It is a pain point for the European self-image of invention and progress that the internet skyscrapers are not from our continent. We invented the world wide web at CERN, no? How come we are behind in this race? And more importantly, how can we catch up?
A fellow panellist at an event earlier this autumn proposed a 200 billion Euro fund for tech start-ups. Great, huh? More money than you can imagine! Bigger than some member states GDP. Surely that must be enough to give us an edge.
How does tech startup funding work? Venture capitalists invest “rounds” with names like pre-seed, seed, A-round, B-round, etc. Every step of the way, the startup becomes worth more based on the share price investors pay in the latest round. Early investors can see the value of their investment soar, at least on paper. (If the startup can convince investors it is worth more than one billion US dollars, it is called a “unicorn”—this does not mean that such an amount has been invested, only that the share price from the latest round multiplied by the total number of shares equals that sum). The important part here is not that the startup makes any money, but that it can convince investors. Usually this is done by “scaling”: attracting more users. The more, the merrier; figure out the business model later. Or never. What do investors want? To make an exit. What does an exit look like? Selling to one of the incumbent Big Tech companies. The startup does not need to make any money; it gets integrated into the profitable systems of the platforms. The platform gets a new feature or some way to increase productivity. Sure, the macro-economy has thrown some dirt into this machine as investors want profits, not growth, but the pattern remains.
There are no European internet platforms that startups can exit to. By investing in European tech startups, we end up strengthening the Silicon Valley companies.
Another thing—and this is a point I’ve made before, so apologies to loyal readers of this blog—is that America has a 70-year head start on public money for tech investment. This dates back to the post-WWII enterprise policies from the Eisenhower administration. The Small Business Investment Act of 1958 gave businesses investing in other businesses access to loan guarantees from federal pension funds—four public dollars for each private (let’s see if the EU programs can ever match that ratio). Investors in pharmaceutical companies and information technology were some of those who used these funds most successfully. Sand Hill Road was built on tax money.
How do you get 200 billion euros? Take 1 billion per year from some EU program for ten years, and you have 10 billion. Ask the European Investment Bank to multiply this 10 times, and you have €100 billion. Then ask the European Investment Fund to find private money in its network to match this money, and you have €200 billion. (Now daydream about being able to put the same magic on your pay cheque).
Great if EU wants to compete with the big boys. Supporting entrepreneurs can be a great idea. But no amount of public money will buy a Euro-Amazon.
