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05.2

Recycling Talent

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Talent is everything when it comes to building a successful company. It’s no surprise then that access to talent tops the list for founders when asked to share the most important factors they considered when choosing where to locate their companies. Looking forward, it will be interesting to track how this changes in the years ahead. Are we going to see a shift in the perceived importance of proximity to a talent base from the choice of founding location if the trend towards building companies in a remote-first and distributed way continues? The fact that the response ‘where I lived’ ranks so highly across the key considerations also speaks to the idea that the notion of moving to build a company to optimise for geographical proximity to talent, capital or customers may be eroded by the changing acceptance of virtual and remote operations.

What was the most important practical business considerations for you when choosing where to locate your company when you founded it?

Source:
Note:
Founders respondents only.

The differences between founders based on their prior entrepreneurial experience are significant. The most experienced, repeat founders place an elevated importance on access to talent, presumably informed by their experiences in attracting and retaining talent in prior entrepreneurial endeavours. These founders also appear to be least influenced by the idea of ‘starting where they live’ compared to less experienced and first-time founders.

What was the most important 'business' consideration for you when choosing where to locate your company when you founded it?

Source:

Legend

  • First-time founder
  • Repeat founder with limited experience scaling company
  • Repeat founder with significant experience in scaling company
Note:
Founders respondents only.

European startups enabling access to remote employees

The toolkit to support founders in building their companies in a remote-first way is itself a vibrant category of entrepreneurial activity and early-stage investment. A number of European startups are targeting this opportunity and have gone on to raise from leading early-stage investors. As this category develops and as the toolkit and tech stack for founders is built out, it’s likely that more founders will feel confident in choosing to go down the path of building their companies agnostic of any fixed office location.

Lano

Lano

HR Solution for distributed teams

Oyster HR

Oyster HR

HR Solution for distributed teams

Remote

Remote

HR Solution for distributed teams

Safety Wing

Safety Wing

Insurance for nomads

European founders have never had greater optionality in terms of where to start and build their company, including - of course - the option to build remote-first with no fixed headquarters. The idea that great companies can come from anywhere has never been more true as demonstrated by the fact that European founders have now succeeded in building billion-dollar companies in 40 different towns and cities from 20 countries.

Number of VC-backed $1B+ European tech companies per city

Number of VC-backed $1B+ European tech companies per city

Beyond the main hubs of London, Paris or Berlin, geographic diversification has been happening at a rapid pace with 24 new cities seeing a homegrown VC-backed company scale to billion-dollar valuation in the last five year. A decade ago, this was just a handful of European cities. As such, it’s exciting to see entrepreneurial activity and startup communities flourishing in cities as diverse as Vilnius, Bucharest or Bristol.

Number of new and total unique cities to have birthed a $1B+ company by milestone year

Legend

  • Existing
  • New in year
Note:
Milestone year is defined as the year the company reached a $1B+ valuation milestone.

This is definitely interesting data and I would assume that the following factors could be at play here: Germany has exceptional engineering talent that is distributed across the country, thanks to the breadth of excellent universities. This allows founders to start companies in cities where living costs are still fairly low and in addition to that benefit from remote talent to complement their respective teams.

Jeannette zu Fürstenberg

La Famiglia

Founding Partner

The geographic diversification is visible in the rise of billion-dollar companies from secondary hubs across Europe. In Germany, for example, seven of the 16 VC-backed $1B+ tech companies have been founded and built outside of Berlin, the country’s primary tech hub. Though more $1B+ companies have emerged from London than anywhere else in Europe by some distance, 30% of the UK’s unicorns have emerged from outside the capital. By contrast, Paris is the only city within France - to date - to have produced a $1B+ company; with 11 in total, this puts Paris second only to London.

Number of $1B+ companies by main and secondary hubs by country

Legend

  • Main hub
  • Secondary hubs
Note:
Main hub is defined as the number one city by funding in the last 5 years.

Talent Recycling

The more that Europe sees the emergence of successful companies that have scaled to billions of dollars of enterprise value, hundreds of millions of revenue or thousands of employees, the deeper and broader is able to grow its pool of experienced operators that have helped to build and scale world-class products, design, build and run large-scale organisations, or grow billion-dollar P&Ls.

As these companies then go through the full lifecycle, including an exit event via an IPO or M&A, they can play an important role in injecting scale and liquidity into the talent marketplace. This potential to recycle talent is a crucial enabler to accelerate the progression of the ecosystem by unlocking new generations of founders and operators that are powered by extensive knowledge and networks hard earned through their exposure to the ups and downs of the company-building process.

To contribute to a better understanding of the scale of talent recycling at work in the European tech ecosystem, we have attempted to quantify the number of founders that have started companies having previously gained experience in some of Europe’s most successful companies. More specifically, this focused on the founder alumni networks of 24 European tech companies that have previously scaled to a valuation of $5 billion or more.

In total, it was possible to identify more than 2,350 individuals that currently list themselves as founders or co-founders of companies, equating to around an average of almost 100 founders for each one of the 24 ‘parent’ companies in the initial cohort. Remarkably, more than 50% of the founders have emerged from one of just five companies: Zalando, Spotify, Klarna, Skype and Just Eat. It’s notable that four of the top five companies all went through landmark liquidity events, either via IPO or M&A, but it’s also interesting to see Klarna make the top five. This speaks to the fact that even if companies stay private longer (Klarna was founded in 2005), these companies are still contributing meaningfully to the talent marketplace as private companies.

Number of founders spun out of $B+ companies

Source:
Note:
Ex-operators of a selection of 24 companies who currently self identify as "founder" or "co-founder," as of October 2020

It is also interesting to see the flywheel spinning faster in some countries. Rocket Internet made news this year as it chose to delist after being public since 2014 and it is striking to see the positive flywheel of the “clone factory”, as famously conceded by Samwer, on the German ecosystem and beyond. Zalando, Delivery Hero and HelloFresh all participating to place Germany so high on the list have one thing in common: Rocket Internet.

Top 5 countries by number of founders spun out of $5B+ companies

Source:
Note:
Ex-operators of a selection of 24 companies who currently self identify as "founder" or "co-founder," as of October 2020.

It’s also interesting to explore the extent to which the alumni founders built companies within the same country as the HQ country of their ‘parent’ company. In other words, how many ex-Spotifiers have founded a company in Sweden? This lens reveals some interesting differences. While 65% of the founders that have spun out of German success stories have gone on to found their startup in Germany, this is just 52% for the UK and 50% Sweden and even lower for Denmark. This can be explained by the fact that certain companies built their talent base in a more geographically concentrated way with a large share of talent located in one country, while others built their employee bases in a more distributed way across many different locations. Skype, for example, famously was built as a European company with a meaningful presence in multiple cities, such as London and Tallinn.

Share of founders (%) who started their company in the same country as $5B+ company

Source:
Note:
Ex-operators of a selection of 24 companies who currently self identify as "founder" or "co-founder," as of October 2020.

Selected programmes to identify, support and invest in next generation European talent

The growing depth and liquidity of the operating talent pool in Europe has made it an attractive place to establish programmes that seek to identify and support individuals to make the transition into entrepreneurship and then invest with a talent-first mindset, as pioneered by Entrepreneur First.

Antler

Antler

Talent Investor

Creative Destruction Lab

Creative Destruction Lab

Fellowship

Entrepreneur First

Entrepreneur First

Talent Investor

Heartcore

Heartcore

Fellowship

On Deck

On Deck

Fellowship

Zinc

Zinc

Talent Investor

The growing pool of experienced talent is also evident in the growing numbers of rounds being raised by teams of founders that have prior founding experience over the past five years. The number of companies with founding team composed entirely of founders with prior founding experienced that raised more than $10M in funding in 2020 represented 11.6% of total companies, versus 8.9% in 2016.

Number of repeat founders by capital raised and by year

Legend

  • Raised $5m+
  • Raised $10m+
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, grants. Please also note the data excludes Israel. 2020 data based on data up to September 2020.

Selected European startups founded by repeat founders or ex-operators

The strength of the new generation of European founders is also playing a role in changing the dynamics of the investor landscape. There are a growing number of examples of talented founding teams that have raised from leading investors at very early stages of development, certainly pre-revenue and often pre-product and with just a very small initial team.

Johanna Gallo and Cyril Pierre, Founders of Aplanet

Johanna Gallo and Cyril Pierre, Founders of Aplanet

ex-Stubhub, Ontruck

Christian Eggert, Founder of Back

Christian Eggert, Founder of Back

ex-Rocket EIR, MiNODES, Bonativo

Adrien Roose and Karim Slaoui, Founders of Cowboy

Adrien Roose and Karim Slaoui, Founders of Cowboy

ex-Take Eat Easy

Thomas Dullien, Founder of Optimyze

Thomas Dullien, Founder of Optimyze

ex-Google

Andrus Purde, Founder of Outfunnel

Andrus Purde, Founder of Outfunnel

ex-Pipedrive, Skype

Eleanor Crespo and Romain Niccoli, Founders of Pigment

Eleanor Crespo and Romain Niccoli, Founders of Pigment

ex-Google, Criteo

Tariq Rauf, Founder of Qatalog

Tariq Rauf, Founder of Qatalog

ex-Transferwise

Nimrod Priell and Jackson Gabbard, Founders of Radical

Nimrod Priell and Jackson Gabbard, Founders of Radical

ex-Facebook

Petr Nikolaev and Thomas Paul Mann, Founders of Raycast

Petr Nikolaev and Thomas Paul Mann, Founders of Raycast

ex-Facebook, WhatsApp

Alexis Fogel and Krzysztof Dąbrowski, Founders of Stonly

Alexis Fogel and Krzysztof Dąbrowski, Founders of Stonly

ex-Dashlane

Pierre Burgy, Founder of Strapi

Pierre Burgy, Founder of Strapi

ex-Checkout.com

Mart Abramov, Founder of TaxScouts

Mart Abramov, Founder of TaxScouts

ex-Transferwise, Microsoft, Skype

An important aspect of the flywheel that powers tech ecosystems is the ability for success stories to generate economic value for founders (and employees) that can - and often is - reinvested back into the ecosystem via means such as angel investment activity, as highlighted in the 'Angels' article. A prerequisite is founder equity and so it's interesting to monitor how this evolves as companies progress through multiple funding rounds. As a point of comparison, it is noteworthy that the level of founder equity is closely aligned on average between the US and Europe at each stage of funding.

Founder equity by funding round in the 50th percentile by region

Source:
Get all pay & equity data - $0Combined Shape

Legend

  • Europe
  • United States

Relatedly, it's also interesting to observe the average level of founder compensation and how this varies between Europe and the US. Founders in the US have materially higher base salaries and higher incentive pay at various stages of the startup journey.

Founder base salary ($) by funding round in the 50th percentile by region

Source:
Get all pay & equity data - $0Combined Shape

Legend

  • Base Salary (Europe)
  • Base Salary (United States)
  • Incentive Pay (Europe)
  • Incentive Pay (United States)
Note:
Note that at Seed stage some Founders may not take a base salary and take incentive pay instead. Incentive pay is cash bonus or incentive, which is not related to equity or equity value. Converted EUR to USD with FX rate of 1.1867 (27 November 2020).