An In-Depth Look Into The Silicon Valley of Europe: Who is Winning the Custom Software Development Race?
How did Silicon Valley become such a magnet to talent and what makes it the place that it is today?
Year after year, thousands of entrepreneurs and aspirants flock to the edge of the world in an attempt to turn their series-A dreams into reality. Home to over five thousand startups and headquarters of 39 companies in the Fortune 1000, the Valley is considered to be the world’s largest tech hub. Since the early 70s, the place has been a spawning ground for software development companies and is widely credited for laying the foundations of custom software development. It always brings up the same old question – how did it become such a magnet to talent and what makes it the place that it is today?
There are a combination of elements responsible for the existence of Silicon Valley but we must first look back at where it all started.
In the year 1884, railroad tycoon and former Governor of California, Leland Stanford, together with his wife, announced their decision to build a university in order to commemorate the death of their only child, Leland, Jr.. Stanford University was officially opened on Oct. 1, 1891 and it even offered free tuition in its first years.
Fred Terman was a Stanford University professor with a reputation for his accomplished track record in assisting his students with building companies. Some of his students include Bill Hewlett and Dave Packard, known for starting Hewlett-Packard in 1939 out of their garage.
Stanford University’s pro-entrepreneurial policies attracted flocks of hungry students looking to get into the center of the action. Through collaboration between academia, the private sector, and the government, Silicon Valley’s fertile grounds began to flourish.
Let’s take the Valley for what it is today, a 67-kilometer long passage between San Jose and San Francisco. It is home to several giants that are responsible for shaping the tech industry into what it is today. Some of the big names are Apple, Intel, Google, Lockheed Martin, HP, TESLA Motors, ORACLE, AMD, NVIDIA, Cisco, Electronic Arts, Facebook, and Netflix. With the birth of these companies, aspiring engineers and programmers looking to land their dream job turned to Stanford University. Gaining admission to the university became extremely competitive and this worked perfectly in the favour of Silicon Valley, attracting even more talent.
The word on the growing number of successful companies spread like wildfire and it quickly attracted money, investors and the like. Due to the abundance of cash and opportunity, anybody with an idea and a dream looked to the Valley for the answer. What it had that other places didn’t was a balance of both personal wealth and institutional wealth. It inspired stability and confidence, which is imperative in the investor world.
At the moment, there is no cookie-cutter approach that can guarantee the success of a start-up. Accelerators around the world are constantly refining their methodologies in hopes of optimizing their startup-building formulae. A few common denominators that we can agree on which are required in building a successful startup, start off with, of course, a hungry entrepreneur with a vision, a team of gifted employees, a foundation for generating research and new ideas, access to both short- and long-term capital, as well as tech firms that are willing to pump funds into, or buy out up-and-coming companies.
Historically speaking, Europe fell short compared to the Valley when it came to the accessibility of large pools of funds.
There were also simply not enough established tech corporations ready and willing to inject money into startups. The lack of initial funding and promising growth opportunities drove away young entrepreneurs, forcing them to look elsewhere. Even some of Europe’s most promising companies have had to cross the ocean to gain access to capital in the Valley. It is said that at one point in time, one building in Palo Alto contained more capital than there was in the entire European venture capital ecosystem.
The late 90s saw a great deal of failure for European VC firms, so much that any involvement in venture capital was met with mockery and became labeled as a ‘losing game’ — nobody believed any money could be made from it. A few of the unlucky major European firms include NetPartners, 3i Group, Apax, Quester, and Frontiers Capital.
Europe never had a shortage problem with talented entrepreneurs or lack of creative employees — it was a matter of offering the right tools, bringing them together, and placing them within the entrepreneurs’ reach.
Fast forward twenty years and Europe is a completely different playground.
Large venture capital funds are now more commonplace in Europe. Institutional funds and personal funds have become highly accessible. Numerous countries, especially in parts of Eastern Europe, have created government incentives and grants and are even pumping money into accelerator projects.
A key determinant in Silicon Valley’s success is diversity, a trend now found in Europe’s custom software development scene. Some of brightest engineering minds on the globe are now relocating to top tech cities such as Berlin, Dublin, and London. This increase in diversity has led to massive growth in creativity. It comes as no surprise that Europe outnumbered Silicon Valley in the most initial public offerings in 2017. A lot of today’s newest tech innovations originate from Europe rather than Silicon Valley due to decreases in stringency of regulations as well as new encouragement for innovation and growth.
Replicating the Valley model will not work for Europe — it will need to create its own ecosystem with its own conditions. The truth of the matter is, Europe will never have its own Silicon Valley. It will never be able to reproduce what the Valley has to offer. And it shouldn’t. But it will succeed and it won’t require a concentration like the Valley has.
Europe has adopted a very entrepreneur-pro stance by creating the perfect playground for hungry startup-ers, offering everything one would need to build a successful startup. Let’s not forget, about half of the world’s highest ranked computer science universities are on European soil.
Nowadays, many European countries and cities have begun offering incentives to entrepreneurs in order to attract stronger talent.
The fintech sector is one of the most flourishing areas in Europe due to its friendly regulatory environment. A 2017 report by Atomico and Slush showed the tech sector saw a 32% increase (+$4.6 billion) in 2017 up from $14.4 billion in 2016. Another great example. London just got its first (also first in the world) regulatory “sandbox” in 2015 with the help of the Financial Conduct Authority. This would give leniency to startups through lessening compliance standards, as the startup focuses on building its product. This approach is comparable to that of a regulator running an accelerator.
Regulation can often be an obstacle for fintech startups located in the United States. In comparison, Europe welcomes innovation in custom software development and fintech apps with open arms. One example is through regulators forcing European banks to provide raw account data to third-party vendors in order to create new APIs to handle payments for customers. In the States, regulators leave it up to the banks to make their own decisions on this matter.
Tech gurus claim the European approach is more sound. It comes as no surprise that American VC funds have begun flowing into European tech startups. What the VCs are after are fast profits — it’s been shown that European startups are more likely to generate profits earlier.
So what’s our pick for the ‘Silicon Valley’ of Europe?
It wasn’t an easy one — but we have to give it up to the United Kingdom for holding the spot as the largest destination in Europe in total capital invested in the tech sector. Former British Prime Minister, David Cameron, called London the “Tech City” — Boris Johnson, Member of Parliament, called it the “tech capital of the world”.
The UK is very hot right now — with dozens of accelerators running throughout the year and new programs being introduced all the time, there is always something going on. There are not many countries in Europe that can match the numbers the UK government is putting into the technology sector through various grants, institutional funding, and many other initiatives provided to startups or companies with a focus on innovation. Future Fifty and High Growth Segment are just two of the many programmes launched by The London Stock Exchange and Tech City UK. The Enterprise Investment Scheme and the Seed Enterprise Investment Scheme are two initiatives introduced as a series of UK tax reliefs with the purpose of encouraging investments in small companies.
In 2017, British tech startups raised more capital cumulatively than any other European nation — it was a record year for VC funding. Up-and-coming businesses in the UK saw close to £3 billion in investment. This is almost double the number raised in 2016 and more than four times the amount raised by German and French startups.
A developing issue in the Valley is how expensive everything is becoming.
Atomico, a tech investing company based out of London, brings up an important point. US startup valuations are five times higher than that of European startups — for a reason. The costs of hiring an engineer in the Valley are equally proportional. This is all due to the high, and still climbing, prices of real estate. More entrepreneurs are now thinking twice before flocking to the Valley. There are many specialists who claim these growing costs are the main and long-term threat that the Valley is facing.
The conclusion is clear — entrepreneurs and VCs alike must make a move on Europe soon.
Europe is no longer the place it used to be two decades ago. The nineties saw numerous failures in VC investments which scared away a large portion of the crowd. It was about the money — there was not enough of it and it wasn’t readily available to those that needed it. Naturally, the flocks migrated to the place where funding came in abundance, and that was the Silicon Valley. The combination of available resources, access to funds, and an extensive network of manpower propelled the Valley to significant growth within a short period of time.
However, with growth comes inflation and the Valley definitely felt the effects. A 2018 report states that a household in the San Jose area bringing in $117,000 is now qualified as ‘low income’, up from last year’s $105,000 cutoff. Even New York and Los Angeles which are both notorious for their high living costs did not match up to the Valley’s numbers.
The average cost for hiring a Ruby developer or a Python developer is $149,000 a year — and these two positions don’t even make the top 10 list for the highest paying jobs in the Valley. The 2019 U.S. Census ranked the Valley, San Jose and surrounding areas as having the highest housing costs in the U.S. at an estimated $2340 per month. It is now commonplace for single adults to pay rent in the low $2000s for a room.
The recent outlook on Silicon Valley’s habitability has not stopped the tech hub from attracting talent but it certainly slowed down its growth.
After years of lagging behind its American counterpart, Europe has become the hip place to run a tech startup. With an explosion in institutional funds and numerous government-driven projects, entrepreneurs from around the world have brought their talents to startup capitals such as London, Berlin, and Paris.
Looking at recent trends, it’s safe to say that one of, if not, the fastest growing technologies out there is artificial intelligence. According to 2018 data, United States and China lead the AI race as individual countries with the highest number of startups (1393, 383, respectively). However, Europe as a whole, has more than double China’s numbers, with 769 startups, amounting to 22% of the AI startups worldwide. In Europe, UK takes the first prize with 245 startups, which also ranked 4th worldwide, followed by France with 109, and Germany with 106.
Without a doubt, the UK is making respectable contributions to the AI community. Its government announced a deal among public and private groups that would bring in more than $200 million in AI investment, but and also pledged to put up its own money too — $30 million into building incubators and accelerators with a focus on AI. Other private VC firms such as Chrysalix and Global Brain will also contribute with $100 million, and $50 million, respectively. Through a government-run program, university powerhouses such as Oxford and Cambridge will be able to offer financial support to 1,000 AI PhDs at any point in time, further pumping money into research. France also pledged to put up a grandiose sum of $1.8 billion into AI research until 2022. The French president, Emmanuel Macron, has taken a positive stance on the AI race and declared that he wants to turn France into a “startup nation” by easing labor laws and introducing investment programs. Germany is also due to see a $1.5 million investment by Amazon which will be put towards awards and the development of a new research center, close to the Max Planck Institute where crucial AI research is already being done.
A competitive international presence requires coordinated action among the EU nations. In 2018, the European Commission outlined a program that would increase public and private funding in AI and also prepare the continent for the imminent socio-economic and ethical changes that would come with the dawn of the new era. The target sum is $24 billion in AI funding by the end of 2020, with the European Commission increased its own investment to $1.8 billion under the Horizon 2020 research and innovation program.
Here are some notable accelerators that are putting Europe at the forefront of AI development:
Accelerace – Future of Work
Location: Copenhagen, Denmark
Funding: up to €60,000
Equity Taken: no equity is taken
Program Duration: 6-8 months
Restrictions: open to startups with a focus on Big Data, IOT, ML/AI, and
Other Offerings: resources and tools worth €50,000 from Amazon, Microsoft, HubSpot, Rackspace, Horten, PA Consulting, and others; intensive one-on-one business training from experienced serial entrepreneurs; mentoring from leading experts in the Nordic ecosystem; free office space at Symbion co-working, as well as assistance in regard to relocation and accommodation in Copenhagen; direct access to Proof of Concepts with relevant corporate partners including multiple Symbion co-working spaces; help with administrative tasks, logistics, legal, etc.
Location: London, England or Amsterdam, The Netherlands
Funding: €50,000 or €100,000
Equity Taken: 8% or 10%
Program Duration: 12 weeks
Restrictions: open to all startups, however, AI areas of focus include natural language interpretation, voice, and visual technology
Other Offerings: intensive 1-on-1 coaching and customized training sessions; access to networks of angel investors, corporates, and others investors; connections that guarantee early customer interaction; benefits from partners such as AWS, Google, Microsoft, SendGrid, Hubspot, IBM and more; office space access to the Collider network for life
Wayra – AI & Blockchain Accelerator
Location: Edinburgh, Scotland
Equity Taken: varies
Program Duration: 6 months
Restrictions: open to AI, robotics, Natural Language Processing, blockchain and related startups
Other Offerings: access to mentoring, networking and office space in the new Bayes Centre; access to the partners’ networks of investors, government agencies, customers, large corporates and universities, as well as opportunities to work with the University of Edinburgh’s world-leading researchers in AI, data science, blockchain, robotics and Natural Language Processing; training in entrepreneurship and business skills; alumni still keep access to the Wayra community
Location: Zurich, Switzerland
Funding: up to CHF 10,000 of business development expenses
are covered during the program
Equity Taken: no equity taken
Program Duration: 11 weeks
Restrictions: preference given to startups with a focus on AI, big data, blockchain, robotics and related
Other Offerings: meet and work together with executives of leading Swiss corporations and organizations, aiming to initiate innovation partnerships and pilot projects; collaboration workshops; support through experienced advisors from the Swiss innovation ecosystem; access to investors;
Location: Hertogenbosch, The Netherlands
Equity Taken: 6%
Program Duration: 6 months
Restrictions: preference given to startups with a focus onvdecision making & predictive analytics, visual inspection, speech recognition, image & video analysis, document search & analytics, algorithms & libraries, autonomous vehicles, virtual assistants, and autonomous robots
Other Offerings: access to Rockstart’s AI ecosystem, industry and corporate partners, talents; 1 on 1 coaching; access to mentors with expertise in AI, data science, product and building businesses around technology; office space and other facilities; access to an investor network consisting of 200+ local and international investors; access to Rockstart’s international community of alumni that can provide fundraising advice, PR & marketing support, legal & administrative services and access to exclusive deals; partnership with Jheronimus Academy of Data Science to provide access to state-of-the-art research know-how and talent
Location: Barcelona, Spain
Equity Taken: 8%
Program Duration: 3 months
Restrictions: preference to startups with a focus on AI, VR, connectivity, security, and analytics
Other Offerings: access to coworking space for the duration of the program and the option to stay for 3 months more for free; access to over 1000 carefully selected mentors from IoT & Data Tech industry who provide hands-on support and valuable introductions; exposure to an audience of over 400 investors, partners, media, and the local ecosystem; more than €500K+ in exclusive partner deals from leading technology providers such as Amazon, HubSpot, SendGrid, and others; access to vCs and angel investors in the specific industry; continued access to a global ecosystem of founders and mentors
Location: London, England
Equity Taken: 4-8%
Program Duration: 6 months
Restrictions: none mentioned
Other Offerings: pilot opportunities and corporate access offering benefits from distribution, product validation and feedback, to data access, market insights, relationships, credibility and capital; access to a dedicated team of experts to help each startup; access to a VC and angel network
Location: Vienna, Austria
Equity Taken: varies
Program Duration: 4 months
Restrictions: applicants must be a pre-Series A and Series A startups building solutions for mobility data platform solutions, integrated urban mobility, autonomous transportation, maintenance of the future, payments and transaction processing, cybersecurity and data privacy
Other Offerings: access to tools and resources necessary to build successful proof-of-concept projects and strategic partnerships with Kapsch; financial support and strategic funding of global proof-of-concept projects; introduction to industry experts; innovating with global Kapsch executives; expert mentoring sessions, global industry events and fairs, PR and marketing support; travel expenses during the Kick-Off Days, the Acceleration Weeks and the Demo Day are covered by Kapsch.
Location: Vienna, Austria
Funding: €5,000 with potential €22,500 follow-up grant
Program Duration: 5 months
Restrictions: must be in either natural language understanding, image processing, data connections, data insights, business optimization, however, any AI startup will be considered if it provides innovation
Other Offerings: access to a dedicated IT Developer for each individual startup and a dedicated Growth Marketer; 1:1 coaching and mentoring by international experts and entrepreneurs; 5 bootcamps providing a great deal of critical founder knowledge; office space at weXelerate; contacts to investors, corporates in the startup’s specific field; contacts to first customers; contacts to mentors and alumni; support from university research teams; coaching and hands-on training totaling 350 hours; access to and usage of the Botbase, Elevate’s own chatbot framework
Location: Prague, Czech Republic
Funding: €30,000 with potential follow-on funds
Equity Taken: 5%
Program Duration: 3 months
Restrictions: must be in either natural language understanding, image processing, data connections, data insights, or business optimization; however, any AI startup will be considered if it provides innovation
Other Offerings: access to over €1 million worth of perks offered through the Global Accelerator Network partner program, including free access to professional services like Amazon AWS and Microsoft Bizpark+; access to an extensive network of mentors, investors, and advisors from Central Europe’s leading firms in technology, finance, telco, software, and retail; access to C-level executives from KB- Bank, Vodafone, Accenture, KPMG, Seznam, Google, Microsoft, E.ON, and more; intense mentoring sessions with industry experts from many different businesses, including a host of c-level executives from leading tech companies, as well as successful business founders.
Author: George Eduard Balan, IT Teams Columnist.
He currently lives in Toronto. George passionately writes about finance, business and IT.
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