Europe: a great place to build big businesses
I would be quite happy if I never heard the word ‘unicorn’ again. It must surely be one of the most over-used terms of 2015. For those of you who don’t operate in the VC/ start-up world, a ‘unicorn’ is a private company valued at more than $1bn. Of course a high valuation is an indicator of a successful business, and a billion dollar valuation is attractive to any founder or investor – but entrepreneurs focus solely on company valuations to the detriment of their customers. And that’s not a great long-term plan. In fact, the run up to the recent Square IPO demonstrates what I mean. Chris Meyers, a contributor at Forbes, hit the nail on the head when he wrote:
“We’ve somehow found ourselves in a situation where every new company that “matters” has to be on a quest to disrupt the universe, rather than simply build a great business. When Square made its debut on the market, it solved a tremendous need for small and mid-sized businesses by making it easy and relatively affordable to accept credit card payments. Unfortunately, when valuation and growth expectations get out of line, it forces companies to build up what I refer to as a “hype deficit.””
In the long term, a strong valuation must be the result of a great business, a great product market fit, and great leadership. It should not be an end in itself.
US v Europe
In 2015 the ‘unicorn’ discussion also became a springboard for continued comparisons between the US – in particular Silicon Valley – and Europe. According to tech investment bank GP: Bullhound, Europe produced 13 new companies with a valuation of $1 billion or more in the year 2015 (up to May), compared to 22 in the US. But if you look at the valuations of all businesses with valuations of $1 billion or more in Europe combined, it equates to $120 billion… this compares to a market cap of $227 billion for Facebook alone. So it’s fair to say a substantial gap still remains between the high-growth business scene in Europe and the US. That said, the US market has been at this game far longer than Europe, so on balance, Europe is actually doing pretty well.
A vibrant VC environment is only one of the factors needed to make an entrepreneurial ecosystem thrive. Equally important is government investment and interest – something the US has done well in the past. And something we see being embraced in the UK and much of Europe now.
July saw the launch of Sherry Coutu and Reid Hoffman’s Scale-Up Institute – an initiative designed to unite industry and the public sector to help increase the proportion of scale-ups in the UK. By Coutu’s definition a ‘scale-up’ business has growth of more than 20 per cent per year.
Deloitte has also written a full report on the challenges surrounding scaling up businesses, which is worth a read. According to its research, a commitment to scaling businesses has the potential to generate between ￡70bn and ￡225bn for the UK economy, in cumulative GDP terms at today’s prices, between now and 2034.
And finally, Tech City UK has created the Upscale initiative - a six month programme for UK tech founders scaling fast, supported by ‘scale coaches’ including the likes of Niklas Zennstrom (Skype), Alex Chesterman (Zoopla) and Simon Calver (Moo.com).
When it comes to supporting high growth businesses, I think Europe has much to be proud of.