Europe is dreaming of unicorns and neglecting the rest
By Dr. Johannes Lenhard, Researcher and Affiliated Lecturer, University of Cambridge (Max Cam) and Expert Affiliate, StateUp
Europe is moving strongly into unicorn land; this year, for the first time, Europe has more than 70 companies valued at over $1 billion.
More VC funding than ever was spent in the first half of this year in Europe, an unparalleled $59bn. At the same time, more and more government initiatives are cropping up to support the EU startup ecosystem. This is happening both at the EU level — with the European Innovation Council now directly investing in startups and the EU Startup Nation Standard both launched this year — and with various initiatives in several member countries — Germany’s €10bn Future Fund being an outstanding example. States have deep pockets, and in Europe they seem increasingly willing to splurge on start-ups.
But is that really a good thing? Are unicorns really the right way to measure success? Europe might be in the rather awkward position of copying what has worked elsewhere, notably in Silicon Valley, but is increasingly challenged by alternative models.
From unicorns to zebras, bears and cockroaches
More and more founders are interested not in blitzscaling asset-light, digital consumer businesses but companies that solve public problems, companies that we could describe as public-purpose technology (PPT). New models, less mythical than the unicorn and more varied, are appearing; I have called some of them, the ones focused on community and the environment green zebras; others self-identify as (or are called) bears, cockroaches or camels.
What many of the alternatives have in common is that they are less focused on rapid scaling and expansion and more concerned with building sustainable businesses, often with a societal impact or focused heavily on ESG factors (as are a growing number of VCs).
Here’s what I don’t understand: why are states not much more explicitly supporting this shift towards business with a public purpose, possibly even building it into funding agreements? The overall goal of the EU’s Green Deal, for instance, couldn’t be more aligned with a buzzing PPT sector. Why is the startup ecosystem, usually thought to be so forward-thinking and progressive, not being pushed harder? After all, the role VCs have in shaping the economy of tomorrow is crucial; the companies they finance now will be the big tech companies in ten years. Laying the groundwork for a more sustainable economy starts now, specifically through the hands of VCs funding startups — and the influence that states funding VCs can and should have.
Let me lay out three brief ideas of how states or the EU could encourage this shift without losing any of their market power:
In their function as some of the biggest investors (limited partners) in venture capital funds in Europe (through the British Business Bank or the European Investment Fund, for instance), public investors could impose not only return on investment goals and metrics but also a strong set of ESG measures onto VC funds;
Likewise, they could incentivise VCs (and startups) with specific pots of funding (as LPs or direct investor) to focus on building and supporting public-purpose-tech, specifically in some of the key sectors for European development, such as healthcare or deep tech;
Lastly, they could take away the market risk for some specifically sustainable/public-purpose-driven startups by opening up their massive procurement capabilities (e.g. as the UK's NHS has begun taking steps to do) to them (which is often locked in old-school practices and heritage contracts.
Public-purpose technology might be called public-purpose because of the eventual impact; but that doesn’t mean that the public authorities shouldn’t follow what I believe is a strong imperative to support such tech — whether in the form of zebras or cockroaches — as much as they can.
Up Next:
Liz Sisson, former Technology and Public Purpose (TAPP) Fellow at Harvard's Belfer Center
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