Home / Tech / One of the first backers of Skype and Wix.com explains why the European startup scene is starting to close the gap with Silicon Valley

One of the first backers of Skype and Wix.com explains why the European startup scene is starting to close the gap with Silicon Valley

Mangrove Capital Partners' Roy Saar

  • Europe has long been considered a backwater for tech, particularly for tech startups, but that’s no longer the case, said Roy Saar, a partner with Mangrove Capital Partners.
  • The tech scene in Europe and Israel is thriving, and a growing number of startups are reaching valuations of $1 billion or more.
  • Europe now has lots of tech talent, growing amounts of venture investing, and a business environment that’s more conducive to startups, Saar said.
  • While it’s not yet ready to take on America’s tech giants, some of its companies may have a distinct advantage over their US rivals, he said.
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When it comes to fostering tech startups, Europe doesn’t have anything close to Silicon Valley’s track record or reputation.

But the the Old World and the New may not be as far apart anymore as people might assume.

Money is flowing into European and Israeli startups, the business environment has become more amenable to entrepreneurship, and there’s more tech talent there than ever before, said Roy Saar, a partner with Mangrove Capital Partners, a venture firm that focuses on that part of the world.

A European rival to tech giants such as Amazon or Alphabet is still a long way off, but Europe is already home to a significant and growing number of unicorns, startups worth more than $1 billion, he said.

“We see the gap” between Europe and Silicon Valley “closing and closing fast,” Saar told Business Insider in a recent interview. “But it’s still a big gap.”

Saar has seen first-hand how the tech scene in Europe and Israel has been developing. His firm, Mangrove Capital Partners, was an early backer of Skype, the Luxembourg-based online communications company that was acquired by eBay and then by Microsoft. It later invested in Israel-based Wix, which offers a web development service; it went public in 2013 and is now worth $7.4 billion. More recently, Mangrove backed WalkMe, a newly minted unicorn startup founded by Israeli entrepreneurs that helps companies train their employees to use new software.

Mangrove invests about one-third to one-half of its money in Israeli startups, with the rest of its investments being placed across Europe. One of the firm’s latest deals was a $14.5 million early-stage investment it announced earlier this month in Lightico, a startup based in Tel Aviv, Israel, that helps clients distribute legal forms and collect electronic signatures from customers via their mobile devices.

Europe is amassing tech talent

A combination of factors is helping Europe’s startup ecosystem mature and develop, Saar said. In particular, there are very good technical schools, particularly in Eastern Europe, that are training students in the skills they need for the latest jobs in the industry, he said. Graduates of those schools are well prepared to work on projects involving artificial intelligence and computer vision, among other things.

What’s more, people who have worked for the European or Israeli offices of big American tech companies, including Apple, Microsoft, Google, and Facebook, are leaving to join or found startups in those areas, he said. As they do, they’re bringing America’s tech culture with them to their new companies, he said.

“They will do what we call the localization of that culture to their local market,” he said.

Read this: Intel invests as much as $500 million in startups each year. Here’s what it’s looking for in new investments, according to one of its top VCs.

Meanwhile, it’s becoming easier for founders to do the basic things needed to get a new business off the ground, such as registering the company and setting up a corporate bank account, he said.

“We see the … corporate environment being more tolerant toward starting a new business,” he said.

Some European startups may be better at going international

That said, Europe is unlikely to produce the next trillion dollar tech company, according to Saar. The startup ecosystem there needs develop further before it will be able to produce a company to rival America’s tech giants.

But the region’s already producing more and more billion dollar ones. And startups that come out of particular countries there may end up having a leg up on American rivals when competing for business overseas.

US startups — and even those in bigger European countries such as Germany and France — frequently wait years before branching out from their home markets, because those markets are so large and the challenges of going international can be so daunting, Saar said. But newly formed companies in small nations such as Israel and Portugal often set up shop in other markets in their earliest days because their home markets are too small to offer much potential.

“I think the early-stage startups coming out from smaller countries would be a bit more sophisticated and more open for internationalization versus the American startups,” he said.

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