A prominent VC and blogger, Fred Wilson, wrote an interesting blog post about his trip to Scandinavia, where he briefly analyzes the differences and similarities between startups in the US and the ones he saw in Scandinavia, and the respective markets they operate in. Here’s how Fred sees the dichotomy:
I saw two companies that participate in the online advertising technology business. One primarily serves the online agency market and one primarily serves the online publisher market. Neither were doing anything completely new (at least I didn’t see it), but both had built significant market share in the Scandinavian market. They had real customers using their platforms to run real campaigns. Both were looking for capital to expand to the rest of europe and then on to the US.
We don’t see that kind of opportunity so much in the US. The companies in the online advertising business don’t have an easily accessible market that they can get started in. Neither of these companies will be able to build a large (greater than $20mm per year) business if they stay in Scandinavia but they will be able to build a real business, serving real customers, with solid products before having to face the tougher competition of the rest of the world. And I see that both as an advantage and a disadvantage. I think its an advantage to have a “home court” advantage when you are just getting started. But I also worry that it can make it even harder to break out of the region when its time to do that.
It’s an interesting and important observation, not least to us living here in the Nordics. Fred is talking about the online advertising technology business in particular, but one can easily extend the argument to almost any business. It’s not the first time I’ve heard this argument, nor does it take a genius to figure out what kind of implications it might have. One of the most visible being the higher likelihood of an exit (vs. growing the company into maturity and eventually into a global business) for the Scandinavian startups. This is because a Scandi startup can many times choose an exit option at a stage where it has built a critical mass at home for a major European (or US) player to acquire the startup, but where the startup would need to jump on a whole different learning curve to start competing directly with the US equivalents on their home turf. For many entrepreneurs the former sounds a lot better than the latter after what has been many times years of bootstrapping.
Having said that, it makes building an online business somewhat easier here in Scandinavia, at least comparatively. This applies especially if you don’t suffer from the not-invented-here syndrome and you are brave enough to take something that works over at the US and give it a shot over at this side of Atlantic. And if you’ve have a business idea of your own which does not have a equivalent anywhere, that much better.
Just recently I talked to an entrepreneur who succeeded in building his business to a level that they had the critical mass in one country after which they were able to choose whether an exit or growing the business would suit their particular situation better. The advice I received from him was in line with what Fred is implying in his blog post for us here in Scandinavia (given you don’t have millions and millions of VC capital and a global network to math): Grow and test your business in one market (that you know) to a level that you’ve proven the concept after which it’s a lot easier to expand into other countries. This is something that is much easier for us to do here in the Nordics compared to the startups in the US where they have the world’s most competitive home market to work with when it comes to the web. If the US market is too hard for your business to enter, you’re already making money at home to finance the trip with, whether the trip is successful or not. And if you can’t make the business work at home, you might be better off failing fast and moving on the next idea.
What about the ‘harder to break out of the region when its time to do that’ -argument that Fred touches upon? In my opinion, if you are not up for an exit and your idea needs a bigger market to justify the investment use your home turf as a laboratory to prove the concept to the business angels, VCs and other fat cats that you need to finance your expansion. Thus, even if you start with your home market, you don’t need to get fixated on it, but it serves as a useful lab even if it might slow down you a little.
How do you see the trade-off, or is there one in the first place in your opinion?
Fred did also write about a couple of interesting Scandinavian startups, namely Issuu, myc4 and ESNation that owns one of the top videogaming teams in europe called Meet Your Makers (MYM). You can read more about them from Fred’s original blog post.
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Interesting post. I spent most of last summer touring Europe working with early stage private equity investors (mostly angel investors), and I wish I’d had more exposure to the entrepreneurs.
Given the segmented nature of the markets and the different language barriers, I think entrepreneurs have a great opportunity to get proof of concept before deciding to bootstrap the rest of the way or to seek private/institutional money.
Whats the EU VC market like? Is it a common strategy to find tech working in one country, and then expand it to the others?
Hi evbart,
I can’t talk for the whole EU VC market, but based on my experience it seems to vary A LOT. Take e.g. UK (if you accept that it’s part of the EU ;)) where the VC scene is very active and then look at the Nordics where there are a few big players looking from the distance and yes, they can be found if one is really looking for one, but where you can’t really talk about a dynamic and sexy VC ecosystem.
It might also be that there are many VCs and Angel investors, but they are not chasing the limelight or pushing their brand to same extent as the likes of Sequoia Capital etc. Maybe it’s because there is less competition or just less to compete for, European funds don’t have so colorful histories with sexy investments, there is strong culture of investing in the stock market instead of the two-guys-and-a-garage phenomena and then you have the chicken and egg problem of where you’d need to have an abundance of startups to get the VC ecosystem blooming and the other way around. I believe it’s a combination of these depending on where about in the EU you look at. Of course I might have mistaken and hope someone can prove me wrong about this. Moreover, I think that we’re off to a good start and heading to the right direction but the starting level was just way below where the Silicon Valley operates.
Having said that there are investors who are on top of their game and have been pushing the VC scene forward. A few that I have come to know of include Danny Rimer, Saul Klein, Niklas Zennstrom, Mattias Ljungman, Paul Fisher, Martin Varvasky and some names that stand out specifically from Finland include Risto Siilasmaa, Artturi Tarjanne, Jussi Harvela, Moaffak Ahmed and Pekka Roine.
All in all, I believe Silicon Valley is more of a state of mind than a definitive place and there are more and more people in Europe who are figuring that out.
We at ArcticStartup are organizing a VC panel in the near future and will surely be posting about it if not uploading the whole panel on video to the blog. So should be wiser about the situation after that.
What comes to the ‘find tech working in one country, and then expanding’ I believe there a companies trying out everything and mixing it up depending on their resources and the existing network. Nevertheless, I believe most are launching in their home market (due to resources and home court advantage) before expanding abroad. Would love to hear if someone has different experiences tho.
I meant to comment on this earlier, but have been so busy I never got round to it (how surprising …). We actually received a comment at one point from a non-Finn that we should focus on the Finnish market and build our foundation on that.
I disagreed with that sentiment then, and I disagree with it now. Sure, there is room for startups who really focus on Finland alone, especially if they are specifically intending on building a national version of an existing concept. However, if you are building something truly new, and if your startup is web based, without the requirement for large international distribution networks, I believe it is a mistake to then focus blindly on the local market.
The first thing to consider is that there is virtually no competition for a new idea here. That’s great, isn’t it? Wrong. There is nothing to keep you on your toes, nothing people can compare to, nothing to beat. That makes you lazy and keeps your product limited.
The more important point is that if the idea is good, it’s new, or is a different approach, why on earth would you not want to take over the world with it, and as quickly as possible? The thing is that if you only do it locally then the service will be easily mirrored in a bigger market or expanded internationally, leaving you stuck on an island, hoping for someone to buy you out. Now that might be relatively lucrative, if someone does that, but it will fail to realise the full potential of what you have.
The third point is that there are ideas which only work on a global scale, or only become interesting when that is part of the equation.
This is not to say that the Finnish market is not important. Quite the opposite: it’s where we live, it’s where we can meet people to talk about our idea and to get valuable feedback. A very substantial amount of our users still come from Finland. For us it will also be one of the very first localisations that we do, possibly the first. It is just to say that we have global ambitions and I believe it would be wrong for us to artificially limit our scope.
All I can say is that I agree with you Kristoffer. I believe it all depends on the type of service or product you’re building. Say, if it has a strong social element it might be good that people are in the same geographical region so they are able to mingle on- AND offline, which in my opinion gives a lot of dept to services like Jaiku, Friendfeed, Twitter, etc. At the same time those services work perfectly well even if you have never met the people you follow if you’re following them for professional purposes only. This might even lead you to meet them offline. But since you have to start somewhere to build these groups of people that use your service, why not to start from the market you know best. It all of course changes if you have more resources and you’re not exactly bootstrapping, or better yet you know a network of influential people who you can get to use your product and passively spread the word.
It might be better to look at the whole internationalization thing case by case instead of trying to come up with one all encompassing truth. Having said that, I do agree that it would not hurt to see more of the ‘born global’ attitude in Finland and see people go and mingle in all the international conferences and trade shows with their product and get to know as many new potential customers and influences as they possible can.
My point is this: When you have limited resources and you have to start somewhere, do you fist aim your efforts at home (friends, colleagues, etc. ie. your real life day to day social networks) or do you try to enter some other market first. Or possible try spread your focus and resources to X number of markets. Web clearly gives you the possibility to just put your service or product out there for people to find it. But should you focus your efforts on something be it geographically, behaviorally, professionally or demograhically segmented market, it’s good to know what you’re going after first and what is secondary market. Kind of like Facebook grew: It first got traction in Harvard where the founder lived and studies, after which it was spread to the other universities and only after that came the rest of the world.
Having been at a couple international events I’d like to emphasise how useful they really can be. People like the notion of how the Web connects us all and so forth but when it comes to human interaction and making contacts, nothing beats the good old handshake.
I agree that the born global attitude is something we need to think more of in Finland. For many things our own market is small and the net is bound to be full of competitors for any idea people might have. If you’re bootstrapping then obviously there are limits and you have to start somewhere: getting those close contacts to use it, meeting people at Arctic Startup meetups, presenting. I just think that at the same time we need to keep working out innovative ways to capture that international audience.
So what kinds of methods are available? To be honest, I still don’t know. Breaking into international media and blogs is not easy and recently we’ve been working so hard on our rewrite and a couple of other things that we haven’t been able to give this much attention. However, I do see that as an interesting challenge and would like to see solutions to it that actually work. Perhaps the best way to start is to take a look at where your (obviously worse!) competitors are, then aim to appear where they are in a favourable light.