Speaker 1Black Friday is coming. Last year, businesses on Shopify made billions in sales. This holiday season, you could be one of them. If you start now. Shopify helps you launch fast, so you can design your site and start selling before the biggest shopping days of the year. What are you waiting for? Tis the season to start selling. Start for free at shopify.com.
Speaker 2Say your company needs something your own city does not have. A growth investor who knows your sector. A head of sales who has done this. A big customer in another country. It exists somewhere in Europe. Can you actually use it? Here is one data point that should make you ask. When scientists in European hubs publish together, the European Commission scores Europe's network at 0.76. America 0.81. Almost level. When investors in different hubs file patents together, Europe instantly drops to 0.4. America 0.68. That does not tell us everything about how to start up scale, but it tells us that the connection between Europe's hubs gets weaker as research moves toward a product. Today, islands of excellence, the world's biggest exporters, and the world's largest exporters, have come together to share their knowledge of scale. The world's largest exporters, and the world's largest exporters, have all come together to share their knowledge of scale. The world's largest exporters, have all come together to share their knowledge of scale. country without any shared patent. A company can license a technology or hire someone remotely without a shared patent. And a part of the American picture may be that more U.S. companies have teams in several hubs under one parent company, so the investors in different cities show up as links. The study names possible causes, national rules, language, different legal and of course tax frameworks, but it does not provide which one matters most. So I will not tell you this number proves where every European bridge breaks. What I will say is this, the link between European hubs gets weaker as you move from research towards commercial invention. That is worth testing in the parts of company the patent data cannot see. The strongest objection. Now the other side in its strongest form. Maybe Europe's real problem is too few hubs have enough growth capital, enough large customers and enough experienced leaders. Connecting them more will not create resources that are missing everywhere. And a founder should choose the best partner for the company where it is. In your own city, in another European hub or in the U.S. I think that objection is partly right. If the resource does not exist anywhere in Europe, no bridge will help you. And the evidence today does not settle whether Europe needs a few much stronger hubs or just better links between many. Probably both, depending a little bit on the sector. But here is where I part ways with it. When a resource does exist in Europe, the extra costs of reaching it across a border is real and is paid by the founder. The EU is, I think, a very good example of this. The EU's own research on venture and growth capital published in October 25 describes Europe's market as still fragmented and lists legal, tax, and market barriers to investing across borders and to raising money from pension funds and insurers. More money behind the same borders would make every hub richer. It would not automatically make them easier to reach. So the useful goal is not connectivity for its own sake, but it's building valuable capabilities and making them cheaper to reach. We should judge the links by what they let a company do. Chapter nine, five areas, five founder decisions. So let us get practical. Think of five areas where your company may need something from outside your home hub. Capital, people, customers, know-how, and your company structure itself. For each, here's what we know, what we do not know, and the decision I would take. Keep in mind, this is no legal or financial recommendation here. Take it at your own risk and do your homework. Capital, what we know, the EU's own capital research finds barriers to cross-border investments and to fundraising from large institutions. What we do not know from public data is how often a good round fails because of a border. If I were a founder, before your next round, look beyond your home network for investors who understand your sector and can back your next stage. Ask every fund two questions. Does your mandate let you invest in my country? And how much do you keep in reserve for follow-on rounds? A fund that loves you but cannot follow you is not your lead. People, what we know, Dealroom reported for Europe and Israel in 2022 that 56% of startups founded by Unicorn alumni were started in the same city as the Unicorn. What that does not tell us is how far those founders' experience reaches. A founder can stay in Berlin and still hire in Stockholm, raise in London and sell in France. Local founding and wide reach can go together. If I were a founder, when you hire your first leaders for the 50 to 500 employee stage, start from the capability gap, not the postcode. So if I were a founder, when you hire your first leaders for the 50 to 500 employee stage, start from the capability gap, not the postcode. search beyond your home hub when the skill is not there and check early what it takes to employ someone and give them equity in the countries you are likely to hire
Speaker 3from you have options when forming a business the attorney who charges more than your revenue the online forum where strangers argue what's right after 25 years and 5 million businesses launched legal zoom knows what a wrong move can cost we don't just file we're with you after launch with independent attorneys and business managers ready to help when you need a legal hand visit legal zoom legal zoom provides access to independent attorneys and self-service tools legal zoom is not a law firm it does not provide legal advice hey guys thanks for sticking
Speaker 2with us let's keep going a quick word on how this show works started by you it's funded by partners and the partners we like best are the ones who make things easier to reach across borders funds that invest across Germany Austria and Switzerland corporates that buy from startups in other countries regions that want founders in Berlin Munich Vienna and Zurich to know what they offer if that is you your listeners are the founders and investors we you are trying to reach find out how we work together at startupbrite.io now back to the five areas customers a German startup should not have to become international just because it's the next big customer is French in practice it often does now contact habits new procurement rules and maybe new language and a new sales team how big is that friction the IMF estimates that barriers inside Europe work like a tariff of around 44 on goods and 110 on services the IMF itself calls that an upper bound and other economists disputed it is a model of trade costs not a bill not a bill your company pays but it tells you the friction is not imaginary here's a decision I would make in your second market choose it where you have the strongest evidence of customer demand and a credible way to sell not where the train is shortest a nearby market like Austria Switzerland can be a cheap place to learn to win a pilot customer and test your sales process but do not mistake Germany and Austria and Switzerland for scale together they still smaller than the market an American competitor gets at home use the corridor to learn then go where the demand is now how this is where you could have an advantage no city has to be best at everything Munich Zurich Eindhoven Grenoble Stockholm and Cambridge can each specialize but specialization only helps if companies can reach it and the patent data suggests this is where Europe is weakest if our founder in deep check identify the capability you are missing then the best partners to supply it whether that is your own University or team in another country and when you do partner across a border sort out who owns the resulting IP before the work starts not after investors care about clean ownership of course your company structure in part 6 Capital Gravity we describe companies moving their parent company CEOs and listing plans through America as they grow sometimes that follows customers Capital or the executives they need sometimes it is a missing European option from the outside you often cannot tell which if I were a founder once a year ask yourself the Capital Gravity question where is your parent company where does your CEO work where are you seeing your commercial hires where do we expect to list and if the answers are moving fast write down why if the reason is that something exists in Europe but costs too much to reach that is exactly the friction this episode is about superclusters are proposals and not proof there's a good idea for making Europe's spread out map work Deal Room has argued for treating the harps within a four-hour train ride of London as one supercluster which it calls the new Palo Alto Global Venturing reported that the Real Room also sketched the second one around Munich linking Berlin Milan Vienna and the Swiss Cantons those are proposals drawing a circle on a map does not mean a company can use what is inside it in the same term for our listeners the real test case across Munich Vienna and Zurich two of Europe's top five innovative regions three countries and Switzerland outside the EU the network test so instead of asking every region to build its own Silicon Valley. Here's a test you can run on your own company. Let's call it the network test. For the next capability your company needs, find the best option at home and the best option elsewhere. Can you actually use the outside option? What extra time, costs, or eligibility rules come with it? And what would change for your company if that friction disappears? A few rules. So the test means something. Only count things your company actually needed. A specialist fund saying no to a company that does not fit is not a border problem. Moving the whole company should not be the only way to get access. And count the cases where it worked too. To be clear, this is a test we are proposing, not one we have validated. So here is why I ask. If you have run into this, around, hire, a customer or partnership that worked or failed because it sat in another hub, send it to [email protected]. I'll use real cases to test this framework in a later episode of this series. If I were an investor, investors briefly, if I were running a fund in Germany, Austria, or Switzerland, I would build co-investment relationships with fund in other hubs early. So you have partners for the later rounds you cannot carry alone. If you are a limited partner, ask your funds which follow-on rounds they had to pass on because of border. If you are corporate, the cheapest improvement you can make is a buying process that a startup from your next country can actually get through. Forecast. The EU Inc. Advancing a company form for startups across Europe is the most direct fix for the company structure problem in this episode. Its supporters want the first company funded under it in 2027. My forecast. On the record, and I first made it in part six, no startup will be able to register as an EU Inc. in any EU country before the January 1st 28. If a registry accepts one before that, I was wrong. My reason? A new company form has to get through EU governments and the European Parliament, and then every single national registry, tax office, and notary has to be ready to handle it. Each step takes time. Confidence, 75%. And one more. To be precise, this forecasts wording in a report, not the state of the market. The next edition of the EU Startup and Scale-up Index will again name late-stage funding as a constraint. Confidence, 85% and upward. If no new edition appears by the end of 2027, that one stays open. Synthesis. Europe has spent two decades building strong startup and innovation regions. In many places, it worked. The next question is a different one. When a company needs something that exists elsewhere in Europe, how hard is it to use? The data says the link between Europe's hubs is close to American levels in research, and much weaker in commercial invention. That does not explain the whole scale-up gap, but it points to a cost founders pay every day, and one that policy can reduce. Europe has its islands of excellence. The question is, how cheap it becomes to travel between them. There's more to this story. For EntrepreneurVote members, I got a one-level deeper. I run the network tests on the Munich, Vienna, and Zurich corridor, area by area, as a desk assessment. Members get a city-by-city table of where Unicorn Alumni founded their next company, what it can and cannot tell you, and a stage-by-stage checklist for founders deciding what to reach for outside their home hub. The full Entrepreneur's vote, vote analysis is available to members. Join either on YouTube or on Substack. Both links are in the show notes. Next week on Startup Radio, more interviews and news from Germany, Austria, and Switzerland, and the European scale-up question continues. This is StartupRate.io. That's all folks. Find more news, streams, events, and interviews at www.startuprate.io. Remember, sharing is caring. We'll see you next time on StartupRate.io. Speaker 3You have options when forming a business. The attorney who charges more than your revenue. The online forum where strangers argue what's right. After 25 years and 5 million businesses launched, LegalZoom knows what a wrong move can cost. We don't just file. We're with you after launch, with independent attorneys and business managers ready to help. When you need a legal hand, visit LegalZoom. LegalZoom provides access to a wide range of information, including information on how to apply for a job, how to apply for a job, how to apply for a job, how to apply for a job, and how to apply for a job. You can find more information on our website at www.startuprate.io. LegalZoom. LegalZoom provides access to independent attorneys and self-service tools. LegalZoom is not a law firm and does not provide legal advice.
PodcastTranscript AI