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Look closely at Europe’s top-performing technology companies and you will see a trend. Forget investors, industry type, product or company size. The distinguishing characteristic is geography: most of its best technology companies have established headquarters in Silicon Valley.
In technology circles, these European enterprises are known as dual companies. They move their HQs but often keep strong operational presences in their founding countries so they can take advantage of cheap skilled labour.
According to global innovation consultancy Mind The Bridge, 82 per cent of European dual companies moved their head office to the US, with more than 40 per cent of total setting up home in Silicon Valley. Curiously, the dual companies also happen to be some of Europe’s fastest growing and best performing technology businesses.
If we look at the European companies that raised between $1m and $100m since 2010, one in seven have moved their HQ abroad. For those that have raised more than $100m, that rises to one in four. Coincidence? I think not.
Marten Mickos, chief executive of HackerOne, a security company that tests the information systems of the world’s corporations, says the reason is simple: access to opportunity.
“The market is there,” says Mr Mickos, a Finnish serial entrepreneur who jumped across the Atlantic 15 years ago. “Silicon Valley is not just a place where tech companies are being built,” he says. “European firms get access to customers who are eager to experiment with new products and services.”
HackerOne is his ninth start-up. Mr Mickos was previously head of MySQL, a company he co-founded in a garage and sold to Sun Microsystems for $1bn. He had relocated to the Valley in 2003.
“It opened up a whole new world of business opportunities,” he adds. “From the very early days, our main customers were there, all our major partners, existing or potential, were also there. Funding was there. The talent pool was, and still is, amazing. In Scandinavia, few understood how to make use of open source software. But in Silicon Valley, everyone did.”
There is no hiding from the fact that this migration is largely caused by inadequate access to growth capital in Europe. Once European companies reach a certain level of maturity, they are forced to look elsewhere to fund growth, and there is no better place to find scale-up capital than the US.
Despite its smaller population, the US has 14 times more later-stage capital than Europe, says Atomico, the UK-based international technology investor. It is no surprise that the European companies that make the jump are not only some of the best-performing but also end up raising the most money.
According to Mind The Bridge, European dual companies raise 30 per cent more capital than those that follow a domestic funding path. Alberto Onetti, Mind The Bridge chairman, agrees that opportunities are often a magnitude larger in Silicon Valley.
Risto Lahdesmaki, head of Idean, a global design and strategy company acquired this year by Capgemini, is another European founder who was forced to step outside his home environment to find success.
Also a Finnish native, he ran Idean for a decade before moving to Palo Alto in 2011. At the time, Mr Lahdesmaki had zero dollars in funding and only a few designers on his staff. He is adamant that Idean would have died had he not made the move.
He says the power of Silicon Valley lies as much in mindset as it does in capital or talent. There are enough people there, he says, “who believe that it is completely fine to try and change the world. That is something I haven’t found in Finland, Europe, or anywhere else”.
It is hard to see how Europe can compete with the US, at least on a capital and cultural level. But there is a sense, at least among these European entrepreneurs, that it is moving in the right direction, albeit slowly.
“The good news is that the EU is a larger market than the US — 500m citizens — with excellent buying power, and there is a mix of a wide variety of skills that you won’t necessarily find elsewhere,” says Mr Mickos. “Entrepreneurial opportunities are moving out of just ‘software’ or ‘tech’ and into all aspects of life. In these new areas, I believe the EU can perform strongly compared to Silicon Valley.”
At the moment, however, who can blame European founders for making their dream move to the US? Developing a business at scale in Europe can be tough. It is hard enough to build a scalable go-to-market strategy, let alone to do it in dozens of countries and across multiple languages.
As Mr Onetti says, “crossing the ocean is easier than crossing the Alps”.
The writer is a UK-born, US-based entrepreneur working on education and the future of work