Calling Europe's unicorns.

Photographer: Karl-Josef Hildenbrand/AFP/Getty Images

Europe's Tech 'Unicorns' Are So Tame

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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Europe has produced 13 so-called "unicorns," or tech startups valued by public or private market investors at $1 billion or more, in the last year. That's great news. After all, the original 2013 definition of a "unicorn" by Aileen Lee of Cowboy Ventures included the words "U.S.-based." None of these firms, however, is the next Facebook, Uber or YouTube. Europe's tech industry is still painfully modest and provincial compared with Silicon Valley.

In all, according to the London-based investment boutique GP Bullhound, Europe now has 40 so-called unicorns:

Source: GP Bullhound

A couple of these are global household names: namely, Skype and Spotify. A few others are relatively well-known, such as the music-recognition app Shazam, the gaming site and app PokerStars, Angry Birds creator Rovio Entertainment and "Clash of Clans" developer Supercell. As Fred Destin of the venture firm Accel Partners wrote recently, "truly home-grown successes that take on the world from their European base" are the rarest kind of unicorn on the continent. 

The rest of the $1 billion club is spread across other categories in Destin's classification: "local champions," such as Russian Google competitor Yandex or U.K. real-estate site Zoopla; "rollout champions," such as French car-sharing service BlaBlaCar or the mass-produced e-commerce startups of Berlin-based Rocket Internet; and "U.S. contenders," such as retail platform Powa, which prioritize the American market. None of these companies define their genres. Their value propositions are either unoriginal or resolutely niche.

There's nothing particularly exciting about rolling out another online clothing store or food-delivery service across multiple countries, as Zalando and Delivery Hero do. Nor is there anything original about selling furniture online, as Home 24 does, or making money transfers cheaper (Transferwise). Some of the unicorns even have trouble explaining what they do: Read this description from Ve Interactive, and I bet you won't be able to figure out precisely what the startup sells. (Its business is helping online retailers increase customer engagement so buyers don't, for example, abandon their virtual shopping baskets).

Don't get me wrong: All these companies can make tons of money. European markets are big, and there's plenty of space for locally focused companies. Investors, too, can make out like bandits: Zoopla, which went public last year, earned them 103.5 times the capital they put in. 

But while the money is there, the big, disruptive ideas are not. Both the current global list of unicorns and Lee's original one include companies that have revolutionized the way we communicate, find news, travel, listen to music, store data and pick restaurants. I don't even need to name them -- the brands spring to mind. And all of them are from the U.S.

One could say that Europe's magic beasts are relatively timid because they're relatively cheap: Their combined valuation is a little more than $120 billion, just over half of Facebook's market cap. Or maybe they lack finance: Last year, European venture capital firms only raised 3.5 billion euros ($3.9 billion), a tenth of the amount raised in the U.S. One could also argue that Europe's more stringent regulation of business is at fault.

None of these explanations really work, though. It's easy for a startup with a great idea to present itself to potential investors anywhere. The European regulatory climate is good enough for most of the U.S. tech companies to operate profitably throughout Europe, and it doesn't prevent half a million people from working in the startup hubs of London and Berlin.

The dearth of funding and the popularity of Europe's few unicorns with venture capitalists -- 52 percent of the European "top 40" have five or more investors -- are consequences of the scarcity of founders who think big. The good news for Europe, though, is that in the tech industry it's much easier to catch up with competitors than it is in, say, shipbuilding or oil extraction. All it takes is skill, plus an ability to think different and big.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor on this story:
Marc Champion at mchampion7@bloomberg.net