Position Paper for “Europreneurs 2016”, City of London, Bastille Day, 2016

More entrepreneurs than ever are choosing to compete from Europe. 10 years ago most founders building international tech businesses would automatically move to the US. Companies as diverse as eBay ($25B in value) and Business Objects (acquired for $7B by SAP) were founded by European innovators but built in the US. Those founders staying put in Europe were usually building local businesses (ASOS for fashion, Tiscali for broadband, etc.).

Competing from Europe means targeting international, even US, customers from a European nerve centre, rather than automatically moving to the US. By way of example, gaming vendor Supercell (acquired by Tencent for nearly $9B), music streamer Spotify ($8B), and financial info specialist Markit ($7B) are adding billions to the European economy by expanding internationally from Europe, not just starting in Europe. Europe will soon create its own “locally grown” HP, IBM, or Microsoft.

If entrepreneurs ran Europe, we believe the focus would be on enabling exactly these types of companies to compete most effectively by staying in Europe. Arguably the environment and regulation should be far more focused on this group in Europe than the US, since Europe is playing catch-up in a big way; US companies still represent 90%+ of the western world’s public market tech valuations.

What would entrepreneurs do if they ran Europe? With the caveat that this is entirely through the lens of maximising competitiveness of the next generation of potential European technology world leaders, we hazard a few thoughts:

  • As frictionless an immigration policy as possible for top graduates outside Europe – The CEO of Microsoft is an Indian national. So is the CEO of Adobe, the new CEO of Google/Alphabet, the creator of the Intel Pentium chip, and Vinod Khosla, one of the best known Valley venture capitalists. In a previous era, Andy Grove emigrated from Hungary to found Intel, and Steve Jobs was of Syrian descent. Today about the only CEO of an internet major who is NOT an immigrant is Tim Cook at Apple. Tech has driven the US economy, and immigrants have driven tech. Europe is in a war for talent with the US for the best IIT grads from India, and the best engineering minds from China. Near frictionless immigration for highly-qualified talent is nearly as important for potential tech winners as customers.
  • Focus on logistics infrastructure to take full advantage of the driverless era – Truck and lorry drivers are limited to 70 working hours in an 8-day period. In 20 years’ time driverless trucks will probably operate 150 hours in an 8-day period, increasing massively the logistics capability across Europe. With far shorter distances than the US, European companies relying on logistics to generate margin will be very well positioned, as long as the logistics and road infrastructure in Europe are world class. This means faster trains, larger lorries, and road improvements to handle increased wear and tear. Investments now will make the best future tech companies able to deliver goods at a fraction of current costs; higher margins will drive even faster growth.
  • Encouragement of drone infrastructure to accelerate time to market – Legislation enabling mass deployment of drones will enable greater logistics capability without relying entirely on the motorway network. This will take some of the burden off improving the logistics infrastructure. Because Europe is more densely populated than the US, European drone legislation will likely have to lead the world. While this actually would require legislators to innovate (perish the thought), that’s what is required.
  • The intensification and bifurcation of the educational process – In 20-30 years’ time we will need to be more useful than machines to qualify for most jobs. It is hard to explain, or over-estimate, the magnitude machine learning will have on the economy; every job, everywhere, which is partly “mindless” will be done by a machine in 20-30 years’ time. It will make a mockery of current arguments about limiting migration. Those students lucky enough to have won the genetic lottery will require training in critical thinking, not specific disciplines, to be able to “rise above” self-learning machines. Minerva University in the US is already offering such a curriculum for a post-industrial world, and more universities will have to follow suit. And those not so lucky in the genetic lottery will have to have specific high-value training in required trades not (or not yet) over-run by machines. These could range from sophisticated game design, to interior design, etc. With a longer and deeper tradition of technical training for specific trades, countries such as Germany are better placed than the US to adapt their higher education to a post-AI world.
  • European wide adoption of UK-style tax advantaged investing – A number of governments operate tax benefits to encourage early stage investments, but nowhere more so than the UK. While these tax regimes in no way encourage success (and arguably, they sustain failure for far longer than otherwise), they have effectively funded a whole generation of company founders to learn on the job using other people’s money. Put another way, the UK’s SEIS and EIS schemes amount to the greatest post-graduate business program anywhere. The myriad of failures that will result will spawn dozens, maybe hundreds, of experienced entrepreneurs willing and knowledgeable enough to try again, and very much more likely succeed. There is no better model for accelerating the learning curve of a whole continent, and a suitable form of SEIS/EIS should be adopted Europe wide.
  • Near frictionless company operation – The UK probably leads the world here. France, however, lags far behind. It takes dozens of forms to comply with various French regulations. Tax law in certain countries remain incredibly complex, and very expensive. The steep gradient between the UK’s sub 20% corporate tax rate and frictionless company setup on the one hand, and statutes elsewhere which are virtually anti-business on the other hand, cannot continue. Future tech leaders will not tolerate having to fight against both their competitors and their home market regime.
  • Mostly, just get out of the way – Less is more. Most European supranational “encouragement,” however well-intentioned, is simply not good or fast enough. A major reason is that tech operates at clock speeds impossible for governmental bodies to match. Therefore, the most prudent course of action is to pare back regulations, distill laws down to the minimum, and “get the hell out of the way.” Regulation especially in finance will always be required, but reducing sharply the manpower devoted to governmental “help” for businesses will almost surely increase their potential for success.

There has been a sea-change in the European tech industry over the past two decades. No longer are Autonomy, SAP, ARM, and Dassault considered “outliers.” US venture funds are setting up in Europe in droves. The starting gun has been fired.

If entrepreneurs ran Europe, they would be 100% focused on the acceleration phase that must now come. The latent value that can still be created in Europe is enormous, and can transform the continent’s economy.

Meanwhile Europe is growing at half the rate of the US. Enough said.

Posted by Victor Basta @MaExits

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