EU tech startups

It was hard to ignore the dominance of Silicon Valley at this year's LeWeb tech conference last week in Paris - nearly all the speakers and featured guests were from California's famed tech hub.

While European innovation is picking up speed, it is starting from a long way behind the American startup scene - participants at the conference blamed over-cautious investors and misguided government spending.

A vicious cycle in Europe

Adventurous investors tend to be entrepreneurs themselves, so, where Silicon Valley has created a virtuous cycle, Europe is faced with a chicken-and-egg situation: there's not enough money because there are not enough start-ups, and there are not enough start-ups because there's not enough money.

"I know quite a few companies that moved to the valley just because they found capital there," said Sarik Weber, a German entrepreneur who runs the start-up incubator programme Hanse Ventures in Hamburg. His company provides capital and advice to new businesses.

"The whole Silicon Valley ecosystem is based on 40 to 50 years of entrepreneurs building their companies doing exits very successfully and then reinvesting this money back into the ecosystem," he added.

"This is what really fosters the European startup scene. When we get great exits like Skype or others, these people reinvest their money into European start-ups and we have to create that."

While European governments spend more on research and development than their American and Japanese counterparts, experts say that tax incentives and subsidies are not doing anything to encourage private-sector investors.

"The state is doing its job, but do the individual investors have enough confidence to invest more in research and development?" said Pierre Monhen, who teaches innovation policy at the United Nations University in Maastricht, the Netherlands. "There is a more cautious attitude in Europe than in the US."

Poor European political decisions hinder innovation, entrepeneurs say

But several entrepreneurs at LeWeb maintained that it is a political problem, and less of a problem of entrepeneurship. European governments, and the European Union itself, may be spending money, but it is not very effective.

Johan Staeul von Holstein, who has most recently founded MyCube, a social networking startup based in Singapore, thinks innovation could be encouraged with judicious tax reforms.

"There's as much capital as you can possibly imagine around," he said.

"It's just that the wrong people are sitting on the capital. Politicians need to understand the value of entrepreneurship and innovation and growth, and by giving huge tax benefits to entrepreneurs making their own decisions and putting large amounts of money in the hands of entrepreneurs: that would change the whole system in 24 hours."

A more serious problem is cultural attitudes and bad ideas, according to Tariq Krim, one of Europe's most successful entrepreneurs. He set up Jolicloud, a company that makes a Linux-based operating system which can be installed on any computer.

He adds that spending on innovation is misguided, and tends to go to a few large companies rather than lots of small ones.

In 2008, France, for example, invested 99 million euros ($131 million) in a new search engine called Quearo, which was supposed to be a European answer to Google. Since then, essentially nothing has happened and the project appears to be dead.

"They should have rather give money to 20 start ups," Krim said. “It has to be a competitive state about ideas."

Heterogeneous language, culture slow European tech startups

But beyond poor investment, the single European market may have simplified the movement of labor and money, but it has not created a single customer base.

Freddy Mini, who runs Netvibes, a start-up that creates personalised dashboards on the Web, pointed out that American companies automatically have a leg up, as they have a much more culturally and linguistically homogenous employment and customer base than their European counterparts.

In other words, he noted, European companies have to hire specialists for each corner of the continent.

"The first advice is forget your culture - get to the culture of the country where you live and hire people from the ground," he said.

Author: Molly Guinness, Paris
Editor: Cyrus Farivar