The Reason Why Silicon Valley Can’t Find Europe… Because Europe Doesn’t Deserve To Be Found.

I got 79 languages and startups ain't one...

I got 79 languages and startups ain’t one…

I recently read Sten Tamkivi’s post on TechCrunch that states some reasons why Americans, in Silicon Valley specifically, should be investing in European startups. Tamkivi’s post was echoed by similar sentiments in a post by Union Square Ventures’ Fred Wilson. While there are here are 5 major tech hubs in the US (SF, NYC, Boston, LA, Austin) and a similar number in Europe (Berlin, London, Paris, Stockholm, and Helsinki/Tallinn), I do not equate these groups with each other, for reasons I will outline below. And while I admire both Tamkivi and Wilson, they are both wrong in this instance.

Here’s why:

1. Europeans Don’t Want To Put In The Work: In general, and I know this is a stereotype based on my time living in Denmark, Amsterdam, and London, Europeans are just not as hungry for success as Americans. In America, we are often ostracized by Europeans for not having a positive work-life balance. Well, any entrepreneur will tell you, that it’s really difficult to build a company when you’re only working for 7.5 hours per day. (I won’t take low blows on Greece and Spain here, as in America, we have Kentucky and West Virginia to grapple with…) That said, Germans do have a tendency to work hard, as do the Brits (due to the Protestant work ethic I learned about in high school).

2. In Europe, There Is Too Much Regulation: In Europe, everything is slow. Blame the bureaucracy. Blame the welfare state. Blame the aforementioned work ethic, but I found that it took months to do things that would be done in America in days. It’s so simple to hop on a web site and start a Delaware Corporation. (I know, lawyers are still better when starting a business, but it really is easy to do on your own.) Even when you look at the whole micro-entrepreneur food truck boom in America, it happened very quickly. In Europe, there are more food regulations than you can possibly imagine (though the food is certainly tasty over there). Europe’s more complex regulatory system, given how varied countries in the EU are, might be what tears that union apart.

3. Language: In Amurrrrica, we generally speak one language. English. It’s simple. You call your developer in San Francisco and he speaks the same tongue as your sales guy in New York and your CEO in Austin. In Europe, there are so many languages spoken that to attract a substantial and scalable user base for your product, you would have to have it translated into many different tongues.

4. Europeans Stay In School Forever: How many times have you met an Italian dude who’s working on his 3rd Masters Degree at La Sapienza in Rome and still lives with his parents even though he’s 37? Or a Danish guy who is doing his Post-Doctoral research despite being 42 years old? In America, we are surely educated, but in Europe, people are over-educated. I have attended both public and private universities in America, as well as public and private universities in Europe: In America, everything moves more quickly. You have more hours of class per week, and you learn a heckuva lot more. In Europe, how are people going to be starting companies when they finally finish school but also have a family to support? That’s why there are fewer European Mark Zuckerbergs or Evan Spiegels.

5. Security And Privacy: Tamkivi writes that “security and privacy” are great reasons to start companies in Europe. Find me an entrepreneur who doesn’t want to collect people’s data. Data = dollars. Harsh personal privacy laws, while good for consumers, mean less money for most entrepreneurs. There goes the incentive to start a business.

6. “400 Million Customers,” But Many Don’t Spend: Europeans are far more frugal than Americans. In America, we love junk. We love the latest and the greatest. We love to fill our closets with 85 pairs of the latest wears. In Europe, people buy things once, spend decent money on their purchases, and then don’t buy them again for years. Personally, I really like this about Europeans, but if I were a European entrepreneur, it would make me wary. Yes, they may have invented Hermes and Ferraris, but how many Europeans can really afford to buy a Hermes bag and a Ferrari?

7. Europe Is Old: Europe is the oldest continent ever. Medicine and technological breakthroughs will keep these folks living until they’re close to 100. Of those “400 million” consumers, most of them aren’t ideal customers. It’s too bad the healthcare sector is publicly funded in most European societies, as in this area I see room for innovation.

8. Global Skills = Nonsense: Yes, I agree that Europeans travel more frequently than Americans and are thus exposed to different ideas. However, some Americans (like, ahem, me) have traveled frequently and can also be exposed to these ideas. To think that Europeans have better soft skills than those from other places is nonsense. Yes, foreign exchange programs like Erasmus have become ubiquitous in Europe, and this is amazing, but Americans are also now studying abroad at higher rates than ever before. While Americans should surely learn more languages than just English, English has become the de facto business and consumer language of the world.

9. Grants: When you compare how films are funded in America vs. how films are funded in Europe, they are very different from one another. European countries have film commissions that deliver grants to filmmakers. Filmmakers apply for the grants and then wait months or years to learn whether they have been selected. In America, films are made by means of capitalism and Kickstarter: You hustle your brains off or you don’t get your film made. (Kickstarter, however, may further democratize European film production.) That said, my friends Torsten Mueller and Frederik Fischer received money for their startup Tame.it from “the German Ministry of Technology and Economics, the business development and promotion bank of the Federal Land Berlin and from a successful Crowdinvesting campaign on Companisto.de.” In America, our government may give money to occasional startups in the energy/defense sectors, but they sure as heck ain’t giving it to a Twitter context search engine. Plus, Americans are way more likely to use our disposable income for crowdfunding. (That said, in America, we still have nonsense laws that prevent the common man from crowdfunding in exchange for equity, which they have eliminated in Europe.)

In Europe, there’s a higher expectation that the government and regulation will solve problems. Perhaps it’s the inner-Ayn Rand libertarian in many Americans, but we have greater faith in the private sector than in the public sector. In Europe, there is also a more incremental, rather than disruptive, approach to progress. That said, don’t forget that the Dark Ages lasted for nearly 1,000 years.

This isn’t meant to knock European companies. I have many European startup founder friends, and I admire the work they do. I am also a fan of European companies like Skype and Spotify. That said, these companies had to come to America to truly make it.

I don’t think the future of Silicon Valley investors is across the pond. Tamkivi writes, “Yes, stuff is happening in Boston and New York, but not so much that a once-a-month trip can’t cover most of it.” Quite frankly, this is an idiotic statement, as New York specifically has seen its technology sector grow rapidly during the past few years. (I’m surprised that Mr. NYC VC Fred Wilson didn’t call Tamkivi out on this falsehood.) So yes, while Europe is certainly the place to go for wind energy startups (Denmark), architecture firms (the Netherlands), and a whole host of random startups from London to Sweden to Finland to Berlin, my bet is still on America.

Now that the US Senate passed the JOBS Act, I discuss how this new piece of legislation can improve the quality of American journalism

I recently blogged about the many benefits that I hope will come to America with the passage of the JOBS Act. Now that the US Senate has passed the JOBS Act (with an amendment that I support), the bill has gone back to the House of Representatives for final approval before President Obama signs it into law. Despite my skepticism about the ability of Congress to pass any legislation in this toxic and partisan political climate, I am pleasantly surprised that it looks like the JOBS Act should go through with bipartisan support.

My general thesis is that if the “people” can now invest in new ventures, then they will be more apt to use products and services that cater to small groups/communities, and more likely to shun products, services, and information that comes from large corporations that are geared for the masses. (Of course, it may take a couple of years to see these effects, but I am hopeful that fragmentation can create diversity in spheres of life where Americans now have too few choices.)

While other commentators have focused on the overall benefits and drawbacks for investors, businesses, regulators, and consumers, I will list potential ways that the new crowdfunding legislation can influence and disrupt journalism. My theories on winners and losers from the JOBS Act:

1. Communities can rally around creating publications that they control, rather than leaving sub-par newspapers in the hands of publishers motivated by the bottom line rather than creating high quality community content. (Look out Patch and legacy publishers!) The potential to revive local journalism in places that are currently without local news sources is the most promising development that I see. But legacy media organizations should be on guard, because disruption born out of frustration may be just around the corner.

2. Niche publications will be able to get off the ground more easily. If a fragmented community of  1,000 people (I’m thinking an online community for this example), spread throughout America, wanted to hire one person to work to create content, they could hypothetically each donate $30 to a venture that could create a niche publication with a professional or semi-professional journalist/curator at the helm.

3. Television networks and cable channels should be scared because YouTube is already slicing up the market, but enthusiasts of various types of content that don’t achieve the critical masses needed for channels that cater to advertisers may now have their opportunity to band together to create more desirable programming…and make it profitable.

4. Television news should be a prime target for entrepreneurs at the local and national levels, as it has remained virtually unchanged for such a long time. I foresee new formats developing, and I believe the crowd will control how they develop.

5. Crowdfunded radio stations may destroy the traditional for-profit ones. Watch out ClearChannel. Look out for an indy radio explosion…(most likely based on the Internet).

6. Lone bloggers and journalists with strong personal brands (or with the ability to build strong personal brands) will now be able to have investors rally behind them. This could create a major revolution for sole proprietors, ending the struggles that freelancers face in terms of tax burdens. Another advantage is that talented people may now be more willing to go off on their own rather than remain with corporations that under-utilize talented journalists’ skills and abilities.

Part 1: The law that could save sustainable journalism will be destroyed unless the US Senate acts now!

I recently argued that upstarts like Matter that have made successful pitches on Kickstarter are not the solution to solving journalism’s long-term problems. Why? Because crowdfunding, in its current form, does not permit people to make investments. Rather, crowdfunders make donations, or in some cases loans. The outcomes are variable and generally unsustainable

When David Cohn started the crowdsourced journalism non-profit Spot.us four years ago, it worked on a similar premise to Kiva, whereby donors received part or all of their money back if and when a crowd-funded story sold to a legacy media outlet. Cohn prevented  any one person from influencing which stories were funded by limiting each donor to funding 20% of the total amount raised for each pitch. (Of course this system is potentially flawed in that one donor can spread his/her money out to friends etc, but at least Cohn tried to implement a system of checks and balances.) But Spot.us was designed to assist existing organizations, not create entirely new media outlets.

We’re on the brink of a revolution that could lead to saving sustainable journalism and create many jobs

But we may be on the brink of a journalism revolution. Currently, only accredited investors are able to invest in newly formed companies, which prevents Kickstarter, Spot.us, and any other crowdfunding site from raising capital for startup companies and entrepreneurial journalism ventures.

Forbes reports:

Under current federal and state securities laws, startups are prohibited from selling stock or other securities via crowdfunding sites or social networking sites.  Such laws include:

  • A prohibition against “general solicitation” – which means that a company may not offer or sell securities unless there is a substantive, pre-existing relationship between the company (or a person acting on its behalf) and the prospective investor (see “Can I Raise Money For My Startup Via Twitter?” );
  • Disclosure and state law compliance requirements if the investors are not “accredited investors” — which usually makes the offering of securities too costly and onerous for a startup (see “Ask the Attorney – Securities Laws”);
  • A requirement that any intermediaries (including websites) must be registered with the SEC and applicable state securities commissions as a “broker-dealer” in order to legally accept any transaction-based compensation in connection with the sale of securities (see “Ask the Attorney – Beware of Finders”); and
  • A requirement that any company that has 500 or more shareholders and total assets exceeding $10 million must register with the SEC and file periodic reports.

These laws were designed with good intentions: Nobody wants to see Mom and Pop lose their hard-earned money to a snake oil salesman! But in today’s crowdfunded world, they no longer make sense. And when tech-savvy Americans realized this, they sought action.

In the United States Congress, Rep. Patrick McHenry (R-NC) (who made some excellent contributions to 2010 Census oversight, which I know from my time spent running MyTwoCensus.com), introduced crowdfunding legislation that was one of the most popular bipartisan initiatives in recent history, garnering support from Democrats all the way up to President Obama himself. McHenry’s bill, the Entrepreneur Access to Capital Act,  H.R. 2930 (full version here), passed 407 to 17.

This makes total sense. Republicans generally don’t believe that the government should be able to tell people how to spend their money (anyone can gamble or booze away all of their savings, can’t they?), and Democrats don’t see why accredited investors who are members of the “top 1%” should be the only folks permitted to invest in startups, thus preventing the upward mobility of the masses.

Specifically, the highlights of H.R. 2930 are as follows:

- Create a crowdfunding exemption from SEC regulations for firms raising up to $2 million, with individual investments limited to $10,000 or 10 percent of an investor’s annual income.

- Excludes crowdfunding investors from counting as shareholders for purposes of calculating the 499-shareholder cap under 12(g) of the Securities Exchange Act

- Preempt state law and exempts the ban on general solicitation for the new crowdfunding exemption.

But now, as always seems to be the case as of late with the American government,  just when we’re on the brink of something great, the millionaire’s club also known as the United States Senate has failed to move forward with this legislation, thus preventing it from making its way to President Obama’s desk to become a law.

Despite Senate Republican Scott Brown of Massachusetts championing similar legislation to the resolution that the House of Representatives passed, lobbying groups like the NASAA (North American Securities Administrators Association, “the oldest international organization devoted to investor protection”) have wielded their influence over the 100 people who control the fates of the other 300+ million.

What needs to happen now is simple: An online campaign of the magnitude of the SOPA/PIPA variety must be enacted to create swift and effective action to boost America’s economy by causing the US Senate to pass comprehensive crowdfunding legislation.  Sites like crowdfundinglaw.com and startupexemption.com have already been set up to explain this law and advocate its passage. And using a Wefunder.com petition, more than $6 million has already been pledged to support investment in new ventures if this legislation is passed.

But will Google, Craigslist, Wikipedia, and all of the other organizations that led the charge against SOPA and PIPA step in to assist with this one?

As someone who is not interested in the “rewards” that Kickstarter campaigns promise their donors, but rather direct return on investment in monetary form, I and other like-minded people would be happy to invest in startups despite our lack of accredited investor status. I don’t gamble in casinos, but I’d be happy to gamble on good ideas and innovation.

Coming soon: Direct effects of crowdfunding legislation on new journalism business models…

Future of crowdsourced fundraising? Dispersed!

Like everyone else, I have been amazed by how Kickstarter has been able to fund business, arts, and journalism projects. But I don’t give. Yes, new projects are cool. But what I’m looking for is return on investment.

In general, the rule of thumb on Kickstarter is that unless you are funding a cool new tech product that will later retail for a higher price (so the creators’ claim), you will only be rewarded with a measly little cupcake. Do I really want a $5 cupcake mailed to me at some random point next year? No, I don’t. And many other people who are mindful of their money don’t want such gimmicks either.

But I am interested in using crowdfunding for other media purposes. However, I want funders to have equity stakes in the projects they fund (which is possibly in Germany as evidence by my friend Lars’ project…check out the 2000 Euro+ levels here).

(As crowdfunding sites proliferate, the costs of building and developing them will go down rapidly, which is demonstrated by the fact that you can now find cloned Kickstarter source code free on the Internet or pay some guys — probably in India — less than $1,000 to build, modify, and maintain a clone site for you.)

But what stands in the way of equity investments in crowdsourced products? The US government’s accredited investor law. More on that soon…