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The writer is CEO and founder of Atomico and co-founder of Skype.
A decade ago, much was written about stigmatization in the decline of European culture. The theory is that this incredible territorial fear paralyzes ambition and keeps great talent from ever opening companies. Europe needs to develop a mega-risk appetite to produce Google or Amazon. In the year By 2021, we’ve overcome this and European tech has grown into a startup pipeline that’s on par with the US.
Today’s downturn presents Europe’s first real challenge since the global financial crisis. But I am not worried about short-term stock price fluctuations. Real value depends entirely on developing an ecosystem that works. And central to any ecosystem is resilience – the ability to cope with the wider macroeconomic environment.
The real danger to me is that the stigma of failure that kept Europeans from starting tech companies will now keep founders from finishing. In any market, the startup ecosystem is based on founders who dare to take big bets on new technology. For the few who do, the rewards are enormous. But the ecosystem needs those who don’t do as much, maybe even more. Historically, only 1.2 percent of companies that receive seed investment reach a $1 billion valuation, and 50 percent never raise a second round of funding.
Failed businesses have an important role. Their founders learned how to lead, research new technology, how to solve difficult problems and expose employees to a high growth environment. The data shows that founders have a better chance of getting it “right” the second or third time around – if they have the guts to get back into the fray. Six of the founders of $10 billion companies are not first timers, compared to four in 10 who raise some form of venture funding.
There is evidence that the US understands this better than we do. American companies are 50 percent more likely to exit after their first round of funding—which shows the scope of a startup company and its ability to identify a healthy, rapid failure. In the year In the years following the 2000 and 2009 recessions, US funding increased 215 percent and 97 percent, respectively, helping to create the conditions for today’s most influential tech companies to emerge.
When I talk to founders and partners about failure, they focus on the human consequences. Relapses are especially scary, and it’s hard for people to see this as a last resort. So far this year, 125,000 people have been laid off from 889 tech companies across Europe and America. But these are highly skilled workers, and in this floating candidate market, the number of open roles still far outstrips the talent available.
What happens if you choose not to make hard decisions? Keeping a company on life support traps resources — talent and capital — in a business that doesn’t achieve its goals. Inexperienced founders and investors risk throwing good money after bad, creating “zombie companies”, going nowhere and contributing nothing.
I know how hard it is to fold three companies that I co-founded. I have spent my time, sweat, pride and money on all of them. Each moment was terrifying and painful and I spent a lot of time beating myself up about my obligations to my clients, team and investors. The third time I started a business, we invented Skype.
Failure is an opportunity. By developing this muscle quickly, it will help Europe mature faster. We can create really strong founders and talent. With this low-cost consolidation comes, the “me too” competing firms merge into a smaller group of winners, which grow faster with more market share. And, importantly for humanity, we focus our resources on technologies that solve meaningful problems.
When I need some perspective, I look at the components of the Nasdaq Composite Index over time. They have grown from less than $1.2tn in 2003 to $6.7tn today. Of course, we had some not-so-strong times during those decades. When you take us to the global financial crisis or the dotcom crash, we see a drop in revenue. But when you zoom out, you see the trend — a series of long-term growth — and the bumps in the road are rare.
We don’t have to fear market volatility or even closing shop. The decline is Europe’s chance to develop the necessary DNA. For technology, as for people, resilience is power.
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