Hail the hidden champions: why fringe markets may beat Silicon Valley

In January, Speedinvest, our first time seed fund, turned half a year old. Even in startup life, that's quite young, yet it feels like ages. In this first of a series of observations, I want to share my specific experiences and hopefully learn from your feedback.

When I speak with friends in Silicon Valley, they don't explicitly put it that way, but I get the feeling that's how they still judge startups from Europe, especially from regions outside the so-called hotspots like London and Berlin.

Are we really desperately behind in following the hype cycles and trends, is all the exceptional Central European talent already living in studio apartments in San Francicso or NYC? Well, quite a few talented teams from Central and Eastern Europe (CEE) have moved into larger markets. But this isn't the rule.

Read on over at The Next Web.

Metrics for Startups – Speedinvest Insights

When we started Speedinvest we had one ambition that we are trying to fulfill every day: be as entrepreneurial as an investor as possible. This is easier said then done, because the day to day business is truly different than that of the average entrepreneur. We have looked at over 200 companies in the past 6 months, made over 100 personal meetings and invested in less than a hand full of companies, meaning that we are more driven by our calendars and email inboxes, than by product development. What is the “product” of a successful investment fund anyways? We think that it is the value and the specific services we can offer to the companies we invest in. That is what we need to work on, because after all the startups are our clients.

Thus being entrepreneurial means not only to understand the trials and tribuluations of a startup, but also to provide meaningful help to portfolio companies and others in our region along the way. That is why last Friday we hosted our first Speedinvest insights, a get together planned to be hosted regularly, focusing on a different topic (like “Performance & Metrics” this time) where startups and experts would exchange their views and experiences in a friendly surrounding, helping everyone to get better.

We were exited how well it went, here are some impressions.

I am looking forward to future events in this series that is definitely going to be an important part of our “product” in the future.

The Internet is still a Series of Tubes

… or How Ageing US Lawmakers get it Wrong Again with SOPA.

Those of you who aren’t familiar with the ‘Stop Online Piracy Act’ (SOPA) now facing the US Congress, or the earlier ‘Protect IP Act’ (PIPA), and haven’t noticed the flurry of urgent discussion following the Wikipedia Blackout or the many online protests and petitions in the last week, please take the following steps:

  1. Locate your computer’s C: drive in Windows
  2. Right-click on the drive icon, then click on the ‘Format…’ option in the drop-down menu
  3. Follow the steps, and ignore any warnings
  4. Sell your computer on eBay
  5. (Macbook users – simply set your machine on fire because this is about to destroy its resale value)

For those of you who have been paying attention, please read on (and those who have actually read the text of the SOPA bill http://1.usa.gov/xCRQr4 and can summarize the heinous section 105 – IMMUNITY FOR TAKING VOLUNTARY ACTION AGAINST SITES THAT ENDANGER PUBLIC HEALTH with a short essay on the broadly poisonous implications of subsection ‘a’ can claim a cash prize from Oliver Holle)

I wanted to highlight pertinent discussions on the Web that reveal the implications of the bill, and its many dangers, and also to add a few points of my own that reveal two things that haven’t been widely discussed: 1) bad actors involved in the bill’s genesis, and the irrelevance of its ‘bi-partisan’ support; 2) the misrepresentation of the dangers of two factors driving the bill’s creation – illegal online pharmaceutical sales, and the online sale of illegal military equipment.

There has already been quite a lot of explanation of the bills’ dangers. Trevor Timm, at the Electronic Frontier Foundation, does a great job of summarizing some of the bill’s more harmful provisions and likely consequences. The National Venture Capital Association already strongly oppose the bill (as of the writing of this post, their Web site was still black); SpeedInvest also oppose SOPA (our Web site remains unchanged because of our unwavering, primary commitment to our limited partners; we have real work to do, etc.). Even many Hollywood artists, ostensibly one of the groups the bill is designed to protect, have offered a cautiously worded opposition statement.

Everything seems stacked against this “poorly thought out” law. Could the necessity of opposing SOPA be any clearer? Well, yes.

The bill’s title explains its purpose ‘To promote prosperity, creativity, entrepreneurship, and innovation by combating the theft of U.S. property, and for other purposes.’ Those other purposes are the elimination of online trafficking in counterfeit drugs, and the illegal, online sale of military items. It appears that the bill was written in such a way as to assure support from patriots and pharmaceutical manufacturers, distributors and resellers. The bill counters piracy, terrorism, and drug trafficking all at once. Who would oppose it?

One statistic used in discussion of the bill is that the global market for counterfeit pharmaceuticals was 75 billion USD in 2010. This statistic, which is quoted widely, comes exclusively from the ‘non-partisan’, ‘non-profit’ research institute – The Center for Medicine in the Public Interest. ‘The Center’ is funded by pharmaceutical companies, and ‘was originally a project of the Pacific Research Institute, an older corporate front established in conjunction with Philip Morris to fabricate academic support for the tobacco industry.‘ The real statistic is this – USA Today estimates that in any reasonably regulated pharmaceutical market, the percentage of counterfeit drugs hovers at about 1%. Actual law enforcement statistics bring that number much lower – there were 433 seizures in the US of counterfeit pharmaceuticals in 2010, with a stunning street value of 5.6 million USD.

The fear that stolen or misappropriated military gear might end up on eBay or clandestine auction sites, and fall into the hands of terrorists, adds another strong impetus to the bill. But the US Deputy Undersecretary for Defense, Alan Estevez, doesn’t seem to agree, arguing in 2008 US military internal equipment rules do the job quite well. The Army’s own criminal investigation department (DCIS) ran a sting operation in 2004 ‘Operation High Bidder‘, at a time when illicit trade in military body armour was supposed to be rife due to supply shortages in Iraq. The outcome appears to have been the uncovering of 150 online sellers of body armour (although the report doesn’t indicate how many were subject to criminal prosecution). In 2004 eBay had approximately 3.4 million sellers. And much of this body armour was purchased by families of US soliders in Iraq, hoping to supplement the inadequate provisions of their sons and husbands. One conclusion of the DCIS initiative was to instigate a joint program of keyword filtering with eBay, which seemed to do a good job. Almost too good. In 2008 eBay caught 4,000 suspected body armour purveyors, but only removed 1,000 listings. 75% of the alerts were false positive. For matters of scale, eBay carried over 13 million listings in 2008.

The inclusion of ‘anti-terrorism’ and anti-counterfeit-drug measures in the bill is pure distraction, and addresses problems that are hardly relevant on a national scale, and not even recognised as urgent issues by the DCIS and law enforcement agencies. What really motivates this bill are the media and publishing corporations who provide large financial backing to Howard Berman and John Conyers, two of the bill’s Democratic authors, and the two congressmen who provide the ‘bi-partisanship’ that would normally signal broad political acceptance. You would expect support from Lamar Smith, Republican, whose largest backers include TV/Movie/Music industry and healthcare industry professionals; and from Bob Goodlatte, who has been a crusader in enforcement and expansion of online copyright legislation, and is chair of anti-piracy and both bi-partisan and republican internet caucases.

Howard Berman is the congressional representative from Los Angeles districts, and has often been called the ‘representative from Hollywood‘. His political career is underwritten by media and entertainment companies. John Conyers has courted controversy by opposing public access to publicly funded research at the behest of large publishing companies (who profit massively from such research, sold back to the very institutions who provide the data for free, at the expense of the US taxpayer). Large publishing houses are among his strongest financial backers. I enjoin the reader to track the money trails (and the falling approval ratings) here – http://www.opencongress.org

If there weren’t already enough reasons to oppose SOPA, here are two more: it addresses problems that are hardly of an international or national scale, and shouldn’t require fundamental changes to the Web to address; and its ‘poorly thought out’ provisions, rather than being a bi-partisan and honest effort by US lawmakers, are simply products of a small group of congressman acting as mouthpieces for the publishing and entertainment industries.

Update January 23, 2012 – As of last Wednesday Rep. Lamar Smith has announced the postponement of SOPA consideration in the US Congress, and hinted at broad changes to the bill. This is likely the death of the bill in its current form, and reason to celebrate!

Can we stop talking about European clone startups now?

My fiancee, who is a violinist, and takes no interest in my work with startups, except to express the opinion that people who work in business (and particularly finance and hi-tech) are overpaid, and probably dishonest, came up with a second observation recently:

Fiancee: ‘I hear most European tech startups are just copycats of successful US companies.’

Me: ‘What?! Wait! Where did you hear this?’

Fiancee: ‘Mike Butcher wrote about it in TechCrunch.’

Me: ‘How do you know Mike Butcher? Why are you reading TechCrunch?’

Fiancee: ‘It’s great! It keeps me from thinking about Mozart all day, and has tons of good gossip. Did you know that Mike made Oliver Samwer cry?’

Me: ‘No. And you’re not allowed to read TechCrunch anymore!’

There followed a long argument, but I’ll summarize my winning position: ‘Who cares? Can we stop talking about this now?’

The fact that Europe has copycat or clone startups should be irrelevant. The real issue fueling this whole conversation is that people don’t like being made fun of. A natural reaction is to turn the ‘copycat’ accusation into a term of pride that you are not one (see, ‘The Pirate Summit’), to deny the accusation, or, in rare cases, to walk out of an interview in tears (or perhaps there was just a misunderstanding. These are all emotional reactions that don’t address the substance of the accusation.

Let me put it to you this way: who today complains about Japan’s copycat auto industry? No one. That is because Japan learned from the models of others, as everyone must do, and became an economic powerhouse in its own right. And anyone who dares repeat the old canard that the Japanese, as a whole, make good copycats, but are unable to innovate (…because of their stifling education system, their cultural homogeneity, their bland diet, blah, blah, blah…) needs to take a hard look at the recent 30-years’ history of consumer electronics, or Japanese world-leading innovation in robotics today. Any remaining doubters can spend some time investigating the glorious Kajimoto Lab!

Bill Gates himself spent his early teen years pulling printed source code out of rubbish bins so that he could copy other people and become a better programmer himself. A period of ‘copycatting’ characterizes almost any individual or collective route to success.

The recent Euro troubles pose a far greater, long-term threat to the EU tech ecosystem than any reliance on copycatting. The fundamentals remain strong for creating a European nexus of innovation, and a technical and economic engine to rival Silicon Valley: Things happen fast. Ten years from now, this entire little flurry of name-calling will be forgotten, Europe will likely have a couple of mega-successes under its belt, and the tears will have long since dried on Oliver Samwer’s cold, German cheeks.

This post also appeared on Techcrunch.

Building a brigde from Central Europe to San Francicso

Slowly, but surely, Vienna is building its own reputation as a startup hotspot. There has been a bunch of massive exits driven with Austrian founder DNA (Cumulative value of the exits from UCP, Jahjah, 3united or last.fm exceed 1 billion USD), but recently the news flow from this region has jumped up with companies such as Wikitude, Runtastic, Lookk, 123people or just recently MySugr being international success stories.

Vienna, as the logical hub for Central Europe’s startup scene is now making a move. Next week, the five day startup festival called Startupweek (www.startupweek2011.com) is nailing this ambition.

Now, this region also has its first Super Angel fund.

Speedinvest aims high and comes with a very distinct model, that may show a 3rd way between the wave of incubators / accelerators on the one side and the traditional VC model on the other.

The idea is, besides cash from the $10 M fund, to staff our portfolio companies with part- or full time entrepreneurs from our team and thereby fill gaps that almost all startups have to a degree, especially in a region with a much thinner talent ecosystem than the US. We think that a 3 month program is a nice start, but will not move the needle for a small team from Vienna, Lubljana or Prague. What they need is an experienced co-entrepreneur that works for the company day in day out until they are successful. Much more engagement, that hopefully also yields better returns.

Specifically, we aim to build a bridge between Central Europe and Silicon Valley. Erik works as an outsourced biz dev operations in the US until either a series A round provides the cash to build up own operations or the company fully moves to the US.

See the announcement on Techcrunch.

Things happen fast

I woke up the other day to find that some of the worst regimes in the Middle East were on the verge of collapse, and Vienna had a startup scene. I don’t want to overuse the ‘Arab Spring’ metaphor, so I will stop right here and never, ever mention it again. It might all have come as a surprise for Americans who, paying intermittent attention to their inadequate news media (pro-tip: BBC World), have had little more than a vague impression that ‘things are pretty complicated over there.’

While you where sleeping…

But the seeds of the sudden blossoming in tech entrepreneurship in Central and Eastern Europe (CEE) were sown long ago, and they fell on ground that few realized was so fertile. Like a lot of important historical phenomena, the whole thing started with a deep sense of inadequacy: Europeans have been scratching their heads for decades trying (badly) to recreate the economic engine of Silicon Valley. Planned scientific/technical communities like Sophia Antipolis in France fail even to come close. Chamber of Commerce initiatives hoping to foster ‘innovation exchange’ or ‘to seed the ecosystem’ usually amount to nothing more than a handful of Euros and a 12-week lease on a grubby cubicle in Sunnyvale. Although, I have to admit the Danish Chamber of Commerce program doesn’t look too bad, like the best item on the menu of a tourist trap restaurant on Mariahilfestrasse.

Looking at the history of Silicon Valley doesn’t really provide any clues on how it should be done today, in a small cluster of countries whose rich technical achievements of the past two centuries are often overlooked. What worked for Cupertino in 1976 probably wouldn’t work for Budapest today. But one doesn’t have to go too far back into the recent past to a time when Budapest and Vienna where the cosmopolitan centres of a dominant European empire that produced a surplus of great mathematicians, engineers and technicians. Something of that culture is alive now, and it is taking little to revive it quickly.

Silicon Valley had Stanford, and research and development flourished there that bridged the tricky cultural gap between industry and the academy. Frederick Terman helped establish the Stanford Industrial Park in 1954 to help stave off Stanford’s financial problems, and to retain graduates who might otherwise have headed back to New York to look for real jobs (Stanford was surrounded by farmland at the time). The next thirty or so years look nothing like the development of technical innovation centres now (unless you focus only on China). Back then it was all about the hardware. Large scale investment in industrial laboratories, fabs and warehouses humming with mainframes (AT&T Bell, Intel, Fairchild, etc.) drove innovation at a costly and glacial pace by today’s standards. The history and current indicators that make Silicon Valley such a success don’t necessarily play a role in the creation of other tech hotspots.

Anything you can do, I can do better!

So what are the primary factors driving economic growth and innovation in Silicon Valley today? And can we compare them to what is happening in Europe to help understand what the future holds for CEE?


First, in Silicon Valley, the human resources needs are met by immigrants (and, in fact, immigrants drive economic growth and investment in new companies – they founded 25% of US venture backed public companies). When I ran mobile messaging at VeriSign, 60% of my team were from India., with a few Israelis and Europeans sprinkled in. When I look at friends with startups (or even university labs in the US) I see a very large proportion of foreign talent. European secondary education beats the US, hands down: young Europeans are better educated in math and science than their US counterparts, and they maintain their lead. European Union (EU) enrolments in university mathematics, science and technology programs (under- and postgraduate) as a percentage of total enrolment hover at around 25%. In the US that number is 17%. And in strange places like Finland, Germany and Austria, the numbers are 35%, 30% and 26%, respectively. The engineering talent pool is proportionately larger, and better in many respects.

OK, sure, but Silicon Valley has the money…

Not for long. The offices might be on Sand Hill Road, but the capital is global. Funds will go were the opportunities are, and European private investment is recovering faster than that in the US. Large venture funds are beginning to take a serious interest in CEE technology sectors, and new funds (such as ours at SpeedInvest) are popping up quickly. EU VC/private equity investment (including buyout, replacement, rescue, growth, late-stage, venture, startup and seed capital) grew, or recovered, 92% from 2009-2010, with the largest change in growth capital and buyout investment. It’s not entirely comparing apples to apples, but US venture investment recovered only 21% in the same timeframe. European private investment growth exceeds the US rate over the last two years in nearly all categories.

But US Engineering schools, like Stanford, still have the best industry ties…

You don’t need 8 years and 100 million dollars to create an industrial research lab in order to drive significant innovation anymore. The tools are open source, and the hardware is commoditized. And platforms like Ruby on Rails mean that services are easier to build, easier to deploy, easier to maintain. Small teams can do a lot, and most importantly, there are no more geographic restrictions. Incubators and ‘hacker spaces’ provide equipment, ideas and community, and they have sprung up like wildflowers since 2008 in places like Vienna, Budapest and Prague (not to speak of Berlin or the UK, which now have many 100s). Additionally, university programs across Europe are modernising. I was at Oxford for the inception of its first MBA class. Now Oxford, Cambridge and even Technische Universität Wien (TU) not only have world class MBA programs, they have technology management and entrepreneurship tracks (Seriously, look). And academic institutions throughout Europe have significantly dropped barriers to spin-offs. TU has dedicated, transitional entrepreneurship programs to support its graduates.

But probably most interesting is the emergence of organizations like STARTeurope that have rightly taken the leadership from the clumsy Chamber of Commerce initiatives of 3 years ago. STARTeurope provides a large number of events and platforms that bring entrepreneurs together in CEE, and provide access to ideas, capital and human resources. And the organization’s growth is a strong indicator of things to come: in the space of a year they have gone from sponsoring meetups and events that attracted hundreds of participants and a few dozen startup teams, to the recent Vienna STARTup Week 2011 with TechCrunch, my venture fund SpeedInvest, and local consultancy i5invest – which is chronicled in Wired: 1,300 participants, 400 startup teams, standing room only and speakers like Esther Dyson and Morten Lund (Skype). More broadly, the explosive growth of incubator and support platforms has generated speculation of a European incubator bubble (although interviewees remain quite optimistic).

The Results

Despite former TechCrunch writer Paul Carr complaining that everything in Europe sucks indicators point toward growth that is not only accelerating the size and productivity of tech hubs like Berlin, London and even Vienna, but also to a phenomenon that could reach the sort of critical mass to create a self-sustaining nexus of innovation centres to compete on equal terms with Silicon Valley. Carr’s metaphor of recording artists and music production is a good one: he argues that Europe has produced nothing but small copycats (he calls them “tribute bands”) and that comparisons to Silicon Valley are premature and vastly optimistic. But bands like The Rolling Stones, or The Beatles of 1961 were nothing but pale imitations of American sounds until they quickly found their own voices and created a phenomenon at least as large as the first wave of US rock and roll, but also unique in significant ways. Within four years, the entire world had Merseybeat coming out its ears, and the whole thing happened fast, because the precedent had been set, the audience was there and a successful model was available to build upon, and to adapt. It doesn’t matter if Europe hasn’t produced a Google yet. It will. Among the founders and investors of our fund, SpeedInvest, if you only count the Austrians, we have had nearly 1 billion dollars in exits since 2005. Growth of incubators, investment in engineering grads, growth of university support programs for entrepreneurs, an inflow of venture capital investments; all of these things are at least keeping pace with, and in most cases beating, US growth rates. It’s happening fast and one morning central Europeans are going to wake up to see their society has been transformed, like the young activists in Egypt who recently… Oh, f***k.

This post also appeared on Techcrunch.

The First Austrian Startup Genome Project

Modeled on Black Box’s Startup Genome Project, the Austrian Angel Fund Speedinvest piloted a similar project, focused on local technology companies, in September 2011. The Austrian Startup Genome Project evaluated over 100 Austrian mobile and internet startups. The study focused on socio-demographic data, geographic focus, education, and experience of founders and the sector of choice of each startup and aims to analyze the booming startup scene in the country and hence to identify the target areas for support.

Men in the twenties with little experience

Demograpic data from Austrian tech founders shows similarity to other regional data. Not surprisingly, the technology startup scene in Austria is dominated by men, and only two percent of startups are founded by women or have women in their founding teams. 40 % of the founders are between 25 and 30 years old and have put their ideas into practice with little or no experience, immediately upon completing their education. Most of them are university graduates and first time founders. In addition, most startups seem to feel comfortable co-founding in smaller groups with less than three people.

Tech cities: Vienna and Hagenberg

Predictably the pioneering edge in founding a tech startup is found in the capital city, Vienna. 70 percent of the Austrian startups are founded in the capital whereas only seven percent are from Styria, followed with five percent each by Upper Austria, Salzburg and Carinthia. Tirol, Vorarlberg, and Burgenland create 2,5 each. Notably, none of the startups are from Lower Austria. Despite the few numbers of startups from Upper Austria it is crucial to mention that the institutionalized technology hub of the regional government in Hagenberg generates remarkably high quality projects. Astonishingly, in a business where it is key to operate globally, only one third of the Austrian startups state that their vision is to conquer the world market.

Sector focus

Considering the business focus of the projects there is an increasing trend towards consumer products. 70 percent of the startup projects address the consumer market, which offers rapid scale, but is notoriously challenging to take to market. However this target concentration is broad and balanced. Current trends show the largest number of startups focusing on social media and video, whereas gaming, digital marketing, eCommerce and publishing are represented equally. In spite of the growing mobile app market (according to the research firm MarketsandMarkets it will be worth ~$25 Billion by 2015) many Austrian startups still rely heavily on developing and marketing internet products, a finding that the research team noted with surprise.

See an overview presentation on SlideShare (german)!