Skype co-founder: Why EU start-ups are better built than US cousins

Europe's tech start-ups will survive the inevitable bubble burst because the market does not have as much money as Silicon Valley.

That is according to Skype co-founder Niklas Zennstrom, speaking at Slush in Helsinki, Finland, this week as he revealed the results of a report into European start-ups by another of his firms, tech investment arm Atomico.

The report, called The State of European Tech, highlighted the achievements of Europe in tech, but he said it was not "mission accomplished".

For 2015, the continent is on track to produce 10 new companies topping a $1 billion valuation, so-called "unicorns", with 5,000 angel investors active in the market and 1.6 million developers. "These are figures I couldn't have dreamed of ten years ago, we've come a long way in the last several years," said Zennstrom.

Access to talent and capital continue to be a challenge for start-ups in Europe, he said, with US VC funding adding up to 5.4 times the amount of investment seen across Europe - but there is a silver lining to that cloud.

"In Europe, because we have less capital, companies are being built in a little bit more reasonable way," said Zennstrom, saying European companies are more focused on sustainable business models, as they need to assume they won't necessarily get financing. "European companies are better equipped for a potential downturn than China and the US."

Interconnected hubs

Citing the report, Zennstrom said hubs such as London are maturing, with 47 per cent of investment heading to the top five hubs - led by London, but also including Stockholm, Paris, Moscow and Berlin.

"We are very much a distributed system of hubs and they all have different characteristics," said Zennstrom. "We need to interconnect these hubs much more, we need to continue to foster interconnectivity between all these hubs."

"What really is happening now is you have several successful founders going out and reinvesting in the ecosystem, in start-ups," Zennstrom said.

Smaller markets will have more trouble finding talent than hubs, but again that has a silver lining. "If you're starting a company in a place where you have no other great companies, it's hard to get access to talent, but on the other hand, the talent you do recruit will be more sticky."

That helps address the capital issues, and universities and perception of the industry are helping shrink the skills and talent gap. Start-ups now pass the "mom and dad test": working as or with an entrepreneur is considered a good job for newly graduated students.

It used to be seen as a poor career choice. "Your parents probably got really nervous if you said you wanted to become an entrepreneur," Zennstrom claimed. "That's all changed - today it's very acceptable to be an entrepreneur or work for a start-up company."

Matter of time

While Europe trails Silicon Valley in terms of "unicorns", Zennstrom said: "This is a matter of time, I'm convinced that in the next ten years when I sit here on this stage, we'll be talking about several companies in Europe that have reached double digit billion valuations.

"This is far from mission accomplished, we still have far to go. We're at the beginning of something fantastic."

Picture: Niklas Zennstrom, courtesy of Thomas Schlijper