Europe producing more startup mafias despite tech rout: Accel

According to Accel, the average time it takes for a startup to reach unicorn status in Europe is down to just seven years.

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Europe and Israel create an average of five tech startups for every venture-backed company with a valuation of $1 billion or more, according to a new report of the venture capital firm Accel.

Of the region’s 353 “unicorn” companies, 221 created 1,171 new tech startups as employees of those companies left to start their own businesses, Accel said, citing data from Dealroom.

A similar report from the company last year showed that, out of 344 venture-backed unicorns, 201 led to the creation of 1,018 new startups.

The biggest examples of companies whose old talent then created new companies include Spotify, which spawned 32 new companies, Delivery Hero, which spawned 32, and Criteo, from which 31 new startups were born.

These companies are referred to in the startup world as “mafias” – and no, they’re not like the mobs of Italian-American gangster movies. Mafia startups have been around for decades. These “mafias”, which are companies created by employees of other technology companies, have historically led to the creation of some of the largest technology companies known today.

From US fintech giant PayPal, Elon Musk went on to launch electric car maker Tesla and space exploration company SpaceX, for example, while Peter Thiel co-founded big data company Palantir and is now a marquee investor with its Valar Ventures and Founders fund. venture capital companies.

Venture capitalists say these entrepreneurs come from a culture of risk-taking in Silicon Valley that for many years has not existed in the same way in Europe. This began to take shape with the advent of mature internet platforms like Skype, from which Niklas Zennstrom launched venture capital fund Atomico and Taavet Hinrikus co-founded the fintech giant. Wise.

“When I started 30 years ago in the valley, I did it on the west coast, in Palo Alto. Then I would go back to the Netherlands and my friends and my parents would say, why would you do that “Why wouldn’t you go and work for Shell or Unilever? It’s held Europe back,” Accel partner Harry Nelis told CNBC.

“Now, unless you get out of college and study exactly the same way I did, and go straight to a startup – not like a raw startup but an established startup where you can learn a craft and then you already have your career – it’s this kind of new philosophy that I think will help Europe over time, and has helped the ecosystem.”

Today, Spotify, Delivery Hero, Klarna and Wise have become founding factories in their own right.

The largest cohort of newly established startup mafias comes from fintech, with almost 20% of European unicorn startups operating in the sector.

Employees of startups in Europe and Israel tend to favor their own cities for starting their new businesses, with more than half of new companies founded in the same city as the unicorn they emerged from, according to Accel.

Tel Aviv was the largest hub of start-up factory production, with 127 new companies spun off from 33 unicorns, Accel said. In Europe, London hosted the most start-up factories for a single city, with 27 unicorns and 185 startups, while Berlin followed closely with its 25 founding factories and 165 spin-offs.

More than 59% of startups spun off from so-called startup mafias have already successfully raised venture capital funds, with 45% attracting around $1-10 million in investment and 30% receiving more than $10 million.

The data also offers insight into how far people have come from becoming founders.

According to Accel, it takes second-generation founders an average of 28 months to found their own startup, and the average age of these entrepreneurs is 33.

Three-quarters of second-generation founders have a college education, with 60% earning a master’s degree.

More than 59% of startups spun off from so-called startup mafias have already successfully raised venture capital funds, with 45% raising around $1-10 million and 30% receiving more than $10 million.

The average time it takes for a startup to reach unicorn status in Europe is down to just seven years, Accel said.

Clouded outlook

Nonetheless, the outlook for tech startups more generally has darkened as interest rates have risen, putting pressure on valuations of early-stage companies in particular. The market value of companies such as Klarna has been reduced as investors revalue the technology sector.

Last year, over $400 billion was wiped out the value of Europe’s tech industry, according to data from venture capital firm Atomico.

The layoffs have also plagued the industry. Music streaming platform Spotify laid off 6% of its workforce, ‘buy now, pay later’ firm Klarna announced cuts of 10%, while money transfer unicorn Zepz recently laid off 26% of its staff. employees.

An Accel spokesperson said the impact of the layoffs on the next generation of startups was not included in its report.

But despite the darkening outlook for the technology, Nelis said he was hopeful for the future.

He said the figures show that Europe’s tech industry has matured to a level where employees are able to muster the courage to get up and go to start their own businesses.

A large pool of talent has now emerged, with employees feeling they have the skills and experience to turn their own ideas into full-fledged businesses.

“As the founders and their teams navigate a challenging macroeconomic environment, the European and Israeli tech ecosystem is in a much stronger position than during the 2008/9 financial crisis due to the cumulative effect of recurring entrepreneurs,” Nelis told CNBC.

“With over 350 venture capital-backed unicorns across the continent, there is a strong foundation of talent and success that we believe will be passed on to the next generation of ambitious entrepreneurs.”

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