capital-poor, and it may simply be that they are prioritising other parts of the journey.”
Lucy Spencer (@inquisitivelucy) is a freelance writer whose focus areas include tech startups and how information and communication technologies are improving lives worldwide. She was previously a Communications Officer at ITU. You can read more of her work here: naturally-inquisitive.com