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Challenges and opportunities for expanding a technology business across Europe

For years, founders in Europe have been amazed at America’s ability to boost entrepreneurship, the caliber of Silicon Valley technology companies, and the maturity of the investment landscape.

Failure is celebrated in America as a mere consequence of trying to improve or disrupt an existing product or service. US entrepreneurs are known for their ability – and willingness – to tell the world about their success. Investors are less risk averse.

In the meantime, her European counterparts, who are often seen as far more modest, have tried to perfect the art of cracking the United States ̵

1; as large and challenging as it can be, of the size that the large American customer base can offer only Europeans dream. In fact, doing it in the States can often make or break a deal.

On paper, Europe presents all the elements necessary for technology companies to grow and scale. Perhaps entrepreneurs should look closer before crossing the Atlantic to be successful.

Europe benefits from its geographical proximity: it is possible to fly from one country to another or take a train in just a few hours. It has a huge single market of 500 million people that has somewhat facilitated trade between countries, and governments have tried to support entrepreneurship by spending substantial sums of money to promote innovation and R&D.

While all of this is positive, it is not always sufficient, which is why specific programs to support startups are created. For example, the project funded by the European Commission, Data market services aims to overcome obstacles to growth for startups operating in a fragmented European data market and to help founders solve problems such as data protection law, intellectual property and investment opportunities.

Support is needed and welcomed, and although some startups on the continent have been successful, growth in Europe remains a challenge.

What exactly are the challenges and how can entrepreneurs take advantage of the opportunities?

[Read: European tech: What startups can expect in Belgium, the Netherlands, and Luxembourg]

A fragmented market

In reality, European technology companies face a number of clear challenges that can impact growth prospects.

“I think Europe is doomed to fail and I am very pessimistic about the systemic nature of fragmentation in Europe, which unfortunately does not help European startups or companies achieve global size, as is possible in the US or China,” says David Gurle. An experienced technology entrepreneur and CEO of Symphony.

The quantity and quality of talent and finance is not the problem. “The talent in Europe is as good as anywhere else. It’s not about lack of money either. It’s just that the European Union has not structurally facilitated the creation of world champions, ”he adds.

Altin Kadareja, co-founder and CEO of Cardo AI, a startup that helps institutional investors, service providers, and lenders manage private debt investments, agrees.

“When you expand in Europe, you have to deal with fragmented regulation, and marketing and sales strategies have to be developed for individual countries,” he says.

This can take a lot of time and resources, especially when companies are dealing with local data.

“Think, for example, of credit risk. If you want to compare the risk of an SME loan in France with the risk of another SME in Germany, there is no standardized risk provider to support this analysis because every data or risk provider has expertise in their home country. Therefore, as a private borrower investor, you would have to work with multiple credit risk providers for each country and ensure that they speak the same language, ”he explains.

In Kadareja’s experience, the biggest challenges have been the southern European markets, which, paradoxically, are the ones who need the solution to his business the most.

In this case, legacy systems and resistance to change have created significant barriers to entry. “For us, Great Britain was much more direct and efficient,” he says, how the differences in Europe are also compensated for by the gap between north and south.

Iván Caballero, CEO of Citibeats, a Barcelona-based social intelligence and text analytics platform based on natural language and machine learning processing, quickly emphasized Kadareja’s stance on fragmentation while highlighting Europe’s funding landscape.

“The maturity of the European investment market is growing, but if we compare it with the investment markets in the United States or Asia, for example, it is even less mature. I think we’re on the right track, but we still have a long way to go, ”he said.

According to PitchBook’s European Venture Report Q1 2020, VCs spent an impressive 8.2 billion euros in European companies in the first quarter of 2020.

Although the year started well, the report believes the coronavirus pandemic is expected to have a significant impact on deal flow. More importantly, COVID-19 could jeopardize the inflow of US capital into European technology companies and potentially limit options for companies based on the continent.

Opportunities in the market

Europe may be a challenging landscape for navigation, but the continent has also spawned several successful tech outfits, including Spotify (Sweden), Amadeus (Spain), AMSL (Netherlands), Sophos (UK), Temenos (Switzerland) and Farfetch ( Great Britain). .

Founders across the continent also have access to key technology centers such as London, Paris, Amsterdam, Lisbon, Barcelona or Berlin.

While activities typically focus on these specific hubs, it is important to note that investors are also aware of the fact that it is important to broaden your search. In the UK, for example, it is not uncommon for VCs to look further away and consider opportunities in other cities such as Bristol, Edinburgh, Glasgow, Oxford or Cambridge. Even more rural areas such as East Anglia offer clear opportunities in the Agritech sector.

Talent acquisition and retention is indeed a challenge – both for companies in Europe and elsewhere – but hiring outside the US is usually cheaper. This is, of course, a double-edged sword, as European technology is at risk of brain drain – the mass exodus of talented and experienced people who want higher salaries across the Atlantic.

Niche companies are perhaps the most obvious beneficiaries in Europe. Those with specific know-how or products are more likely to thrive and can use the fragmentation of Europe to improve their bottom line. The European fintech area, for example, is far more developed than that of the USA.

In particular, Kadareja believes that there are many opportunities for technology solutions that enable and facilitate investment management. “I see many opportunities for better infrastructure technology with new architecture solutions like microservices architecture and new coding languages ​​that enable faster and more efficient software development,” he adds.

The data room is also ready for disruptions. “Flexible database solutions that enable big data management and the integration of alternative data sources are additional challenges that can open up new opportunities in the market,” he adds.

There is still hope

Although European technology has made leaps and bounds in recent decades, there is little doubt that it is still lagging behind the United States and parts of Asia. The good news is that founders no longer have to target US capital to enter new markets. The bad news is that Europe is structurally flawed – and it is really up to the entrepreneurs to find the right opportunities.

“Taking into account the special features of the European market (diverse, atomized, heterogeneous), the technology business should analyze which European markets fit better with their products and services, and also take into account other markets that offer new opportunities,” says Caballero.

Indeed, expansion in Europe may not be easy, but with the right tools and support, it is by no means impossible.

Have you mastered the growth challenges in Europe? Share your advice and experiences with the Growth Quarters community.

This program has received funds from the European Union‘s horizon 2020 program under grant agreement No 825014.

Published on July 30, 2020 – 09:59 UTC

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