“And it ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new. This coolness arises partly from fear of the opponents, who have the laws on their side, and partly from the incredulity of men, who do not readily believe in new things until they have had a long experience of them. Thus it happens that whenever those who are hostile have the opportunity to attack they do it like partisans, whilst the others defend lukewarmly, in such wise that the prince is endangered along with them.” – The Prince by Nicolo Machiavelli CHAPTER VI
I clearly remember being half asleep in early April 2000 with my Instant Messenger still on when at 3 am my San Francisco based co-founder of First Tuesday, my previous start-up, IM’ed me saying, ‘lights going out here in the Valley. Full court press to close funding’.
That didn’t stop us from continuing to disagree on the corporate structure of First Tuesday, but it did alert me to how fast the gate was closing on the funding market. Boo.com went bust in May 2000, and companies across Europe were ‘lucky’ to get funding done, or be sold or an IPO out the door in June. First Tuesday itself was sold on 20 July 2000.
As you moved east, you had more time. Friends of mine in Israel were closing new venture funds in October 2000 in Telaviv but by Christmas 2000, you knew the word had moved.
I set up Ariadne Capital the day after First Tuesday was sold, and I made some money. I’m never one to wallow around too long. I took 3 days off in Malta. And I’m so glad we plugged our way through 2001-2003 as I would have missed some of our biggest wins if I hadn’t been in the market: the first pay per click business Espotting, and Skype, and Monitise.
Seven years later, the world changed again with the financial crisis in 2008. We would be naïve, asleep or dumb to think that the next correction is too far away. It’s always roughly 7 years.
Shift will happen again…. Soon.
Each time it does, it is remarkable how those in whose interest it is for the game to go on are not understood to have a stake in the bubble.
The way companies get funded when they go stratospheric is a bit like a pyramid scheme in the valley. The kabal of angel investors already know who they want to fund something when they put in the seed funding. Everyone protects everyone on the way up.
With the unicorns who are valued in the multi-billions of pounds it is both the same as well as different. These companies have ascended due to everyone wanting them too. Yes, they have ‘Ecosystem Economics’ in that they control the economics of their ecosystem, but their capital providers protect them from challenges that would fall other firms.
The chief element of this protection is that no one asks the obvious question: Doesn’t the Empire strike back? Why should we assume that the 90% of the world which has not one digital won’t figure out the model? And isn’t capital efficiency determined at the unit economics level? For every £10 m in, requiring a 10X out, are we really sure that that’s going to happen in the IPO market now?
And here’s where they don’t blink: if you are the architect of a system which is fundamentally unconcerned with the downside of creative destruction, you bully or bravado your way through the uncomfortable questions about what happens next. The fear of being thought to be stupid has stifled the voice of more than one smart man/woman.
I have an investment thesis that I am working to prove, and I ask for everyone’s input and data to this at www.entrepreneurcountryglobal.com where we will publish the best contributions in our weekly Insights published to 215,000 citizens, it goes like this:
If at the exact same time that (founder of Uber) set up Uber saying: ‘rip the taxi industry to shreds, consumers unite, money required is $ 10 billion, go big or go home’, a European entrepreneur – at exactly the same moment- said, ‘let’s enable and extend the existing taxi industry and infrastructure across the continent, transforming it into a P2P mobility platform where a European can use their smartphone to order up transportation a la Uber by using whatever taxis and minicabs exist locally’, EuroUber could have accomplished multiple milestones in one fell swoop:
• Attracted new taxi drivers to a new platform driven transportation industry
• Secured the employment of the existing taxi drivers
• Facilitated better transportation for consumers across the continent
• Made money for the investors who backed the whole gig in the form of free cashflows from a very healthy, cash generative, network-driven, exponential growth supernova.
Everyone wins. But what’s wrong with this picture?
What would have happened is the following if young European entrepreneur had dreamt that dream:
• The EU or governments would have stepped in to protect people from the future therefore making it more difficult to get to the future (NB the future is always inevitable).
• The European VC’s would have looked at the US based entrepreneur and assumed he/she would be more successful
• The unions for the taxi cab industry would have been deeply suspicious of the game that was being played
You get the picture. There is nothing like spiking your own drink to pass out.
What I know from criss-crossing the continent is that the European entrepreneurs who dream that dream of enabling and extending their industries into ecosystems rather than disrupting industries in the name of a future IPO that cashes everyone out do exist. They are cashflow founders not capital gains founders. One such founder is driving Liftago in Prague. But there are many others. They fight hard, but they need the surround sound support of all parts of the funding/innovation/entrepreneurial ecosystem as European founders, home grown in a social welfare environment which isn’t obsessed with creative destruction have the best passport to the future actually: they instinctively understand capital efficiency at the unit economics level because they are forced to. The capital – huge pockets of wealth in Europe whether families, institutions, new money – does not rush to back them, so they have to be much smarter to give investors a proper return by leveraging existing infrastructure rather than rebuilding it from scratch with new money.
There are really only two things that are required to build the future:
• You have to believe that you can, and give yourself over to it. You cannot say I will until it gets hard as no one said it would be easy. Be prepared for every kind of insult possible. (speaking from experience folks).
• You have to study history in order to crystallise the model for the future. This is a design issue – a system level challenge. Financiers who want to build a sustainable model for wealth creation which will support their investment firms must read Adam Smith, Rousseau, Chan Kim, Renee Mauborgen, Carlotta Perez, Hernando De Soto, Ronald Coase and others. The pair of glasses is available if you think all the way through the problem, not just gaze towards San Francisco. Don’t follow bravado. Just think – all the way through the problem to the solution.
Imagine if each of those refugees who made it into Europe received a starter kit for building wealth for themselves as part of an overall plan to build wealth in Europe. The sum would be greater than the parts. The growth would take off. Imagine if the European dream was that everyone was a data entrepreneur. Imagine if most of the people most of the time worked towards a model where there was a win, win, win: existing companies, new start-ups with a new business model, and individuals whose data was powering the system made a commitment to Ecosystem Economics as the solution to the pattern of history called creative destruction.
That would be a way to become a permanent line item on the agenda of the Board of Directors’ meeting of Google, Facebook, Amazon, Uber, AirBnB …
There is always a trade in every relationship in life. And every relationship’s arc is more or less determined at the outset. It is unbelievably urgent right now to create the new settlement for the architecture of Europe’s growth. The European data entrepreneur (every single citizen) is a player, can be empowered, drives the system.
I and my company Ariadne Capital and EntrepreneurCountry are one thousand percent focused on that future.
Julie Meyer, neither capitalist nor socialist, but humanist with an abiding desire to build a growth story for Europe, a commitment to wealth creation in Europe, and an obsession with proving she’s right.