Paris Is No Silicon ValleyYet

The missing piece is finally falling into place: the development of a startup "working class" of smart techies and ambitious entrepreneurs

My trip to Paris last week did not go smoothly. For starters, I could never quite adjust to the time change. Then my bank froze my debit card for several days because I didn't inform them I was leaving the country. The low point: an e-mail from my cat-sitters with the subject line, "Major plumbing crisis—please read!"

I was in Paris for the Le Web Conference, which also had its share of logistical snafus. Among them, speakers that didn't show up on time and on-stage demos that didn't work. Only slightly harder than goading Valley hoi polloi to hop another plane for another conference is persuading European companies to fork over big euros to sponsor the event or convincing Parisian entrepreneurs to spend thousands to attend. No, holding a Silicon Valley-esque event in Paris isn't easy.

Plenty of Notables in Attendance

But for all the hiccups, Le Web was a big success, with a lot of high-level discussion of the implications of the new Web. Nearly 2,000 people attended the conference, and speakers included rock-star Europeans like Janus Friis, co-founder of Kazaa, Skype (EBAY), and Joost, and Philippe Starck, one of the world's most celebrated designers.

Valley celebrities in attendance included Evan Williams, who founded Twitter and Blogger, which was snapped up by Google (GOOG); Kevin Rose, founder of Digg, Revision3, and Pownce; and the ever-opinionated Sequoia Capital entrepreneur-in-residence and Mahalo founder Jason Calacanis. Om Malik of GigaOm and Michael Arrington of TechCrunch made it over as well. It was as if an A-list Valley Web 2.0 party had simply been airlifted.

Little Trickles Down

There's a reason for the turnout. Something very exciting is happening with the Web in Europe. Finally. For years, Europe's Internet scene has been lackluster in comparison with global innovation hot spots like Israel, China, and India—not to mention Silicon Valley. In part, that stems from a cultural stigma attached to failure.

It doesn't help that stock options don't have the same allure in Europe as they do elsewhere. Employees don't care as much for them, and entrepreneurs and investors won't part with them. Silicon Valley companies typically set aside 20% of the stock pool for employees, compared with about 5% in Europe.

As a result, successful founders amass a fortune, but little wealth trickles down. There are few legends of the accidental millionaire—you know, the administrative assistant who joined the next great tech company at the right time and never had to work again (Google masseuse Bonnie Brown comes to mind). Many people don't feel the risk is worth taking. The startup is just another job.

That's a hard cycle to break, but there are signs of cultural change. The enthusiasm was palpable at Le Web. The business case for starting a Web company on the other side of the Atlantic is far more compelling, thanks to such forces as the increasing Internet penetration, the strength of the euro, and the formation of an economic entity rivaling the U.S. And just as in the U.S., entrepreneurs need less money to test out a good idea and require fewer employees to take that big initial risk.

Angel Investors

An even bigger catalyst: the entrepreneurs and investors who are forcing cultural change. They are doing their part—consciously or not—to build a Silicon Valley-style European startup "working class" so essential to any real hot spot for innovation.

Niklas Zennstrom and Friis are the two most obvious. Between KaZaa, Skype, and now Joost, they've proven that transformative, lucrative Web companies can come out of Europe. The pair have gone on to be prominent angel investors in Europe, seeding the next generation just like Marc Andreessen, Reid Hoffman, and Peter Thiel have done with the Web in Silicon Valley.

Closely affiliated with the Skype duo are Danny and Neil Rimer of Index Ventures. Based in London and Switzerland, the Rimers have led Index to become some of the most successful investors in the emerging Web, backing hot European deals that a few years back even the Silicon Valley elite wouldn't touch. Thanks to successes at Skype, MySQL, Last FM, and others, Index is going to have one of the best-performing portfolios of this era. Other investors are paying attention. Increasingly, Silicon Valley firms that once considered Europe a fly-over continent are co-investing with Index whenever they can. Some are even setting up shop in London.

Krim's Rising Star

Another entrepreneur to watch is Tariq Krim, of the hot London- and Paris-based startup Netvibes, a site that pulls together your favorite blogs, social networks, and Web sites into a personal portal or dashboard. It, too, is an Index company, and has gotten funding from Valley heavyweights Andreessen and Accel Partners. Netvibes received international attention early on, and Krim has become a poster child for emerging entrepreneurialism on the stodgy continent. Arrington dubbed him "the French Kevin Rose," and last year the Economist called Krim "a paragon of Europe's new generation of Internet entrepreneurs."

Krim is learning from the masters, traveling to San Francisco several times a year and cultivating ties with such kingmakers as Andreessen. Among his takeaways: giving employees more stock than they ask for. It will help build a talent base he can tap for this company—or the next one he starts—and employees who own part of the company will work harder and be more loyal.

Few Precedents

One of the most interesting people I met at the conference is approaching the cultural problem from a completely different angle. Yoav Andrew Leitersdorf has co-founded a firm called YL Ventures that is very different from Index. Instead of trying to build a European version of Sequoia, with its eye to investing over the long haul, Leitersdorf has a very practical, smart strategy: Invest in companies that have a good idea, nurture them for about a year or so, and then sell them to big U.S. conglomerates for $25 million to $50 million. There's no pretense of changing the world, no plan for the big initial public offering. He's about taking ideas and turning them into acquirable assets quickly—and minting legions of high-tech European millionaires in the process.

It may seem greedy, if not anathema, to the venture capitalist intent on creating the next great Google or Microsoft (MSFT) of the world out of a garage. But, as Leitersdorf explains, it's necessary if Europe's startup culture is going to truly emerge. More mature startup markets take these smallish exits for granted. It's the backup plan to becoming the next huge public company. Entrepreneurs figure they can always sell for something.

But in Europe there's no such precedent. By building a base of smart techies and ambitious entrepreneurs who have made their first millions, a firm like YL Ventures is also helping to create that class of people who know they don't have to re-create Skype to get a financial reward for quitting their jobs and following their dream—a whole collection of young, optimistic serial Web entrepreneurs.

That's all Europe has ever really lacked. The money is there, and the U.S. has no lock on smart, educated people. Europe just needs that willingness to take risk, which any Valley-ite knows is grounded in that odd mixture of greed, optimism, and a belief you can change the world. And there's no reason those qualities have to be limited to the ugly Americans across the pond.

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