When Skype founders Niklas Zennstroem and Janus Friis were attempting to raise first round funding for their company, they trawled Europe looking for investors for over a year, and yet says the Swedish entrepreneur Zennstroem, “If we were a Silicon Valley company, it probably would have taken us one month.”
The VoIP star was talking to European business and EU officials ahead of a summit next week to discuss reforms to make Europe more competitive. But Mr Zennstroem said the problems in Europe run deep. He said: “In the U.S. for example, if you have a start-up and it doesn’t work out, you have gained an experience. In Europe, you have made a mistake.” He added that there is a cultural problem in Europe and people “want to keep all their comforts, all their security, vacations, all their job packages.”
Meanwhile, Barclays has released a report showing a big fall in the number of new start-ups in 2005. But don’t panic says the bank, 2003 and 2004 were exceptional years, and despite the 13% drop, the biggest fall this decade, the year was still in alignment with the historical average, and in any case, the second half of the period saw a sharp improvement.
In all, there were 388,300 new firms started up in 2005, compared to 446,500 in 2004.
John Davis, local business marketing director for Barclays said: “The number of businesses started last year moved back to more typical levels after a couple of boom years. The 13 per cent fall in start-ups in 2005 in effect is a large drop from a record couple of years. The underlying market in start-ups is still reasonably strong as was evidenced by the start-up numbers recovering during the second half of 2005.”
It does occur to us that there could be a link with the fall in new start-ups and the end of the house price boom recorded last year. . After all, some British entrepreneurs are not afraid of a risk, and instead of using the extra wealth they have seen accumulating through the rise in price of their house on a jolly, they have used it to the gain leverage for bank borrowing for their business.
We also noticed, looking at the Barclays figures broken down by sector, there was no reference to technology. Business and Financial services topped the list, with the motor trade in second, and construction in third. Yet why is it that there is such a dearth of technology start-ups? Where’s the next Skype, or Google?
Okay, no doubt Barclays included technology based ventures within the general sector - even so the lack on any reference to technology based starts up in the report- when this is the very area which has underpinned US growth over the last few years - was conspicuous by its absence.
Maybe it’s got something to do with the perceived higher risk in technology business, and maybe it’s got something to do with the nature of a technology business in which the assets relate to knowledge and software that has little intrinsic value outside of the business.
In the construction business, for example, the business assets could be land- so the business itself could be the collateral for a loan. In the motor trade the stock of cars could provide the security required, but in technology - or a dot-com type business, the fit is just not right.
Now what was it that Niklas Zennstroem said about Europeans being averse to risk.
Sources
Skype CEO: Europe Start-ups Suffer From Risk Fear
PC Magazine
Business starts down in 2005
Barclays
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