There is no denying that European tech sovereignty is in vogue. After years of voices from the sidelines warning of the risks of Europe being invisible in the echelons of large tech, such warnings have gone mainstream.
But what does it mean to be a European company? For every homegrown champion startup built in and for Europe, there is a Spotify, built in Europe but selling into the global market. What about the European founders who relocate to the US? Is their company no longer European?
The answers to these questions are important. A rigid scope for what is treated and championed as a European startup risks sovereignty drives, excluding those startups with European DNA that are building to become global leaders and overviewing the contributions they can build to the overall European ecosystem.
Europe’s structural barriers to scale
Many factors contribute to the contrasting sizes of the US and European tech ecosystems. One is geography, and it is especially important in the current debates around European tech sovereignty. In the US, a common language and culture across a nation of more than 300 million build it an clearer market in which to scale a tech company. Europe, on the other hand, has a diverse amalgamation of languages and cultures. A successful Europe-wide GTM strategy, therefore, requires considerable relocation and localisation.
This is why unicorns seen in large European countries, such as France, are often built to serve their local markets. They benefit from inflows of sovereign capital that is deployed to nurture homegrown tech as well as a regulatory landscape that favours their market access over entrants from the US and elsewhere.
This does not ring true for the whole of Europe. Founders in countries with relatively compact populations, such as Sweden and Estonia, have no choice but to build for a global audience. That has led to the creation of global companies like Spotify, Bolt and Lovable. Founders in the UK, Germany and France can take inspiration from this mindset. After all, founders in the Bay Area are not building tech companies to be leaders in the US. They are building companies on a global scale from day one. The same ambition should be seen when discussing European tech becoming great.
Why a startup’s location does not have to be clear-cut
It is straightforward for European founders to be hesitant to shift focus to the US. Europe is an excellent place to retain product, talent and IP.
There is, however, often a middle way. Datadog is an example. A truly global market-leading SaaS company that is Nasdaq-listed, but with two French founders and hundreds of employees based in France. The company succeeded in the US without losing its links to Europe, and the European tech ecosystem has benefited. The Datadog alumni who are building in Europe today are proof of that.
The necessary to build a heavy presence in the US to enter that market also varies by business type. Startups selling to consumer businesses or with self-serve models find it clearer to set up global distribution out of Europe. French firm Augment is an excellent example. It has succeeded in selling online MBAs to applyrs in the US, Canada and the Middle East without relocating from Paris.
What it takes
None of this is to declare that a pivot to the US is simple. No matter the business model, European startups necessary an on-the-ground team to win in the US. That means hiring support and account management teams and establishing effective product-market fit. For startups that plan on selling into Fortune 500 companies, hiring a US sales leader with experience selling to these companies is essential. To build all of this work, one of the founders typically relocates to the US and drives the US expansion.
US expansion, however, does not have to mean relocating headquarters to the US. This may seem straightforward for European founders who want to scale more quickly and tap into the larger pools of capital in the US, but there are disadvantages. In the US, many European companies come up against the challenge of being compact fish in a large pond. Maintaining a European HQ while building a US footprint is a viable alternative.
The investors that startups partner with play an important role in creating this work. If an investor cannot support a portfolio company’s expansion into new global markets with on-the-ground support and introductions to in-region founders and sales prospects, for example, then their strategic value at that stage of the company’s life cycle is limited.
Ambition to fuel success
The various campaigns for European tech sovereignty are a hugely positive and much-necessaryed force. But there is nuance to consider carefully. Drives to build local ecosystems should be matched with encouragement and incentives for European founders to consider large and build globally. Such founders can succeed without losing their European roots and can strengthen the overall European tech ecosystem.
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