Vienna, the seat of the once-mighty Habsburg Empire, is a good place to contemplate the rise and fall of global powers. And just now, the talk of American decline is growing louder—Washington is dysfunctional, the wealth divide grows every day, our infrastructure is falling apart, and we can’t manage to provide basic health insurance to all our citizens. But, as was pounded home to me as I spent a day this week in the sprawling Hofburg Palace in the heart of Vienna, the U.S. still has at least one thing going for it: start-ups.
I came to Vienna to moderate an event at the 2013 Pioneers Conference, an annual start-up/tech conference in Vienna. It is the sort of event that happens pretty much every day in New York, San Francisco, and Los Angeles, but is a rare occasion in Euro-land.
I interviewed Phil Libin, chief executive officer of Silicon Valley-based Evernote, the cloud storage company that has risen from zero users to about 75 million in several years (many of whom are paying customers), with offices in several countries, multiple rounds of venture capital funding, and a reputed $1 billion valuation. Of course, Evernote is one in a dozen-odd stories that could have been featured in a marquee event at a global start-up conference: Facebook, Instagram, LinkedIn, Tumblr, Pinterest, Snapchat, Evernote, Tesla. Other key presenters included executives from Google, Microsoft, and start-ups like Pebble.
To be sure, there were plenty of European companies represented on the program—the U.K.-based music company Shazam, for example, and lots of small German and French companies. But there was a very conscious, earnest effort here to mimic the American start-up culture. The Pioneers Conference was boisterous. Several espresso-mobiles (a brilliant innovation) were set up to keep the crowd caffeinated. A hip-hop dance troupe from Graz performed at lunch time. Young people in casual dress swapped business cards and chatted boisterously. The events were conducted almost entirely in English. In short, this wasn’t your great, great grandfather’s Congress of Vienna.
Here’s the irony. When it comes to style, art, the high-life, and summer homes, the American elite looks to Europe. But when it comes to models for creating wealth, it is clear that ambitious Europeans look to America.
It shouldn’t be this way. After all, Europe has everything that is needed for a start-up culture: tech-y looking dudes with facial hair, bike-sharing programs, a highly educated workforce, cool cities, and money. But it’s missing the spark that turns intelligence into fortunes and products. One way to describe the difference is that continental Europe lacks (or suppresses) the mix of hubris, recklessness, competence, greed, and vision that enables start-ups to boom, again and again, in Europe. A more wonky way of putting it is that Europe doesn’t have the ecosystem of funders, engineers, serial entrepreneurs, professional service providers, and financial institutions that have turned America’s technology industry into a wealth-creation machine.
It’s true that some important physical infrastructure components are lacking. Pension funds and private endowments, which provide cash for venture capital, don’t really exist in Western Europe. In Europe, wealthy individuals tend to invest conservatively, rather than plow their fortunes, Bill Gates-like, into building new ones. When Ernst & Young ranked the 20 largest countries by the relative ease with which entrepreneurs could gain access to capital, the U.S. was at the top, and Germany was 14th.
But there are big structural forces at work, too. Yes, Europe by and large is much more socialistic than the U.S. European incumbents are generally more protected than their American counterparts in a range of industries. They’re not accustomed to ferocious assaults from upstarts. They spend plenty of money on research and development, but do so mostly on internal projects. “There is tons of opportunity and more than enough capital around, but what is very needed is the fear and demand on the corporate side,” said Aydo Schosswold, a fresh-faced 22-year-old media entrepreneur from Berlin.
And in a continent that was set on fire twice in the 20th century, the tolerance for risk remains very low. The proportion of the German public that owns stock is about 25 percent, compared with about half in the U.S. When the NASDAQ blew up in 2001 and 2002, Silicon Valley hunkered down, reloaded, and launched Google and a host of other companies. When Germany’s NASDAQ wannabe, the Neuer Markt, blew up around the same time, it basically shut down. And only now, 11 years later, is the country thinking of reopening it. Here is a list of initial public offerings on the Vienna Stock Exchange. There have been two so far this year, including a biotechnology firm raising about $8 million.
Consider this. The European economy is basically the size of the U.S. But last year it saw only 4.4 billion Euros (about $6.2 billion) invested in 1,074 deals. And in 2012, 16 European companies backed by venture capital went public, raising 379 million Euros between them. Germany, the largest economy in Europe, accounted for 189 deals worth 822 million Euros (about $1.3 billion.) By contrast, the U.S. saw 3,826 venture deals worth $27 billion last year.
No, cloud-storage and social media companies can’t restore all the jobs lost in the Great Recession. And they are no replacement for functioning transport, education, political, and health systems. But it’s important to keep in mind that the U.S. still has some systems that are the envy of the world.