Christoph Klink, a partner at early-stage investor Antler, said he is seeing more founders coming from tech backgrounds. [+] The background comes from the deal flow pipeline.
Antler
A relative shortage of “tech founders” is hindering Europe's ability to found and build world-leading technology companies. That's the claim of a new report by early-stage venture capital investor Antler, but it's not a static situation. In the wake of industry layoffs, the survey suggests that the number of software engineers starting their own companies is on the rise. Antler says this is already impacting Europe's innovation economy.
Antler, which describes itself as a “day zero” investor, works by inviting founders to participate in a “residency” of about two months. During this period, Antler evaluates the potential of the founders, their teams and their products before making an investment decision. In addition to analysing 1,000 European founders, Antler also studied the backgrounds and characteristics of around 60,000 aspiring entrepreneurs seeking investment through its residency programs.
The findings? Antler's report highlights some big differences between Europe and the US. According to the report, the 20 most valuable US technology companies were founded by founders with backgrounds in computer science, data, or software development. For Europe's largest technology companies (by market capitalization), only 45% of founders are from technical backgrounds.
Does this matter? Antler's takeaway from his study is that Europe's failure to produce tech giants is due, at least in part, to a lack of entrepreneurs with practical technical experience. But is this right?
Founder-led
Now, there are many reasons that could explain why Europe hasn't been able to produce tech giants like the US has in recent years. Among them: Europe started late. Unlike the US, Europe is still to some extent divided by language and culture. Despite recent progress, the pool of investment capital is smaller. Bureaucracy gets in the way of innovation. These are undoubtedly prominent factors, but Antler wanted to approach the problem from a different angle.
“We looked at founder-led explanations for why it’s so hard to start a top-tier tech company in Europe,” says Christoph Kink, a Berlin-based Antler partner, “so we looked at founders and what they can influence.”
In Klink's view, the numbers make it very clear that in the modern technology and innovation ecosystem, founders with software and computer science backgrounds have a competitive advantage over non-technical rivals. Klink gives the example of emerging unicorns: 54% of these companies have a technical founder at the helm, according to Antler analysis. “And when you look at failed unicorns, less than 15% have a technical founder or less.”
Perhaps these figures simply reflect a changing landscape of the innovation economy over the past few years. Many successful European companies started with very traditional business models based on technology platforms, such as food delivery or clothing retail. In these cases, ideation and marketing, introduced with the necessary technology expertise, may have been key skills. Today, however, a lot of activity has shifted towards deep tech, big data and predictive analytics, which are often sold on the B2B market. Klink sees a correlation here between success and the founders' direct technology experience.
“Our hypothesis is that consumer innovation has already happened and that mobile apps will not drive innovation over the next decade,” he says.
Technical achievements
The report lists European companies such as Mistral, Synthesia and Pigment, noting that their tech founders have one thing in common: they come from companies like Meta and Google. In Klink's view, founders who have worked at established tech companies not only have tech experience, but also insight into problems that need to be solved. For example, unlike university graduate students who sometimes work on abstract research, they have a track record of creating products that address problems they have seen.
Before the tech downturn hit, Klink says, those people might have been happy to remain employees rather than jump into the uncertain world of entrepreneurship. “The opportunity cost was high,” he says. “They had good jobs, they could work from home, they were developing new products.” Now, he says, the opportunity cost is lower. Staff are being called back to the office; their work is more often focused on maintaining and incrementally improving existing products than on innovation. The incentive to remain employees is disappearing. So Antler is seeing an upturn in its cohort of new founders who have worked elsewhere. Antler has seen a four-fold increase in incumbent founders and an eight-fold increase in tech founders.
Now, if there is a correlation between scaleup success and the presence of tech founders, that could be bad news for the UK. The report found that a higher proportion of tech founders come from France and Germany than the UK. One factor is Brexit: many founders are immigrants, and Britain's departure from the EU is making it harder for talent from across the continent to move to London.
You could probably argue against all of this: Many entrepreneurs are focused on sales and marketing, which are the key skills to growing a company with a sound business model. But when it comes to applications around AI, analytics, cybersecurity, quantum computing, and biotech, technical founders may be the key to understanding both the technology and the solutions customers need. Indeed, that's Antler's view.
