This edition first published 2022.
Copyright © 2022 by Martin Schilling and Thomas Klugkist.
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Library of Congress Cataloging-in-Publication Data
Names: Schilling, Martin, author. | Klugkist, Thomas, author.
Title: The builder’s guide to the tech galaxy : 99 practices to scale startups into unicorn companies / Martin Schilling, Thomas Klugkist.
Description: Hoboken, NJ : John Wiley & Sons, Inc., 2022. | Includes bibliographical references.
Identifiers: LCCN 2021062935 (print) | LCCN 2021062936 (ebook) | ISBN 9781119890423 (cloth) | ISBN 9781119892069 (adobe pdf) | ISBN 9781119891598 (epub)
Subjects: LCSH: High-technology industries—Management. | Internet industry—Management. | New business enterprises—Management. | Small business—Growth.
Classification: LCC HD62.37 .S35 2022 (print) | LCC HD62.37 (ebook) | DDC 658—dc23/eng/20220114
LC record available at https://lccn.loc.gov/2021062935
LC ebook record available at https://lccn.loc.gov/2021062936
Cover Design: Wiley
Cover Image: © AlexanderTrou/Shutterstock (modified by Wiley)
For Susanne and Mercedes
and the many entrepreneurs who take personal risks every day,
create millions of new jobs and are working on technological
solutions to tackle the most pressing issues of our time.
We would like to thank the following partners for their invaluable support and help. Without them taking the time to share their knowledge and work on this book, The Builder's Guide would not have been possible.
Partners of The Builder's Guide
Chapter co-authors
Experts
| Oliver Ahlberg Patrick Alberts Michael Anspach Jan Bartels Chris Bell Gavin Bell Neil Berrie Gilles BianRosa Constanze Buchheim Ramon Abalo Costa Filip Dames Dr. Daniel Holle Gero Decker Matt Dixon Tamer El-Hawari Jan Engelhardt Kelly Ford Florian Furthmüller Eva Glanzer Sven Grajetzki Edward Hartman Johannis Hatt Florian Heinemann Christian Hertlein Chad Jennings Stephanie Kaiser Audrys Kažukauskas |
Jane Kennedy Nate Kupp Robert Lacher Samantha Lee-Kroll James Lennon Joshua Levy Oliver Löffler Andriy Lysyuk Stephan Mansfield Christian Miele Léa Miggiano Paul Murphy Christian Nagel Johann Jakob Napp Peter Niederhauser Joern Nikolay Ciaràn O'Leary Christian Osterland Pierre Dominique Ostrowski Anna Ott Christian Poensgen Marc Pohl Johnny Quach Ramzi Rafih Madhavan Ramanujam Scott Raymond Christian Rebernik |
Lauriane Requena Marcus Rex Dr. Wolf Richter Christoph Richter Jeremy Richter Mark Roberge Martin Rode Lars Rysell Mika Salmi Joachim Schreiner Stephan Schulze Dominik Schwarz Thilo Semmelbauer Birte Sewing Mahdi Shariff Bogdan Shestakov Alexander Shevchenko Eusden Shing Manjuri Sinha Daniel Stammler Jacco van der Kooij Frauke von Polier Christian von Trotha Fabian Wesner Felix Würtenberger Nils Wolfram |
The Builder's Guide Team
| Dünya Baradari Lead Analyst, Editor Lucero Barrueto Lead Analyst Ferdinand Dabitz Lead Analyst Nadim Hammoud Lead Analyst & Designer Harriatte Tran Designer Tobias August Chief Editor |
Helene Jung Lead Analyst Isabel Kovacevic Lead Designer Hugo Schlesinger Lead Analyst Johannes Lenhard Academic Advisor Grant Price Lead Editor |
Lyndsey Walsh Lead Editor Akeli Mieland Editor John Mulford Analyst, Editor Adrian Lehmann Video Editor Nina Gründing Editor |
For more details on our contributors and additional resources visit www.buildersguide.org.
Europe is in danger of becoming the biggest open-air museum in the world. When it comes to the digitization race, our record is truly abysmal. Unicorn companies are rare in general, but the European variety is scarcer than the rest. While Europe is now home to an encouraging 33% of all VC-backed startups, only 14% of unicorns have found their start on this continent. Another damning figure is that only 2 of the 20 most valuable unicorn companies in the world are European. In short, we fail to scale. Everyone needs to do better: the founders, the financiers and also the state, in which I mean governments, legislation and administrations.
This is not a minor matter. It is an existential threat to our economy, our society and our way of life. At the time of writing, only Apple, the largest of the five FAANG companies (Facebook, Amazon, Netflix and Alphabet (Google)), is worth as much as all 90 companies in the DAX and MDAX combined. Tech hypergrowth has made history in the liberal United States. Meanwhile, China is further accelerating its state-controlled technological progress. We are in urgent need of a “third way”: a European strategy that can be pursued independently from these dominant players. Otherwise, Europe will undoubtedly become less and less relevant economically and politically. We simply will not get a second chance to regain our digital and political sovereignty – something that the United States, our partner on the global stage, would much prefer for us to have, too.
To establish this third way, we as politicians have a crucial duty to improve European regulatory frameworks in a number of ways. Here, the dominance of the tech giants is the single most important issue we need to tackle, and we need to do this swiftly and rigorously. Google is abusing smaller businesses that are dependent on it by acting as a gatekeeper to online services while taking the lion's share of their profits. Amazon is progressively turning into a “customs office,” which no retailer can avoid. Lastly, WhatsApp is now the de facto communication tool for people in the digital era, with few alternatives available.
To break up these monopolistic situations, we need to regain control over our most valuable resource: our data. We need to put regulation in place that makes market-dominating enterprises like Google and Amazon share the data they collect from European users with all competitors to create a level playing field. Furthermore, we are in need of regulations that facilitate genuine connectivity when using messenger services like WhatsApp (i.e., people should be able to communicate with users from other platforms like Threema or Signal with no issues). This competition will be of benefit to both users and, perhaps more importantly, to all competitors.
However, as we currently have no tech giants in Europe imposing their own technological standards and regulations regarding connectivity, interoperability will only be effective if Europe starts setting its own digital standards. We should mandate organizations like CEN/Ceneleg and ETSI to develop shared open standards. This will pave the way for more interoperability and lead to a greater sense of efficiency with lower costs for government agencies and companies. The result: a keen competitive advantage for the European tech industry on the global stage.
Moreover, the state itself needs to get better and faster (and better faster). Without digital and modern public administrative processes, the private markets will simply not be able to flourish. Additionally, we need more capital. Europe is lacking financial sovereignty, especially in terms of later-stage venture capital and SPACs. We should be creating more incentives by building up a state pension fund along the lines of Norway or Sweden, by exempting VC funds from value-added tax, pushing the exit prospects of startups through equity investments by the European Investment Bank and publicly promoting startup funds for broad, low-risk participation by all employees.
Finally, we need more expertise. Once European governments have established a functional framework, the playing field will be open for ambitious startup builders who are constantly faced with managing the unknown in a dynamic and complex tech ecosystem. This is where The Builder's Guide comes in. The expertise needed to transform a small startup with a team of fewer than a hundred people into a scale-up company with more than a thousand employees is both rare and intangible. You cannot “create” this knowledge through legislation or policy, and there is a minimal chance of encountering these skills and insights in an academic setting. The audacious goal of The Builder's Guide is to gather the secrets of company-building, structure them in a digestible format and make them accessible to a wide audience.
In Europe, we need more projects like The Builder's Guide: created by builders for builders, enriched by the collective experiences of seasoned scale-up leaders and equipped with the potential to accelerate Europe's efforts to catch up with the United States and China. I hope and believe that the future founders of the next “European Facebook” will be inspired and guided by the many actionable and well-grounded insights offered by this handbook. When this happens, The Builder's Guide will have succeeded in its ambitious mission.
Thomas Heilmann, Member of the German Parliament
Modern technology has changed our lives in countless ways and it continues to revolutionize how we communicate, work and live. It has also had a significant impact on education, health and wellbeing, as well as on our productivity.
In line with this trend, the European technology sector offers attractive investment opportunities with promising valuations and excellent growth prospects for many companies. However, as the European ecosystem matures, it has become even clearer that a robust European support system to promote, challenge and foster local innovators from their very early stages to the public markets is still missing. And the technology that we use in our daily lives is missing European values and ideas.
If Europe wants to fund a thriving tech scene and foster digital sovereignty, it needs a thriving financial scene as well. Currently, European tech companies do not have the same access to capital as companies in the United States or Asia. There is a considerable need for action in Europe to provide young innovative companies – especially in the growth phase – with the necessary capital. Capital ultimately decides whether young start-ups become unicorns and global pioneers or not.
We have founded Lakestar to contribute to solving this issue: to identify, fund and grow European technology companies that are capable of reshaping our modern life. By being deeply embedded in Europe's growth-stage and pre-IPO ecosystem, we know what is needed. As a VC, you have to support European technology entrepreneurs along the entire growth journey. On the one hand, you have to offer both angel investing and strategic seed investments in order to nurture the technology ecosystem from the very early stages. On the other hand, you have to provide an efficient route to transition from private to public markets – like how technology-focused SPACs (Special Purpose Acquisition Companies) can. However, the broadened investment scope provides for not only entrepreneurs. Investors also benefit from working with a partner who covers the entire commercial lifecycle and who has the latest innovation, capital markets development and exit environment at the front of their mind.
I am convinced that Europe needs to create its own digital sovereignty to reduce dependency on foreign funds and to strengthen the control over its tech innovation. Listings via SPACs can help us close the gaps that we in Europe traditionally have when it comes to equipping our companies with sufficient capital. The biggest needs involve companies that require 200 to 300 million euros in capital to continue growing. Therefore, we aim to invest in European companies that otherwise would have needed to raise capital from US markets. This is the only way we can prevent a structural sell-off of European companies to the United States. We want to play our part in making this happen.
Our aim is to invest in companies to help develop them into European tech champions that are capable of creating European independence. The Builder's Guide makes an indispensable contribution toward strengthening Europe's position in the long term during these times of digital transformation.
Dr. Klaus Hommels, CEO of Lakestar
Startups and scale-ups are the keys to our future economy. They create new jobs, pave the way for sustainable prosperity and ensure our technological sovereignty. They are also of critical importance if we in Europe are to meet the major global challenges of the future and make the world a healthy, more prosperous place for everyone.
For that to happen, startup founders themselves need a vibrant startup ecosystem. In particular, we need to give startups in Europe the tools with which to better attract world-class talent. It is also essential to nurture existing skills within our startup ecosystem. Furthermore, talent has to be fostered at all ages and for all genders, without discrimination.
We must eliminate the talent bottleneck, or we risk squandering the incredible momentum that European tech companies have built up in recent years. The next Google, Amazon, Facebook or Netflix could very well come from Europe, but for that to happen, we need to take the regulation for employee ownership to the next level – amongst other things.
At the German Startups Association, our mission is to stand by founders and startup builders, to pass on knowledge critical to startups and to make Europe a continent of openness and innovation. The Builder's Guide is poised to play a key role in this, and the knowledge compiled in this manual will give invaluable support to startup entrepreneurs as they scale their ventures and build talented workforces.
Above all, The Builder's Guide answers the essential questions: How can a startup set its direction? How can employers attract the best possible team? How can startup leaders build functional excellence in key departments? What is the best way to acquire growth capital?
The answers to these questions matter – both now and in the future. I am delighted to see these core lessons written down. I am sure The Builder's Guide will inspire many future unicorn builders to achieve success.
Christian Miele, President of the German Startups Association
The European startup ecosystem is quietly emerging from the dominant shadows cast by its counterparts from both the East and West and shows a promise of maturity and unicorn potential. Investment in European startups tracked at $21.4 billion in the first quarter of 2021, with funding at every stage showing an uptick.
In truth, startup ecosystems are – in part – defined by the size of their unicorn herds. And though we're growing, we are drastically falling short. While Europe generates 36% of all formally funded startups, it creates just 14% of the world's unicorns. The question is: Where is this disproportion coming from?
While the size and diversity of our region engenders a breeding ground for startups, it is also our Achilles' heel. With no single epicenter to act as a beacon of guidance, our startups often lose their way, their drive and the fight. That's why there's a clear and urgent call right now for all stakeholders who can lend a hand to nurture growth and help unite the European community.
The Builder's Guide is an important step forward in developing this center of experiences and mentorship while providing guidance that will help founders shorten the learning curves and ensure the region can buck the challenges of disparity seen across the global startup ecosystem.
The vision of building a strong European ecosystem is what sits at the heart of what we do at Ciklum. JustEat and eToro are just two examples of fast-growth startups that we have supported in their mission to redefine the way things are done and place a permanent mark on the future landscape for the better. I remember these and many other companies having only a dozen employees when Ciklum joined them on their journey, and we remained with them by helping them grow from those early stages right through to unicorn status.
I envisage a market where more founders from within the European ecosystem will aim and successfully grow companies with the same international dominance of their American West Coast counterparts, building meaningful multi-product platform businesses that stand shoulder to shoulder with the likes of Google, Amazon, Facebook, Tencent, etc.
What I've learned from working with some of the most inspirational and successful European startup leaders, as well as my own unconventional journey, is the importance of partnership. I've also seen how vital it is to forge your own path – think the Gordian knot – after all, how can you truly innovate if you are treading well-worn paths?
Part of their innovation and success comes down to finding the right talent. There will be bumps in the road, and your response rate will be determined by the resilience and strength of your team – whether that's internal or outsourced, leading product engineering practices or ongoing product discovery. It's about building capabilities that can continuously evolve in a perpetually shifting marketplace. You don't want to be locked into a technology that in two years' time will leave you stuck in the past.
Look at eToro, they democratized traditionally privileged trading opportunities, or JustEat, which has brought regional restaurant-quality food to the masses in times of lockdown. They forged their own paths, partnered with the right people to leverage their potential and scale up and lastly, never stood still.
Now, we are at the beginning of a bigger journey: one where a region-wide pool of leaders, thinkers, and operators will come together to establish a vital nerve center that will shape the next generation of unicorns. For those lucky enough to have businesses that have grown from Europe, there is a responsibility to take accountability and channel back this momentum into the system and pay it forward.
The Builder's Guide is going to be essential for founders who are on their journey of fast scale. The actionable takeaways that follow will help push the next generation of startups to meet global ambitions and establish a practice of perpetual discovery that will keep you at the front of the field today, and more crucially, tomorrow.
Kulraj Smagh, CEO at Ciklum
Launching an investor-funded startup has always been a business where the outlier is king. Even before they part with their cash, a venture capitalist knows there will likely be one or two overly successful outliers that will make the fund really successful. However, the majority of startups will either deliver an average performance or fail altogether. It is down to the billion-dollar companies, or “unicorns,” as they are known, to compensate for the losers. Unicorns are then linked to major economies of scale and all the economic factors – jobs, social impact, satellite startups, etc. – that go with it.
With this in mind, it comes as no surprise that investors are optimizing their activities to identify outlier candidates as accurately as possible. Then, once the outlier is in their cross-hairs, they ramp up their support. In other words, the market for startup financing is geared primarily toward increasing the return on investing in possible outlier companies and betting on their success, rather than getting behind average startup projects.
When it comes to startup creation, recent history shows that Europe has a strong footprint but fails to keep pace at all in creating unicorns or decacorns (companies with a ten-billion valuation). Any framework that could help to improve the ratio of startups to unicorns is essential to the scene.
The Builder's Guide makes this contribution by translating the experiences of successful founders into an in-depth, yet accessible framework. Other companies can use the lessons, KPIs and best practices in The Builder's Guide to increase their chances of securing the coveted unicorn status. While factors such as luck and timing cannot be controlled, all the operational elements of the journey can be – as The Builder's Guide makes abundantly clear. In an otherwise GAFA (Google, Apple, Facebook and Amazon)-dominated landscape, where software startups are enabling strong economies of scale like never before, this kind of tool kit is immensely important. This is especially true as entrepreneurship should not, as it is claimed in Europe, be about growth as an end in itself. Instead, it is about genuine value and sustainability. Increasing that likelihood is a core element of this book. In the best case, it will generate not only imitators but more discourse about the valuable content within.
Joel Kaczmarek, Managing Director at digital kompakt
We live in unprecedented times that are not only full of uncertainty but also tremendous opportunities and ground-breaking technological advancements. Covid-19 has accelerated digital transformation by years and highlighted even more the importance of technological innovation in our times. We are closer than ever to making space tourism a norm and drone deliveries ubiquitous. Political and regulatory measures are changing consumer behavior and pushing companies to tackle global warming with evermore sustainable solutions. As a society, we have better tools than ever before to connect, work and communicate virtually.
It is therefore an absolute privilege to be at the forefront of this innovation revolution as a venture capital investor, and in particular thrilling to be one in Europe. The European tech industry has been experiencing extraordinary growth. Over the past decade investments in start-ups have gone up 14.5 times reaching $116bn in 2021. There are more European Unicorns than ever before and growth stage investment has more than tripled in 2021 compared to the previous year. The “State of Europe's tech sector” report shows that returns from European venture capital investments have exceeded those from similar investments in the US over the past 25 years. We see an unprecedented number of American funds set up shop in Europe to participate in this upside.
The above comes as no surprise, Europe has some of the biggest talent pools with world class academic institutions creating the breeding ground for the next generation of entrepreneurs and inventors. Due to Europe's fragmented nature and diversity, entrepreneurs know how to navigate complex legal frameworks, cultural and linguistic subtleties across borders to grow their business. Europe is home to more software developers than the US and arguably the cost of employment is still lower than in the very competitive Silicon Valley.
As a former founder and early employee of a, now, unicorn, I have, however, noticed some opportunities for further improvement. Europe could adopt more entrepreneur-friendly laws. Investors are still largely conservative and more driven by metrics than vision, leaving the more ambitious founders with no other choice but to reach to US funds. Culturally, Europe is more reserved in its sales technique and could do with more confident marketing of its superstars to the outside world. The open nature of Silicon Valley Investors means that access to them seems easier there than in Europe.
At Redalpine, we have been witnessing the exhilarating metamorphosis of the European tech industry over the last 15+ years. As former entrepreneurs and founders ourselves, we take pride in learning from our more experienced counterparts on the West Coast whilst leveraging the many positives that the European start-up ecosystem has to offer and elevating our local talent. We focus our investments on future superstars early on, with Seed and Series-A stage deals to help them take the leap to the next level of growth and scale. With the change in the market dynamics we have also recognized the need to offer follow on and growth funding. This means that we can guide our portfolio companies through every stage of their development up until their exit.
We are at an inflection point in European tech and venture capital and it is essential that we, the investors, politicians and academics nurture the wonderful diversity and inventiveness that Europe has to offer. We are still able to impact and shape the industry into what we believe will make it the most competitive on the global tech scene. The Builder's Guide is a fantastic aid to all entrepreneurs, current and aspiring, to take their unique innovations to the next level and not be afraid to think big. Europe has all the necessary ingredients to stay competitive on the international stage and The Builder's Guide gives practical advice on how to make the most of this opportunity.
Aleksandra Laska, Partner Redalpine Venture Partners