Creating the right environment for venture capital may be more useful for Europe’s long-term future than anything politicians could do, writes Joseph Mariathasan
In Europe, since the collapse of the dotcom bubble, “venture capital” has almost become a dirty word. But the future is now looking more hopeful, and one reason for this may actually be that expectations are much lower than they were in the euphoric years of the dotcom boom. At one point back then, as Nils Rode at Adveq informed me, there were as many companies being created in Europe as in the US. Unfortunately, most of them failed to survive, leaving a very bad taste in the mouths of investors.
Europe’s Top 10 centres of company creation are dominated by London, followed next by Paris and then by fast-rising Berlin. France has a very concentrated economy centred around Paris. In the UK, the equivalent would be the golden triangle of London, Oxford and Cambridge, and if the Oxbridge university towns were included, the UK dominance would become even more pronounced. Berlin, Rode tells me, has become something of a miracle in the way it has been transformed into an innovation hub, soon likely to overtake Paris.
Beneath the Top 3 lies Moscow and then Barcelona, showing that the ideas behind innovation are spread across Europe. But it is not just the Top 10 that may make a difference to Europe. Greece has also set up an incubator, Corallia, for high-tech startups specialising in microelectronics, biotechnology, telecommunication networks and space, which has attracted interest from venture capitalists in Europe and the US.
The interesting question is this: what does it take to be able to really emulate Silicon Valley as an innovation hub? Nils thinks there are five key factors that lie behind the global hubs, which include cities such as Beijing and Tokyo, both of which lie above any European city bar London.
The first ingredient is that the hub has to be based in a large city. There needs to be a critical mass of people and exceptional talent available to make things happen.
Second, there needs to be a culture that encourages creativity and risk taking. The Top 10 hubs worldwide all have that – as Moscow certainly has, which is, perhaps, to be expected, given recent political events.
Third, Nils argues there needs to be some type of heavy government spending on research and infrastructure. This was certainly the case for Silicon Valley itself, where the US government supported such areas as IT, defence and space research. That is still continuing in new areas such as renewable energy. Support is critical, as venture capital cannot finance basic research but only comes in when applications are ready to be commercialised, so it is very important to have basic research support and a talent pool already there.
Fourth, Nils sees the requirement for top-rated universities locally that can produce good ideas and act as a source of talent. It is not surprising Paris is doing so well given the huge concentration of top universities there.
In the UK, the London-Cambridge corridor is well positioned to become Europe’s answer to Silicon Valley in the life sciences. Recent developments include AstraZeneca’s global HQ moving to Cambridge, and a £700m (€984m) investment in the Francis Crick Institute at Kings Cross. Overall, there are 37 world-class life sciences research institutes in the London-Stansted-Cambridge region and 1,400 life science businesses, accounting for 43,200 jobs and 19.6% of all UK employment in this sector, according to the London Stansted Cambridge Consortium.
Last, Nils sees the need for a favourable political and regulatory tech environment, without hurdles preventing the creation of companies.
Creating the right environment for venture capital investments in new, fast-growing companies may possibly be more useful for Europe’s long-term future than anything else politicians can do. This may be as true for the periphery as it is for the core European countries.
Whilst Athens, for example, is never going to be in a position to compete with the likes of London, Berlin and Paris, developing the private sector in Greece through such initiatives as Corallia will ultimately be key to the long-term prosperity of the country and its position as an integral member of the EU.
In the race to emulate Silicon Valley’s success, the UK is winning by a large margin. If venture capital does succeed in Europe, then I may move to Cambridge.
Joseph Mariathasan is a contributing editor at IPE