Investor Niklas Zennström believes in Europe's chance of becoming a trillion-euro company. According to the Atomico founder, there is still a lack of growth capital and larger European funds.
Berlin. Niklas Zennström once co-founded Europe's first unicorn. In 2005 he sold the video telephony service Skype to eBay for around three billion dollars.
The deal made the Swede a pioneer in the European tech scene because: A year later, Zennström founded the venture capitalist Atomico in London, which co-finances billion-dollar start-ups such as the space company The Exploration Company and the AI company DeepL.
In an interview with Handelsblatt, Zennström is convinced that Europe is becoming more and more ambitious: “Every new success story raises the bar for the next generation.” In the past, a typical German, Swedish or French founder often started a copy of a US company and used the language barrier as a protective wall. Zennström makes it clear: "Those days are over. European founders are now developing their own innovations instead of copies."
Mr. Zennström, you have been working as an investor in Europe for 20 years and are incredibly optimistic about the European start-up ecosystem. Why?
The founders have changed a lot. 15 or 20 years ago, a typical German, Swedish or French founder would often build a copy of a US company and use the language barrier as a protective barrier. Those times are over. European founders are now developing their own innovations instead of copies. They build companies with the same ambition as US founders and have almost the same opportunities. There are now more than 450 unicorns from Europe, i.e. companies with a valuation of at least one billion dollars. And there are just as many start-ups financed with venture capital in Europe as in the USA.
Nevertheless, we have no Facebook, no Google and no Nvidia here in Europe.
Silicon Valley started its cycle in the 1960s and spawned several generations of companies. The European tech industry is only 20 or 25 years old. But each new vintage grows faster than the previous one. Ambition increases with every breakthrough: every new success story raises the bar for the next generation. The cycle works.
But we will never catch up with the USA, right?
The question is whether Europe can grow companies to a comparable size. I see no reason why this shouldn't be possible. I believe we will eventually see a trillion euro company. But I don't know which company it will be or where it will come from.
What does it take to accelerate this development?
Ambitious founders, many qualified specialists, capital to grow the companies and an environment that makes this possible. The former is a given. The ambition of European founders today is the same as that of US founders. The skills are there too. Three or four of the top ten universities are in Europe, and much of the talent from leading research laboratories comes from here. One should also not forget that the AI research center Deepmind, which is now part of Google, is based in London.
Nothing is missing?
But! We lack growth capital. This is the reason why companies and talent are moving to the USA. There is so much capital there that investors are willing to take risks. This remains a big problem in Europe. In the US, institutional investors and pension funds are willing to invest in venture capital and growth-stage companies. But something happens there too. This is also shown by the Scaleup Europe Fund worth five billion euros.
The venture capitalist Atomico, which you founded, has also applied to manage it. Ultimately, however, the financial investor EQT from Sweden won the race. Very annoying?
We thought our suggestion was very good. In the end we came second. Of course I know EQT from Sweden well. I hope I was one of the first to congratulate you on your new job. We have also invested together, most recently in the space company The Exploration Company.
The Scaleup Europe Fund is intended to ensure that an investor from Europe is also involved in later financing rounds. Why is this important?
If I, as a founder, build a company and all of the added value ends up outside Europe, for example in US pension funds, in my opinion that is a missed opportunity. Gross domestic product growth comes from technological innovation. If we direct pension capital into European start-ups and growth companies, the added value will later flow back to the pensioners.
What about the companies?
If companies have more European investors, they are more likely to remain European but global companies. With more US investors there is a pull towards the USA, and ultimately many companies go public there. So we lose some of these companies.
US investors have been seeing the potential of European start-ups for years. Sequoia, General Catalyst and Andreessen Horowitz all now have teams focused on Europe. How do you look at the competition?
This is a big endorsement for the European tech industry. This also gives founders more choice when choosing their investors. This is the best thing that can happen to them.
For Atomico too?
For us as a venture capital firm, this of course means competition. We need to provide a reason why founders should accept our money and not that of an American investor. However, US funds often have significantly more capital and can therefore invest larger amounts.
Can’t Atomico just launch larger funds?
Yes, we are definitely moving in that direction.
Atomico is the first investor in Europe built by former founders. Is that part of the recipe for success?
We want to have empathy for founders and understand what it means to build a company. We say: The founders are the game changers, and we are their partners. On top of that, we have built an operational team. People with specific experience work there in specific functions and in scaling growth companies. These professionals help our portfolio companies grow larger. We learned this from my experiences as founders and implemented it at Atomico.
The telecommunications service Skype was the third company you founded. Things didn't go quite well with the two companies before that, like with Skype, which they sold to Ebay for around three billion. How do you deal with failure?
Failure is an important part of success. You have to accept it. If an entrepreneur does not accept failure, he will not take enough risks to succeed. As investors, we deal with this all the time. A venture capital firm's business model relies on a portfolio of companies: some will be successful, others will not.
So it's part of it?
What is sad most of all is what is lost. The Munich air taxi company Lilium, which is now insolvent, is a good example. The company wanted to be at the forefront of electric aviation and become a European champion. That would have been a socially important contribution and could have created a world-leading company.
The video telephony service Skype was Europe's first unicorn at the time. What has changed since then?
Skype showed that companies in the European tech industry and founders in this country can build global companies.
And the success of Skype has brought many in its wake.
Exactly. A few years ago we did an analysis to mark Skype's 20th anniversary. At that time, we concluded that 960 companies had been founded by former Skype employees or people who had worked at these startups. This is how these networks are created that we call “start-up factories”. Similar effects can be seen today with companies such as Revolut, Spotify, Klarna and Adyen.
Like many other investors, Atomico is investing more heavily in hardware. Why?
Today we are increasingly looking for companies that contribute to Europe's resilience. These include the future of computing power, of course artificial intelligence, materials, energy, aerospace and critical infrastructure. We recently invested in The Exploration Company. I think Hélène Huby is an exceptional founder. It pursues its mission because Europe needs its own space industry. We want to support exactly such founders and companies. We must ensure that Europe owns or has access to critical technologies - even if we do not own them ourselves.
You have been an investor for 20 years now. Is it still fun?
As with any job, there are of course difficult moments. But for me it's more of a mission. It is a great privilege to work with exceptional founders, to be close to them, to give them a little advice and to support them. I also believe that the mission we began 20 years ago is more important today than ever. We and the other European venture capital firms must continue to be successful.
Has the succession at Atomico already been arranged?
I founded this company and am very proud of my partners, who are significantly younger than me. At some point they will take over the baton and continue to run the company for the next 20 years.
Does Atomico have the right people for this?
Our investment partners are all in their thirties. They are very good and very ambitious. I am proud that five out of six partners at Atomico started as juniors, as associates. It was great to see how they developed. They are much smarter than me, very ambitious and I have a lot of trust in them.
The elections in Saxony-Anhalt, Mecklenburg-Western Pomerania and Berlin recently caused a stir internationally. Some lenders fear that results could have a negative impact on the investment climate. How do you feel about this?
I cannot comment generally on the outcome of elections. For us, what matters is whether Europe is the best place in the world for innovation and starting a business. We compete worldwide for skilled workers, capital and the next generation of technology leaders. And the countries where it is easiest to start a business, hire people and expand will prevail. I am convinced that respect for the rule of law and a transparent and open society are a fundamental prerequisite for this.
You are a passionate sailor, just like Earlybird founder Hendrik Brandis. Have you ever been on a boat together?
No, I neither sailed with him nor against him. But we were at the same regatta in Mallorca in August.
