"Hackers are unruly. That is the essence of hacking. And it is also the essence of American-ness. It is no accident that Silicon Valley is in America, and not France, or Germany, or England, or Japan. In those countries, people color inside the lines."Business Week chief economist Michael Mandel agrees:
"Where does the U.S. competitive advantage come from?YCombinator is a seed venture capital firm. They recruit groups of founders straight from university, give them $6000 per person to work on their idea for a summer (or winter) and take 5-7% of the equity in exchange. In effect, their business model is much like that of a traditional VC, but with lower stakes since they get in at the seed phase. This has the potential to be a highly profitable business.
First, the ability to finance and reward high-risk startups. No other country has the same well-developed venture capital structure that we do.
Second, the willingness to work long hours is essential. You can’t make new technology work without immense inputs of time."
Can we clone YCombinator in Europe? I'm going to argue that it's hard, but not for the reasons that Paul Graham and Michael Mandel cite. Instead, it's hard because YCombinator has unique competitive advantages that are hard to replicate, even in the US.
This is a thinking exercise; I'm not planning on cloning YCombinator anytime soon.
First, let's defuse the Europeans-are-lazy myth. While the average US employee works 1777 hours per year, the average German puts in just 1362 – that's 24% less! But remember that these values are averaged over the entire working population. Contrary to popular belief, there are still hungry and highly educated people in Europe. At my school in Switzerland, it's almost impossible to find the CS lab unoccupied at any given time of the day (and night). There are also lots of bright, hungry people in Eastern Europe willing to work hard to score a big hit.
Similarly, it's possible to find hackers in Europe. DeCSS was written by a Norwegian. Ruby on Rails, to my knowledge, was composed on Danish soil. Germany has the CCC, one of the world's biggest hacking organizations, and c't, the country's mainstream computer mag, makes PC Magazine look like Cosmo Girl.
Still, the vast majority of innovative startups is in the US. If Europe has the hackers, why doesn't it have the startups? I believe that an important factor is that we are missing role models: There are no Googles or Yahoos that originate from Europe – imagine what Silicon Valley would be like had there been no Hewlett-Packard. Another factor is that Europe has a much more risk-averse culture. The YCombinator model works in this environment, too. It needs 10 to 20 daring founders, not tens of thousands.
What infrastructure is required to make young companies blossom in Europe?
- Talented people
- Availability of venture capital
- Potential buyers
A large percentage of the ETH Zurich's CS students are going to end up writing backends for banks, as that seems to be one of few career options. Some of them, I'm sure, would love to work on exciting products with smart, unbureaucratic people. The financial risk is much smaller, too: Remember that in Europe, going to university is practically free. After getting your degree, there is no pressure to pay back loans. You can even continue living in your subsidized dorm room, as long as you can convincingly tell a story about having decided to get another degree, this time in philosophy.
Venture Capital is a different story. Last semester, I attended a Startup-School-like lecture series at ETH and met a couple of local VCs and business angels. Some of these guys were really good, but others has no understanding of the technology and markets or acted as if VC were an extension of the traditional small-company corporate loans business, with similar expectations in terms of collateral and returns. These qualitative differences between VC companies, however, exist in the US as well.
As a startup, it's much easier to get bought if your offices are in Silicon Valley, not Oklahoma City. After all, it's just a one-hour drive to Yahoo headquarters. It's hard to find a spot in Europe with similar qualities, but since everything is one hour away by plane, location should not be a huge problem.
So what's a good spot? I first thought that Eastern Europe – Budapest, Prague, or Tallinn – may be a good place. However, while that's a cheap option, it's hard to imagine getting West Europeans to move east. In addition, you may risk appealing to students in the respective country only. A good choice may be Berlin; very appealing to young people, inexpensive, and in the West. Munich may work better, as it is home to many IT companies – read: potential buyers. Zurich, too, seems like a good spot; the Swiss, in general, seem more enterprising, and both Google and Microsoft have large offices. London, on the other hand, already has a sizeable startup scene and is in many ways virtually indistinguishable from Boston. For my part, I'd pick Zurich or Munich, but that's based on personal preference, not data.
Let's reiterate: We have the talent, and we could arrange for the capital and the buyers. What's missing?
To replicate YCombinator, you need three things: fame, picking talent, and capital.
The last of these is probably the easiest to solve. Per founding round, the YCombinator model only requires a couple of hundred thousand dollars. The founding fathers of the European YCombinator could likely cough up this money by themselves.
More important than deep pockets are the skills of the founding fathers: The ability to judge the promise of business plans and founders. Here, YCombinator is well positioned by bringing on a team that has already been successful at Viaweb. I'd be willing to bet that the partners - Trevor Blackwell, Robert Morris, Jessica Livingston, and Paul Graham - will achieve a higher batting average than the VC industry. How do you assemble a similar team? Even in the US, this would be hard to do.
Getting financed by YCombinator increases a company's chances of succeeding. You'll get more PR – on launch day, it's almost guaranteed your startup's website will be on top of Reddit, and the New York Times will be happy to mention you in their next article. The team also helps with advice on technical and strategy question. It never hurts to get input from startup veterans, as long their ideas aren't forced on you.
Still, of all these factors, Paul Graham's fame is probably hardest to reproduce. His hacker street cred greatly increases the quality and quantity of applications. How do you find a high-profile European who can get hundreds of hungry European CS students to apply for a founder's program? Who could set up a good clone of the Founder's Program and organize a Startup School with high-profile guests? I can't think of anyone who could fill this role.
I'm convinced that a European YCombinator would work. We need a skilled team and the famous guy.
Thanks to Douwe Osinga, Branimir Dolicki, Bálint Miklós, and Fabian Siegel for their insights and for reviewing earlier drafts of this.