Building an ecosystem to rival Silicon Valley

It is Seedcamp Week 2010 in London this week, an event which usually precipitates conversation on how the European (and indeed global) startup ecosystem is progressing so when I read Vivek Wadhwa’s post on Techcrunch this morning with advice to Russia on what they should do to develop their ecosystem I was moved to share a few thoughts of my own.

First the big picture – in my opinion the European startup ecosystem is maturing nicely.  I agree with Saul Klein’s point in his post on ecosystems from nearly a year ago that these things take time, or in his words “great things take time”.  So even though I would like to see more startups coming out of Europe and more venture capital here, I think we need to have patience, and that we shouldn’t be unhappy with the rate of progress.  As I’ve said many times the European venture capital industry has only been around for 15 years at any scale, and the last ten years have contained two of the biggest economic busts in the last one hundred years, and whilst there is much to do, and we certainly mustn’t be complacent, we shouldn’t expect that we can create a Silicon Valley over night.

My partner Simon Cook always says that the startup ecosystem has three constituents – an entrepreneurial culture, a supporting financial infrastructure (investment and exit) and support systems (mentors, advisors, lawyers etc.) and when you think about it that way it becomes clear that all three parts need to grow in harmony, which limits the speed at which growth can occur.  If any one of them gets too far in front of the others it will fail – the entrepreneurs would have no support or financing, the VCs would have to fight over too few deals and the support community would have no-one to help.

The other important ingredient for the startup ecosystem is confidence, which comes from success and from visible role models.  Again that takes time – startup successes are not created over night.  The progress on this front in Europe is tangible though with successful European entrepreneurs increasingly helping to drive the ecosystem to the next level.  I saw a good number of them at Seedcamp yesterday, and there will be many more over the course of the week (check out this impressive list of mentors), and as Fred Destin wrote recently a good number of them have now set up investment funds.

Two of the recommendations that Vivek makes to the Russians relate to confidence, the first from the bottom up and the second from the top down.  Firstly, and maybe fairly obviously, teaching entrepreneurship more extensively will help confidence by taking some of the risk and fear out of starting a new venture – and we could do more of that here.  Secondly, and perhaps more radically, is to provide more air cover for entrepreneurs from the heart of government.  Vivek put it this way for the Russians:

Have President Medvedev provide a vision for the grand challenges that Russian society faces and ask entrepreneurs to help solve them. Let the entrepreneurs know that they should expect to fail at least two or three times before they achieve success; or very simply: that  it’s okay to fail.

Viviek makes two other recommendations that we can learn from here in Europe, and they relate to encouraging transparency and the sharing of ideas:

Connect Russia’s engineers with their counterparts in the U.S. The Russian government should create the resources needed for American tech companies to find and hire the right Russian talent. It may even want to subsidize salaries for the first year or set up a fund that invests in Silicon Valley startups that hire Russians. This is a win—win: American startups here get desperately needed seed funding and talent, and Russians gain experience and knowledge of markets and establish valuable contacts.

and

Invest in capacity-building networks such as those being developed by The New York Academy of Sciences. The academy has created an alliance of research universities and academic medical centers which are linked to industry. It has enrolled more than 6000 doctoral students and post-docs and built about 25 multi-institutional communities of researchers and students in multi-disciplinary fields. These could be linked to similar Russian networks.

These points are both about increasing collaboration and exposure to entrepreneurialism.  In the UK we produce a phenomenal amount of research for a country our size, but too much of it never sees the light of day because we lack the mechanisms to encourage and promote sharing and collaboration.  Government could do a lot to help here.

I’m going to close with a point about government investment/subsidies.  The history of Silicon Valley shows that government investment/subsidies can help an ecosystem reach critical mass – a lesson that just about every government in Western Europe has taken on board now.  The trickier question is the form that government help should take.  I have two thoughts here – firstly it should support private investment, either via mechanisms like the UK R&D tax credit scheme (which has helped make many startups successful) or via co-investment with private money into venture funds, and secondly that any government help should be mindful of the need to keep the ecosystem in balance.  Over-stimulating the VC industry will create mini-bubbles and is not helpful over the long run.

  • http://www.seedcatalyst.com/joomla/blog/blog rhitu

    We do tend to talk about government support for the entrepreneurial scene – I’d love to get your thoughts on another phenomenon. In the US, several of the large corporate houses have their own venture funds to invest in their eco-system (Google, Cisco, Motorola etc). This implies that in addition to their internal R&D, they are supporting external, more agile small tech firms as well.

    However there doesn’t seem to be any similar effort on this side of the pond. Nokia is the only name which comes to mind. Can think of several other names which could be more active in this direction (BT, ARM…) Don’t you think more active UK corporate venturing would also help the entrepreneurial scene – in mentoring, market approach, business development and perhaps then even a final exit?

  • http://www.theequitykicker.com brisbourne

    More corporate venturing would help, definitely. I think that will come naturally with more large indigenous tech cos and a successful institutional VC market.

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