GenAI-powered sales startup 11x recently moved its operations to the US after building the business from scratch in London — arguably the best tech ecosystem in Europe. Along with it went most of 11x’s talented team, tax revenue and all the positive externalities associated with a successful and growing company.
Our investors were adamant that we had to be headquartered in the Bay Area. They couldn’t fathom that a technology startup could be hugely successful in Europe. To them, Europe is akin to an emerging market — kind of like your little cousin doing antics on Christmas Day: mildly interesting, but you can’t wait for them to graduate to the adult table.
The worst part? They’re kind of right. And that’s coming from someone who considers Europe home, supports the EU and wants the continent to punch above its weight, just like it always has.
Why America wins
11x has grown to $10m in revenue in under 12 months, with half of that coming from US customers alone. As for the rest? Nearly the entire other half came from European countries, effectively debunking the “low demand due to a lack of a single unified market” argument.
So, why did 11x move?
The answers are simple: capital, talent and America’s willingness to build the future. But mostly, capital.
European startups raised $52bn in venture capital in 2023, while US startups raised 3x that amount. The disparity is staggering and explains why so many European businesses, like 11x, eventually move to the US.
From our investors’ perspective, moving operations stateside meant:
- Easier access to capital to accelerate growth. Raising a pre-seed or seed in San Francisco is a walk in the park — or rather a stroll to a Blue Bottle cafe;
- A greater concentration of talent — higher quality talent — than you find in London or Paris. It’s worth noting that 20% of Europe’s top engineers have migrated to the US for better opportunities, according to Atomico’s 2022 report;
- A less daunting regulatory environment;
- A more supportive federal government;
- Customers with deeper pockets.
We’re seeing this over and over again: top European talent emigrating to the US, drawn by better opportunities, a more dynamic business environment and higher wages. The same goes for the best European businesses.
So how can Europe compete?
Open the capital floodgates
First, our governments need to stop messing around. Startups need capital.
The Paris ecosystem went from zero to 100 in the last decade because Macron’s government took the challenge seriously, invested billions into startups and signalled to ecosystem enablers and builders alike that France was open for business. Policies initiated by La French Tech are a good start. We need more of this across Europe.
The EU’s €4bn fund for AI is a disgrace — OpenAI burns that much in 6 months. Even Horizon Europe — the EU’s flagship R&D program with $100bn in dry powder — pales in comparison to the aggressive venture capital funding in the US.
If Europe wants to keep its most innovative companies, like Spotify or UiPath (both of which have moved significant operations to the US), it must increase the scale of its funding efforts dramatically. And please, for the love of federal-sponsored capitalism, get the bloody EU Capital Markets Union (CMU) going.
Funds should come from national governments to finance homegrown tech hubs, but the bulk of it should come from the EU itself. It should be funnelled into a few key ecosystems for maximum concentration of talent and growth (Paris, Berlin, Amsterdam). London can fend for itself in a post-Brexit world — it already has a head start anyway.
There is hope
- On the matter of tax credits, US companies benefit from R&D tax credits of up to 13%, just like in the UK. France tops it off by offering up to 30% credit but other countries lag behind, creating a fragmented landscape;
- Andreessen Horowitz recently set up shop in London, and many other US VS & LPs have started paying attention over the last few years (the latest 20 VC fund being a prime example);
- Funding for European startups is on the up ($16bn in Q2 — beating Asia for the first time in a decade);
- 45% of that funding went to late-stage companies. Long a contentious point, with very few European funds focusing on such rounds. Large investments went to London’s Wayve, Paris’s Mistral AI and Cologne’s DeepL while larger late-stage funds are being raised, for example Balderton Capital allocated half of its latest $1.3Bn fund to growth;
- Acquisitions are on the rise, with Paris-based startups seeing the highest deal activity;
- European unicorn companies number 208 in total.
Some good stuff right there, but as Matthew McConaughey famously said, “Those are rookie stats, we gotta pump those numbers up”.
Get back to business
Americans are naturally more optimistic, more risk-prone and more forward-thinking than we are. This stems from different histories and socio-economic circumstances. It has an evident impact on how much more dynamic their tech ecosystems are and will continue to be.
However, that’s no excuse for Europe to lag. We need to get back to work and stop being so gloomy about the future. We need to start building again. We have no other option. Europe used to lead in innovation and there’s no reason it can’t again.
This can be applied to European economic life in general: we need to become more pro-business like we used to be.
Economic growth is the tide that lifts all boats. All the nice things we have today, we owe to the trillions invested in technological innovation and business growth in the 18th, 19th and 20th centuries. We seem to have forgotten that without this, we stagnate — we stagnate as the rest of the world moves ahead. Worse, we might regress.
That is unacceptable.
Let the people build
Our governments must start reallocating resources from welfare to innovation. We must stop trying to regulate everything and simply enable our people to build. If you give Europeans the tools to build, they will. It’s in our DNA. We have wealth — trillions of euros worth of it — so let’s start putting money where our mouth is. The world moves fast; Europe has to get back to its accelerationist roots.
Once we become more pro-business and allocate capital more effectively, our economies will rise, wages will increase, debt burdens will fall and our most talented citizens and companies will think twice before trading free healthcare and walkable cities for Medicaid and Highway 101.
We have so much going for us. We have talent, capital, a solid work culture, stable institutions and a massive market (500m Europeans with an average GDP per capita higher than the rest of the world, bar a few outliers). Let’s stop wasting it and accelerate our growth. Until we do, the Europe-USA pipeline will remain open, draining our continent of its brains.
Read the orginal article: https://sifted.eu/articles/11x-relocate-silicon-valley/
