Europe needs more large tech companies

I attended a Bryan Garnier seminar on ecommerce this morning and one of the panelists pointed out the small size of the European quoted stocks compared with the US.

Combined Market Cap of EU Ecommerce Companies Below: £2.1bn

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Combined Market Cap of US Ecommerce Companies Below: £57.7bn

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One can argue about Bryan Garnier’s choice of companies but the message is clear enough – European ecommerce companies are much, much smaller than those in the US.

At the conference this was presented in a positive light – apparently there is demand from global equities investors for more exposure to European ecommerce.  That is good to hear and I’m sure we will all do our best to give it to them, particularly as there is a preference for companies valued over $1bn 🙂

I care about this for another reason though, because of what it means for the European startup ecosystem.  A small quoted ecommerce sector has the following implications when compared with the US (amongst others):

  • Less analyst attention on the sector making it harder to IPO
  • European companies seeking an M&A exit need to court US buyers which is harder than courting domestic buyers
  • Fewer experienced employees and entrepreneurs going into startups

These arguments hold for all sectors, not just ecommerce.

The good news is that this is starting to change.  Companies like CSR, Autonomy, ARM and Software AG have recently joined SAP global leaders in significant markets and the progress at Skype is encouraging for us all.  Building an ecosystem takes time for a number of reasons – emergence of a critical mass of angels and growth of support systems for entrepreneurs are two of the most talked about elements.  The existence of large indigenous tech businesses is another.

  • Nic, this is a matter dear to my heart. Innovation is stifled in the EU. The problem is real and you highlight this.

    I would agree that progress is being made but it's far too slow. OK, maybe we'll be pleased with ourselves in 5 years time when we have a market cap of £5b. Unfortunately for us, the US market would likely be well over £100b in 5 years. Hardly progress in my view. Countries like India or Israel would probably have the same market cap as us by then.

    Our problem is not with VC. Nor is it with LPs. The problem lies in the fact we do not have a sophisticated network of seed investors or incubators. As a result fewer companies survive past conception, or they just up and leave for the US. Events like seedcamp are helping but we need more programmes than just the seedcamp event. We also neeed to put more capital in at seed stage. 50k Euros doesn't get companies very far with our higher labour costs and overheads.

    It's a problem the whole innovation community needs to address (VCs, Angels, Government, LPs, Entrepreneurs)

  • Spot on David – creating large indigenous companies is but a small part of the task of building a healthy innovation ecosystem. This data was sufficiently striking that I thought it worth highlighting.

  • Dimitri Inglezos

    I definetely agree that one reason for not having large european companies is because the VC/angel support network is very thin on the ground. and it usually happens from large corporations.

    But I think one other reason is the fact the we have a lot of different languages in Europe and the content should reflect the local market, which means increased upfront expenses for what otherwise would be a single language affair ; not to forget of course the different legal landscape for each country which definetely makes it difficult to expand to the different markets.

    Perhaps a better strategy would be through acquisitions where the new company bolts its technology to help it expand over europe.

  • Dimitri Inglezos

    I definetely agree that one reason for not having large european companies is because the VC/angel support network is very thin on the ground. and it usually happens from large corporations.

    But I think one other reason is the fact the we have a lot of different languages in Europe and the content should reflect the local market, which means increased upfront expenses for what otherwise would be a single language affair ; not to forget of course the different legal landscape for each country which definetely makes it difficult to expand to the different markets.

    Perhaps a better strategy would be through acquisitions where the new company bolts its technology to help it expand over europe.

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