Europe and Israel produce more startup mafias despite tech rout: Accel

Europe and Israel produce more startup mafias despite tech rout: Accel

According to Accel, it now takes an average of just seven years in Europe for a startup to achieve unicorn status.

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According to a new report by venture capital firm Accel, Europe and Israel create an average of five tech startups for every venture-backed company valued at $1 billion or more.

Of the 353 “unicorn” companies in the region, 221 have created 1,171 new technology-based startups as employees left those companies to start their own businesses, Accel said, citing Dealroom data.

A similar report by the company last year showed that out of 344 VC-backed unicorns, 201 resulted in the creation of 1,018 new startups.

Some of the biggest examples of companies whose former talent launched new companies include Spotify, which launched 32 new companies, Delivery Hero, which launched 32 new companies, and Criteo, which launched 31 new startups.

Such companies are called “mafias” in the startup world – and no, they are not like the mobs from the Italian-American gangster films. Startup mafias have been around for decades. These “mafias,” which are companies founded by employees of other tech companies, have historically led to the creation of some of the largest tech companies known today.

From the US fintech giant PayPal, for example, Elon Musk founded the electric car manufacturer Tesla and the space research company SpaceX, while Peter Thiel co-founded the big data company Palantir and is now a renowned investor with his Valar Ventures and Founders Fund VC companies.

VC investors say these entrepreneurs came from a risk-taking culture in Silicon Valley that hasn’t been replicated in Europe for many years. It started to take shape with the emergence of mature internet platforms like Skype, from which Niklas Zennstrom founded the VC fund Atomico and Taavet Hinrikus co-founded the fintech giant Way.

“When I started in the Valley 30 years ago, I did it on the west coast, Palo Alto. Then I went back to the Netherlands and my friends and my parents asked: Why should you do that? Why.” Wouldn’t you work for Shell or Unilever? That held Europe back,” Harry Nelis, a partner at Accel, told CNBC.

“Well, unless you’re coming out of college and studying the same way I did, and you’re going straight into a start-up – not a simple start-up, but a well-established one where you can learn a trade and then do it Have your career.” – It’s this kind of new philosophy that I think will help Europe over time and has helped the ecosystem.”

Today, companies like Spotify, Delivery Hero, Klarna and Wise have become independent founding factories.

The largest cohort of newly formed startup mafias come from the fintech space, with almost 20% of European startups born from unicorns operating in the sector.

According to Accel, start-up workers in Europe and Israel prefer their own cities to launch their new businesses. More than half of new companies are incorporated in the same city as the unicorn they exited from.

According to Accel, Tel Aviv is the largest single location for the production of start-up factories. 127 new companies emerged from 33 unicorns. Within Europe, London hosted the most start-up factories of any single city with 27 unicorns and 185 start-ups, while Berlin was just behind with its 25 founder factories and 165 start-up spinouts.

More than 59% of startups born out of so-called startup mafias have already managed to raise VC funding, with 45% attracting around $1-10 million in investment and 30% more than $10 million received.

The data also provides insight into the journey people take to become entrepreneurs.

According to Accel, it takes an average of 28 months for second-generation founders to start their own startup, and the average age of these entrepreneurs is 33 years.

Three-quarters of second-generation founders have a college degree, and 60% have a master’s degree.

More than 59% of startups born out of so-called startup mafias have already managed to raise VC funding, with 45% raising around $1-10 million and 30% raising more than $10 million.

The average time it takes for a startup to achieve unicorn status in Europe is currently just seven years, Accel said.

Gloomy prospects

Still, the outlook for tech startups in general has clouded as interest rates have risen, putting pressure on valuations of late-stage companies in particular. The market value of companies like Klarna has plummeted as investors reassess the technology sector.

According to data from VC firm Atomico, the European tech industry lost more than $400 billion in value last year.

Layoffs have also plagued the industry. Music streaming platform Spotify laid off 6% of its employees, buy now, pay later company Klarna announced cuts of 10%, while money transfer unicorn Zepz recently laid off 26% of its workforce.

An Accel spokesman said the impact of layoffs on the new generation of startups was not mentioned in his report.

But despite the dimming outlook for the technology, Nelis said he was hopeful for the future.

He said the numbers showed Europe’s tech industry had matured enough for employees to muster up the courage to break up and leave to start their own businesses.

A large pool of talent has now emerged, and employees feel they have the skills and experience to turn their own ideas into full-fledged businesses.

“While founders and their teams are navigating a tough macro environment, the European and Israeli tech ecosystem is in a much stronger position than it was during the 2008-09 financial crisis due to the amplifying impact of repeat entrepreneurs,” Nelis told CNBC.

“With over 350 venture-backed unicorns across the continent, there is a strong foundation of talent and success that we firmly believe will be passed on to the next generation of ambitious entrepreneurs.”

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