All Aboard the Trans-Europe Express! Episode 3: The Cultural Perspective

Understanding the current state of European tech through The Continent's cultural attitudes and norms

Note: This was written in May 2021. It was not initially published because Substack crashed and I lost a day's work, which has magically returned. 

I have only made a few small edits and added a conclusion the day of publication (November 14 2024).  

In the first section of the series, I briefly discussed the phenomenon that, in Europe, entrepreneurship is not given the same social cache as it is in the United States. While it has moved in a positive direction in recent years, this remains true today. Before we try to answer the “why” here, let’s look at “how” this manifests and the consequences of this on ecosystem growth and development.

Let Me Tell You a Story

For enterprising young people living in the Bay Area, the professional and social hierarchy looks something like this:

1. (Successful) Startup founders

2. VCs and angels

3. Investment Bankers, with TMT at the top

4. Startup operators

5. Corporate executives

6. Consultants

While many folks greatly admire the legends of investing, people like Doerr, Gurley and Moritz, it is ultimately the visionary founders who push young people to dream. This is even more true when it comes to the dynamics of the system itself.

Californians working in technology are uniquely attuned to the power of long-tail outcomes, asymmetric upside, and of storytelling to realize the levers of runaway success. Strong storytelling ability is required of all the occupations listed above, of course. That being said, I believe the Californian hierarchy rests on the centrality of storytelling ability to success. Americans have always recognized that a good story can function as an exponential multiplier and further, that order and certainty can negate such an advantageous mechanism.

Indeed, the United States was created as an idea, a story waiting to be told.

Let’s look at the role of storytelling in the hierarchy above:

Storytelling ability is an important trait of a consultant. The consultant must tell the story of a particular decision. They must understand the context behind why a decision must be made, who the decisionmakers are, and what kind of consequences the decision may lead to. But, ultimately, the leverage the skillful storyteller consultant enjoys does not extend past the decision-level.

Storytelling ability is an important trait of a corporate executive. The executive must tell the story of her firm’s stock price. They must understand the context behind the recent performance of the stock price, who, amongst stakeholders, is most responsible for its performance, and what can be done in the next quarter to improve it. But, again, the leverage of the adroit storyteller exec doesn’t affect anything more than the company’s stock price.

Storytelling ability is an important trait of a startup operator. The operator must tell the story of the function they are responsible for. They must understand why their function can be a growth driver for the business, who should be on the function’s team, and what the fundamental business value of the function’s activities is. The leverage of the wise operator applies only to their function, where it logically ends.

Storytelling ability is an important trait of an investment banker. The banker must tell the story of their advisee’s IPO or acquisition. They must understand why the business is an attractive place for investors’ money, who the important leaders of the advisee are, and what synergies/advantages can be unlocked from the transaction. A banker that can tell stories well can make the difference between a successful transaction and one that flounders, but their influence does not extend past this single event in the firm’s lifespan.

This section in table format, if that’s more your thing

Storytelling ability is an important trait of a venture capitalist. The VC must tell the story of the financing round. They must understand why the startup should take their money over others, who they can introduce the startup to for hiring or sales purposes, and what growth the financing can accelerate for the company. A VC will not win the deal if they are unable to adequately story tell, which is their raison d’etre, but, as with the banker, a way with words has consequences for the singular event but does not quite extend to true value creation.

Storytelling ability is the most important trait of an entrepreneur. The founder must tell the story of the entire company. They must understand why the company can win in the space, who can dream and execute the company into existence, and what the impact on society the company can make. Strength in storytelling is non-negotiable for a startup founder and will make-or-break the success of the project.

In my view, the single most important question a founder can ask themselves when they are deciding to build a business is: can I tell stories effectively? Perhaps the brilliance of Northern California as an entrepreneurial ecosystem is that there are so many opportunities to flex this muscle and proficiency is highly valued by all ecosystem participants.

Not a Care in der Welt

As Alex Danco writes in his instant classic, Social Capital in Silicon Valley, the region’s ecosystem is designed to reward those who transact, leverage, and tell stories with their innate social capital because it signals that one could, down the line, create tremendous value out of invested financial capital. Danco says it best:

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“For a young founder in Silicon Valley, your social status is the most valuable thing you have: not only because it can open doors for you, but also because using your social status effectively is like a dress rehearsal for raising money and making deals. If you can demonstrate to early prospects and investors that you’re successfully able to promote hyped-up equity in your own reputation, it’s a good sign that you’ll be able to successfully sell hyped-up equity in your startup too. This is that special sort of magic quality that hangs around some founders like a halo. You instinctively know what they’re capable of, because at a social level, you’ve already seen them do it.”

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Don’t get me wrong. This phenomenon exists in Europe. In fact, it is much more prevalent now than it has ever been. But it just doesn’t function in the same way. The biggest reason, I think, is that people just don’t care really. If you work in tech in SF or NYC or Miami, whether in Customer Success, Marketing or Backend Development, it is expected that, for the most part, you are following the trends, gossip, and news of the day. Further, there is a large group of operators, investors and founders who spend a lot of time being clued in, deeply invested in ecosystem-shaping narratives and their outcomes.

In Berlin, and I assume London too, this is just not happening at the same scale. What you have instead is a small (I mean a few dozen, not thousands) group of investors and founders who, in Germany at least, often attend the same universities, have previous experience in consulting and are usually white men who grew up relatively well-off (more on this later) who care a lot, and then like 95% of the ecosystem not giving a single shit about anything outside their own positions and companies. The reasons for this are quite interesting.

In big European hubs, startup workers come from all over the world, often motivated by quality of life concerns. At Choco alone, I have colleagues from Brazil, China and Nigeria. They don’t know who Sebastian Pollok is. They never will, even though he is one of our investors and also the husband of a fellow (now former) colleague. They’re simply pleased to work at a great company with an inspiring mission in one of the most livable cities in Europe. On top of this, for those who might be from continental Europe and thus pre-disposed to being more in-tune with ‘The Scene’, they are also not engaged. The expected value, or relative upside, from investing time and energy into ecosystem development for most people is negligible. This is mostly due to a very conservative approach to equity-based compensation (driven by regulation), though this is shifting quickly. What I am getting at is there is basically zero inter-mingling in the tech industry here between labor and capital. Capital has made the decision that it will commit itself to ‘The Scene’ as a Lebensfokus. Labor is only in the most remote sense aware there even is a scene.

Aus dem Weg, Geringverdiener!

Returning to Danco, he introduces this amazing concept of “The Social Fog of War”. Basically, the premise is that the best-run systems enjoy an unintuitive advantage: they are illegible and opaque. Folks have a vague idea of who is on top and who is on bottom, but the closer you get to the middle, the harder it is to place yourself relative to others. Uncertainty is the gasoline to the fire here. And awareness will suffocate the flame. To quote Danco:

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“If everyone suddenly became aware [sic] each other’s relative status, it’d be a social disaster: the group would collapse. The people on the bottom half will be made aware of their inferiority: they’ll feel self-conscious, like impostors. And the people in the top half will become aware of their superiority – they’ll feel pressure to break off from the group, which is obviously bringing them down. Ignorance was bliss.”

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Uncertainty is not the friend of the European, even one with far higher than normal risk tolerance. Credentials are hunted and then zealously guarded.

The phenomenon of credential-obsession stood out to me almost immediately after I moved to Berlin two (now more than five) years ago. As I was researching the venture landscape, I kept encountering rather young-looking people with these confounding LinkedIn headlines full of unfamiliar acronyms. Imagine my surprise when it turns out young, entrepreneurial (they are always so entrepreneurial) people in Germany are the most passionate credential hunters out there. Below, I have collected just a few headlines of people who liked a post celebrating the promotion of a connection of mine at a well-known, but not necessarily beloved, German seed stage VC a few weeks back. As an aside, seeing this type of thing in America is exceptionally rare. In all, these come from eight people.

Collected LinkedIn headlines of eight German twenty-somethings

There is a German finance Instagram account, quite similar to @litquidity, which made a wonderful meme lampooning what you see above. I think it makes my point better than anything I could write.

“The name of your university is longer than three letters? Out of the way, low (wage) earner!”

Second, as this phenomenon is quite well-spread, it serves to reason that leaders at venture capital firms react favorably to this kind of behavior. Funnily enough, I did an analysis of this myself on a cold, rainy day in Mallorca back in early March (big ups to #teamgoodlife).

I looked at the 35 non-partner investors, from Principal to Analyst, who were, at the time, employed by the ‘top’ 8 VC funds that expressly cover and identify with German-speaking Europe (DACH). While the proportion of female investment team members is slightly higher (23%) than individuals of any sex with a migrant background (17%), what I particularly found fascinating was the mix of the most relevant previous experience amongst this group. Over 25% of junior VCs in Germany have had their most relevant prior experience take place at a MBB consulting firm.

Experience 1 = most recent job

Now, I don’t know what this number looks like amongst junior investors in the United States but I’d be willing to bet that the share of those whose most relevant prior experience to working in venture was at a MBB firm does not exceed 10% and is probably around 5%. It is meaningfully significant for a junior VC to have spent time getting credentialed at one of the top global consulting firms in Germany. Echoing part one of this series, those involved in technology investing in Germany are unlikely to have significant operating experience, even amongst recent, junior hires.

In interviews with European investors, I have been asked multiple times something along the lines of, “which investors in *insert city* are the best in your opinion?”. Crazy! Literally grasping for order and hierarchy!

Danco warns against this, explaining that a shared understanding of social hierarchies disrupts the game theory away from productive collaboration:

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“But when status becomes more codified and explicit, then the social capital of the entire group gets threatened. Clarity and order tilt the game theory away from the communal group and towards less productive posturing and gatekeeping. This is why so many startup incubator programs, mentorship programs, and support networks fail so abysmally. The formal roles, titles and milestones that they impose, even if individually sensible, break the illegibility and inclusion.”

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This lack of respect for the power of disorder extends outside of the tech niche, of course. Returning to the hierarchy of occupations from earlier, this is what it looks like in Europe, from my vantage point:

1. Consultants

2. Corporate Executives

3. VCs

4. Investment Bankers

5. Startup Founders

6. Startup Employees

What’s the theme? Well, the role of the consultant, at least from the perspective of the client, is to provide certainty. Even if confidence in the path taken to certainty is low, the advisor must posture that he has reasoned with a clear and unobscured mind. The customer rents the certainty of the consultant and its firm to make decisions ‘on a more even footing’. Large-company executives must do the same for shareholders, employees, and customers alike. The more you rise up the chain of command, the less disorder is welcome. The consequence of all this is that entrepreneurs in Europe must navigate a world wholly un-designed for their needs.

While in California, where the “Social Fog of War” usefully limits the need for distracting posturing and status seeking, the European founder needs to work 2x as hard to succeed because they are probably not in the ‘in-group’ and are not granted the same benefits as those innovators in more supportive, opaque, and disordered systems.

To finish off this section, I just want to bring this all back to the investor side of things. Everett Randle, of Founders’ Fund, published a widely-read piece recently on how and why Tiger Global and other high velocity hedge funds are eating more traditional technology investors’ lunch.

My favorite part comes towards the end, where he likens Tiger Global (and other peer funds) to Walmart in their approach to selling the capital they have. By focusing on tremendous scale and velocity in their process, they will (really, already have) become the cheap option for startups when they need to purchase growth equity investment. You won’t get the bespoke design or customer experience, but you will get what you need, fast, without fuss, and reliably.

On the other hand, the funds with known brands and/or best-in-class vertical expertise that can be leveraged to ‘help’ portfolio companies, will sell a more expensive product, attractive to early-stage founders who need the credible signals on offer. He compares this approach to luxury brands like Tiffany & Co.

Randle worries for the J.C. Penneys, those investors who don’t have a strong brand nor the desire/willingness to innovate and embrace the (uncertain) realities of an evolving landscape. He thinks they will end up in a “Dead Zone”.

From Everett Randle’s Playing Different Games

In 2021, there are quite a lot of J.C. Penneys in Europe. Sometimes it is because of LPs, who are even less keen on disorder and certainty than conservative venture capitalists. Indeed, to run Tiger’s playbook, you need extraordinary buy-in from capital providers. But many other cases are self-imposed. I know of a Series A focused fund that refused to seriously consider businesses that produce ARR below a fully arbitrary threshold. Or another that has had a rule for years stipulating that investment team members must hold a Master’s degree.

These nudniks will not survive in the long-term. And that’s probably a good thing for the ecosystem as a whole.

Wrapping it up

I was finally moved to publish this piece after seeing Aadi Vadiya post similar thoughts some 3.5 years later. It would surprise no one that nothing really has changed in this time. Old habits die hard.

I believe local VCs in Berlin actually have done some introspection and are aware of the deficiencies of the ecosystem they have developed. The problem is they don’t care to fix it because they get paid anyways. Their incentives are not aligned to deliver outcomes that benefit society.

The only way to change this system that is doing tragically little to arrest Europe’s decline is to swap out its players. As I have written previously, it is time for a new generation of investors to emerge, one that is unconnected to the cynical legacy of Rocket Internet, one that is made up of genuine technologists rather than erstwhile consultants, one whose financial success is tied to outcomes that deliver competitiveness and productivity gains for the continent.

If anything has changed since 2021, it is that entrepreneurs are increasingly deciding to found their companies in jurisdictions that do more to support them. They’re voting with their feet; it’s yet another reason we must do what we can to enact change.

At the beginning of my time in Berlin, indeed around when I wrote this piece, I really admired Germany and appreciated how its systems were so rife with local characteristics. But I have evolved on this front. These tendencies are limiting potential and positioning the ecosystem as uncompetitive. We need to embrace the rather American-coded power of storytelling to make sense of uncertainty and opacity while still retaining that herrliches collective spirit.

I think we can do it. But we really gotta push for it!

Review of Ezra Collective @ Astra Kulturhaus 15.10.2024

Scattered thoughts on a great night out

We arrived shortly before 8:00 PM. The line to get in easily overflowed out of the RAW Gelände and onto Revalerstraße, where it snaked along the Plakat-laden wall towards the Warschauer corner before it 180’d and began to ran parallel to itself back towards the venue.

Julius, Marco, Leti, and I were there already at the Wendepunkt, eating Döners almost lustfully. Marco, in his off-season, indulged in two.

In Berlin wohn’ ich, also steh’ ich an. I live in Berlin, therefore I queue.

It is impossible to separate the experience of waiting in a line with the reality of making the German Hauptstadt your home. The principle is straightforward enough: most everything is accessible, regardless of your income or status, as long as you wait your turn.

This inherent promise has a meaningful and perhaps underrated effect on the mentality of Berliners. Many believe that their responsibility is simply to show up and they will subsequently get taken care of. Implicitly, showing any kind of initiative more than this will be ignored.

I call this the Deli Counter Mentality and I think it is bad. But I will talk about this another time.

As we edged closer to the entrance, we were joined by Niklas and Moritz. They could not have timed their arrival any better, hitting us at the moment of ingress. The stars were aligning and the excitement inside was palpable.

It was my first visit to the Astra Kulturhaus and I was impressed by the venue. Almost twice the size of Kreuzberg’s better known Gretchen, the space delivers a comfortable vastness and proved quickly to be easily navigable.

Admittedly, my previous exposure to Ezra Collective’s music was rather limited. I know them mostly from the vital South London Jazz compilation We Out Here (2018), in which the group’s track Pure Shade is the “other song” to Kokoroko’s enormous Abusey Junction, which was a mainstay of undergraduate toking sessions at Fauxm and Mulch.

I am rather a fan of the group’s keyboardist Joe Armon-Jones, who closed out XJAZZ! back in May here in Berlin. The light touch of Armon-Jones’ keyboard playing is for me the most compelling element of the group’s sound. His introduction on Pure Shade, where he plays in counterpoint to woody percussion, demonstrates this nicely, as did a warming solo performed 2/3 through last night’s show; a pleasant dose of tenderness amongst a flurry of pulsing, urgent beats.

Interpretations of pop music numbers made up around a fifth of yesterdays concert. Angie Stone’s Wish I Didn’t Miss You was one such track and def a highlight. In general, I liked them, the crowd too. I told Julius in the moment that I appreciated the group doing so because it places them ‘in the tradition’ of the jazz masters of the mid-century, who famously selected popular songs from Broadway luminaries like Rodgers & Hammerstein, such as All the Things You Are and Embraceable You, to develop their own sound on top of.

The funny thing was that we easily identified the melodies but none of us actually could remember the titles of the tracks (Julius got the Angie Stone one later on). In fairness, we often pride ourselves on the obscurity of the music we like, so perhaps not a surprise there.

Regarding the band’s sound. Ezra Collective is not shy about its many influences. While it calls itself a jazz band, the influence of afrobeat looms large (they did an homage to Fela Kuti that was clearly the highlight of the concert for the assembled).

Focusing on the rhythm section, drums and bass, contemporary hip hop’s influence, think Kendrick Lamar, is substantial. Here, the connection to jazz fusion of the 70s and 80s, Herbie Hancock or Joe Zawinul’s Weather Report, is almost non-existent. Even though they are fundamentally a jazz fusion group, they sound more like a composite of afrobeat and hip hop than the next generation of fusion. I say this neutrally.

The band is after producing a particular music-going experience, one where movement and rhythm is at its very core. Today, the paying public is clearly looking for a more holistic experience when they approach jazz. This is why Ezra Collective can fill the 1,500 capacity Astra Kulturhaus while the brilliant Immanuel Wilkins Quartet performs in venues like the wonderful yet comparatively tiny Zig Zag, capacity some 200.

Final note on the band’s sound. I would say it comes together better as a marketable product than it does as a musical concept, much like the American (revivalist) jam band Goose, who I saw this summer in New Haven, Connecticut.

It seems, albeit from my somewhat limited concert going experience, that groups who claim a long list of influences are in vogue today. Perhaps a symbol of “stuck culture”, the recipe for commercial viability, let alone success, might very well be to unambiguously select a few successful genres from the recent past, blend them, and deliver a concert-going experience high on excitement and movement that is also referential enough to attract fans from the existing genres.

To sum it up: the innovation is more in the construction of a better customer experience than it is a step forward musically. The Immanuel Wilkins’ of the world, who, to me, are pushing the genre forward by crafting a fundamentally new and improved sound, are thus confined to smaller venues where the physical excitement quotient is more limited. But of course, it might just also be my taste talking here.

Credit: Julius Hoffman

I also must cover the political aspect of Ezra Collective’s performance, especially as it reminded me of frequent collaborator and fellow South Londoner Nubya Garcia, who performed in November 2021 at Gretchen.

Around halfway through, the Collective’s leader Femi Koleoso took the mic. He started by psyching up the crowd before quickly turning into a different direction. Koleoso proclaimed proudly that his band’s fundamentally cheery music is “not happy music” but rather is born out of darkness, a darkness that impregnates the whole world with its diabolical intent. After riffing for a few minutes on the darkness’ greatness and insurmountability, the crowd was starting to waver in enthusiasm. As a final flourish, the Collective’s leader constructed a juxtaposition, where joy exists as a counterweight to this ubiquitous darkness that pervades our world. The message was clear: there is no joy without darkness.

I won’t get into my view on the appropriateness of using the stage as a pulpit. I trust the reader will figure it out anyways. I rather discuss the view of the world Koleoso and his Collective aligns itself with.

The idea that there must be darkness for there to be joy should be easily rejected. Joy can very well exist and blossom on its own; it is not zero-sum. A joyful approach to life is one that centers on an expansive state of mind where optimism and a belief in a better future end up self-reinforcing themselves until they become true. Whether there is darkness, who’s experiencing it, and which groups ‘deserve’ it more or less don’t factor in here. Rather, such exercises tend to be zero-sum and usually don’t end up being helpful when it comes to taking action.

Giorgia Meloni had a solid observation in a recent speech she gave in New York. She revealed a central paradox of contemporary Western culture: we look down on ourselves while simultaneously feeling superior to other cultures.

The activism of Ezra Collective largely echoes this unfortunate paradox. Any joy we might have must first be qualified by acknowledging the darkness around it (looking down on ourselves). And then, we create a sense of superiority by congratulating ourselves for our own awareness of this ‘truth’.

With music, I am definitely in agreement that the contrast between sad and happy (usually sad lyrics and happy music) often makes for a thrilling result. Just look at Pet Sounds, this Michael Jackson song, or Blind.

But I am not sold that this is an effective method for creating an abundant joy that can benefit everyone. It seems rather to beget an unproductive navel-gazing that crushes the spirit, both collective and individual. Hopefully, I am wrong.

It was surprising that the band didn’t play an encore. It seemed clear to me that it was a political choice. No free labor. I am not sure what to think of that.

Thank you to my dear friends Julius, Letizia, Marco, Moritz, Niklas, and Pauli for a wonderful evening.

Next gen EU Fund-of-Funds must ‘market’ a new ecosystem into being

Ecosystems aren't just built on capital; information is just as important

Here & here for the original tweets

Two weeks ago, I published a piece arguing that the existing European venture capital model must be expanded on. The gist is that without investing in productivity-enhancing innovation, Europe will continue to become less competitive with China and the US, thus making it prohibitively expensive to afford the socio-economic status quo. 

The European social order, so loved, is facing an existential threat. 

The existing class of venture capitalists have their incentives misaligned; they have become wealthy without financing genuine innovation. Thus, we need an alternative system in which European Fund-of-Funds (FoFs) play a significant role as conduits of capital and information. 

These FoFs will draw on foreign capital to back emerging VCs whose wealth will only grow as they fulfill their mandates to Make Europe Dynamic Again. 

Last time, I focused on capital, explaining how American money is uniquely suited to help fund this push. For this article, I’ll look at the information (aka marketing) side.

We must communicate the system we need into being; one that rewards those delivering genuine innovation, rather than those skilled at gaming the system.

Luckily, Silicon Valley has already blessed us with a blueprint. 

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In general, ‘tech’ has an uneasy, if not a dishonest, relationship to marketing.

Both nerdy builders and biz school operator types alike dream of the product that, in its greatness as a solution to an important problem, simply sells itself. The tech industry in California even invented the ideas of “product-market fit” and “flywheel” to emphasize how a business can go gangbusters by simply identifying the perfect market or developing a product so transformative that it invents a new one.

"In a great market—a market with lots of real potential customers—the market pulls product out of the startup. The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along."


"And of course, in this scenario [creating a new market], it also doesn’t really matter how good your team is, as long as the team is good enough to develop the product to the baseline level of quality the market requires and get it fundamentally to market."

- Marc Andreesen, The only thing that matters (2007) 

I’m not here to say Mr. Andreessen is wrong. In fact, there is a lot of wisdom in what he says and, most importantly, how he says it.

This notion that opportunities in tech are so abundant that it’s not necessary to think about marketing or competing with others (see Thiel on monopolies) is itself a brilliant bit of subtle marketing. It makes founding companies that might pursue venture financing more attractive.

My friend Andy telling it like it is (in his own marketing :D)

Andreesen is in the business of selling money. By writing his articles and proselytizing his ideas, he expands the market for the product he is selling. More founders = more demand for capital = more business for a16z. Très simple.

The numbers back up the observation. The amount of VC invested in the United States exploded from ~$35 billion in 2010 to over $150 billion in a decade.

VC Investment in the US 2006-2023

Venture capital, once an innovation itself, had been commercialized. Assuming the standard 2 & 20, VC ‘revenue’ grew from a respectable $700 million annually to something closer to $5 billion in a bit more than ten years (this, of course, excluding investment returns). A perfect example of an expanding pie. 

Fund-of-Funds have a unique set of incentives that make focusing on ecosystem development an attractive proposition. Compared to VCs, who operate in a viciously competitive environment where finding the outlier company is everything, the flatter structure of FoFs means that a healthy (and competitive) ecosystem is good for business.   

Non-zero sum thinking and behavior, like the covert marketing I identified, is a cornerstone of the Silicon Valley Method. But, perhaps unsurprisingly, it has not been embraced with the same enthusiasm in Europe.   

We need to rid ourselves of zero-sum thinking if we in Europe want to build a brighter future for our children. Here’s how it might be done.

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In my previous post, I focused mainly on how Fund-of-Funds can serve as a delivery mechanism for American financial capital to bona fide technologists investing in European innovation.

But there is an equally important task to take on. The next gen Fund-of-Funds must put itself firmly in the information business. It needs to build, in real-time, the ecosystem it believes can best deliver the innovation to turn Europe’s economy around.

Its marketing must be bold and expansive. There is no space for trying to capture and retain a slice of a pie that is not growing. Every action should be non-zero sum, focused on growing the constellation of markets that make up its ecosystem.

The next gen FoF must focus on creating more entrepreneurs. Content & comms should appeal to talented Europeans who have good ideas but might fear taking the plunge because no one they know has raised venture capital or built a digital business. The key result here is simple: more founders who are committed to solving the hard problems.

Ideas include content demystifying the idea that starting a company and having a family are incompatible, perhaps unreasonably aggressive cultivation of mafias (big tech R&D hubs, anyone?), and resources to help first time entrepreneurs learn how to sell (themselves, equity in their company, their product; in that order). 

The next gen FoF must focus on creating more investors. Content & comms should appeal to folks who have successfully built useful products in the past and who have the expertise and commitment to back promising founders. The key result: an explosion of thesis-driven funds led by emerging managers targeting specific problem areas.

Ideas include workshops about the logistics of fund creation, mentorship from other emerging managers with a successful fund raise behind them, and research deep dives into theses that could support a VC investing full-time in.

Summary in table form

The next gen FoF must focus on creating more enthusiastic European limited partners. Content & comms should appeal to high net-worth individuals who are interested in backing deep tech VCs yet might not have the experience to determine which managers are a good fit for their goals and interests. The key result: wider recognition that skipping FoFs (in favor of direct investment in VC) leads to weaker returns and worse outcomes for the ecosystem writ large.

Ideas include (anonymized) reporting of FoF performance, podcast interviews with happy foreign FoF LPs, and targeted ads to European entities explaining the FoF value proposition.

The next gen FoF must focus on creating more interest from foreign LPs. Content & comms should appeal to those who believe the American market is saturated with capital and who are Euro-curious. The key result: foreign investors use their deeper pockets to anchor European FoFs who are still in the process of convincing domestic LPs of their value proposition.

Ideas include big reports about the state of micro VC in Europe, building in public posts (like this one) to encourage transparency into the project, and building a leading brand of EU FoF that can serve as the flag bearer and entry point for foreigners.

You can think about the role of FoFs in this ecosystem like Stripe, whose motto is “increasing the GDP of the internet”. The next gen FoF should see itself as a multiplier, collecting capital and information and then channelling it to those who can transform it into productivity and competitiveness. 

I genuinely believe we have a chance here to reshape the ecosystem into one that launch another European renaissance. It’s crucial to recognize that levelling up how we communicate is central to this effort. Folks need to buy in to the mission, even if they are not aware there is a mission in the first place.

Who’s with me?   

What we must do to supercharge European productivity

The existing venture capital model must be expanded on to support the European innovators of the future

To Vince, Tomaso, Lydia, Antoine, Ata, Mandya, Marco, Melisa, Antoni, Pietro, and little Emi who deserve a system as dynamic as you all are

If you live in Western Europe and are under 30, you should not expect to have a better standard of living than your parents. That is, unless the economic status quo is seriously reformed. 

Since 2000, real per capita disposable income in the US has grown 2x faster than the EU’s. Europe’s share of (decreasing) world trade is falling and its labor productivity rate, which was once nearly on par with the US, is now below 80% of its figure.

Source: Draghi Report

China can no longer be counted on as a growth market for European exports. Its own industry has become capable of satisfying domestic demand. Simultaneously, Chinese companies have become much more competitive with European suppliers in global markets; they compete in 40% of all sectors, up from 25% in 2002. 

Without a meaningful rise in productivity, Europe will not only be uncompetitive but also forced to abandon its fundamental values. There simply won’t be enough money to support their preservation (i.e. afford social services, lead in decarbonization, and provide for its security).

I have lived in Berlin for five years now, making frequent trips across the continent, and have seen first-hand how the mask is falling. Clever, curious, and inventive people are abundant. The tragedy is that the system is failing them by not creating the conditions to leverage their innate dynamism and be as productive as they can be.

The Draghi Report is full of astute observations and useful recommendations on the macro-institutional level, focusing on how to make the European economy more productive. Today, for this article, I will focus narrowly on one key mechanism: capital for financing innovation. 

The truth is we can’t wait for government to change. Unfortunately, a bias towards inaction is the clear precedent, as explained rather tragically by Arnaud Bertrand. 

If we want truly innovative companies founded in Europe that make the population more productive, we must change how investment flows within our tech sector.   

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I wrote years ago about how the story of tech in Europe’s largest economy has focused mostly on consumer products (B2C) and e-commerce.  The Samwer brothers, Europe’s most infamous entrepreneurial family, got their start by copying eBay and selling the company ‘back’ to them after 100 days of operation for ~$50 million in the early 2000s. They then ran this playbook back with MyCityDeal, a copycat of Groupon, a few years later, netting $170 million when they sold the firm to the Chicago-based original. The brothers then founded Rocket Internet to repeat this scheme in as many markets and with as many businesses as they could.

Nakedly, the Samwers were interested in enriching themselves. There was not even lip service to the idea that their ventures might make their fellow Europeans more productive or wealthier; they were after making it easier for consumers to spend their money, often on things they didn’t necessarily need. 

“The main reason EU productivity diverged from the US in the mid-1990s was Europe’s failure to capitalize on the first digital revolution led by the internet – both in terms of generating new tech companies and diffusing digital tech into the economy.” - Draghi Report, Page 20

The German ecosystem blossomed from Rocket Internet seeds. Many VCs at the leading early stage funds, such as Cherry Ventures (AUM: €500m),  HV (AUM: €2bn), and Project A (AUM: €850m) saw early career success at Rocket companies or their offshoots.  

While these firms have been operating for some 10+ years now and naturally have evolved their focus to invest in other sectors as well, the fact remains that their biggest exits have been largely with firms that sell physical products online to consumers. 

HV has made millions investing in Flixbus, Hello Fresh, and Zalando

Auto1, Flaschenpost, and Amorelie are some of Cherry’s biggest exits

These funds and their general partners have done their jobs, assessing the opportunities in front of them and making bets on those that might deliver strong returns. They fulfilled their responsibilities to limited partners and some have even taken the uncertain step of moving outside of their comfort zones to invest in areas with more uncertain return profiles (thinking about Project A’s defence investments!).

“Europe’s lack of industrial dynamism owes in large part to weaknesses along the “innovation lifecycle” that prevent new sectors and challengers from emerging.” - Draghi Report, Page 24 

In the context of the Draghi Report, however, I believe it is fair to question if the ecosystem is currently set up to funnel capital into commercializing innovations that increase European productivity, rather than to enrich a small inner circle of founders and investors. 

The (perhaps inconvenient) truth is that the spiritual legacy of The Samwers and Rocket Internet largely lives on. The ecosystem came into being, for the most part, not to commercialize innovation, as it did in Silicon Valley in the 1960s, but rather as a cash grab by business school graduates who otherwise would have been MBB consultants. Today, these same folks are calling the shots at the most cash-flush VC funds.   

These big funds receive the lion’s share of press, interest from potential limited partners (LPs), and access to the most hyped deals. Yet, at best, it is inconclusive to say that the existing paradigm of investors have financed (successful) ventures that have increased European dynamism, productivity, and competitiveness. At worst, it does not look like this at all. 

Europeans of all stripes love to comment on the ‘infamous’ social inequality of the country of my birth. But the sad irony is that the wealth distribution across European Tech is massively concentrated amongst a tiny group of investors and executives. 

Sure, in Silicon Valley you have your fair share of billionaire venture capitalists. The Andreesens, the Leones, the Conways. But, at the same time, there are also many thousands of people who have worked as employees at startups that have made millions, subsequently gaining financial security for their families.

Meanwhile, in Europe, a few dozen investors, founders, and privileged executives have seen their net worth swell into the eight or nine figures, mostly by commercializing already existing innovation from abroad or finding new ways to sell physical stuff online.

Johnny Boufarhat, founder of COVID darling Hopin, is perhaps the most egregious example of this; he cashed out for $200 million in secondary sales and two years later, the entire company was liquidated for $50 million.

Only a few employees of European startups have become seriously wealthy. 

Stock-based compensation in Europe is less aggressive than in The States, mostly for tax reasons outside the control of ecosystem participants (Christian Miele has gallantly been pushing for reform here for years). European startups don’t really IPO, so liquidity events happen via secondary markets or acquisitions, which typically favor investors and executives. Most of the smaller scale M&A in Europe is a consolidation play, with local players merging to create scale but this doesn’t really make anyone rich, especially small shareholders. And, simply put, startup employees based in the EU just don’t receive much compensation to begin with. 

Obviously, as Draghi makes abundantly clear in his report, the citizens of Europe are not becoming wealthier or more productive either. In fact, by some measures, many are worse off (see also the UK) than 15-20 years ago. 

Source: The Financial Times

The challenges are many, to build a more dynamic and productive economy in Europe. The continent’s struggles  do not all fall at the feet of its cohort of venture capitalists. Nonetheless, the existing model for financing innovation must be expanded upon if we are going to reach the necessary objectives set out in the Draghi Report.

The European technology investment ecosystem, as is, is more focused on enriching its capital holders than it is on delivering productivity to the continent via commercializing useful innovation. We have no option but to change this if we want the children of today and tomorrow to enjoy a stable quality of life.   

“The investment share in Europe will have to rise by around 5 percentage points of GDP to levels last seen in the 1960s and 70s. This is unprecedented: for comparison, the additional investments provided by the Marshall Plan between 1948-51 amounted to around 1-2% of GDP annually.” - Draghi Report, Page 1

Europe needs a ‘Second Marshall Plan’ if it is serious about working towards the targets of increasing productivity, decarbonizing, and defending itself. 

Capital should flow from the US, through European intermediaries like Funds-of-Funds (FoFs), and into the coffers of investment funds run by bona fide technologists with mandates to increase European prosperity writ large. Allow me to explain why. 

The United States is the richest country in our planet’s history and has the world’s deepest and most sophisticated financial markets. A strong, prosperous Europe that can defend itself, wean itself off of Russian energy and Chinese clean tech, and develop technologies that benefit mankind is very much in the American strategic interest.  

As has been the case for nearly a decade now, American corporations and investment funds have more money than they know what to do with. The HBR reports, for example, that non-banking US firms are sitting on $6.9 trillion in cash, larger than the GDP of all but two countries worldwide. The global PE industry has $2.6 trillion in dry powder to deploy, according to The Economist, with most of that capital coming from American sources. 

Meanwhile, per the Draghi Report, the EU has a $300 billion R&D spending gap it needs to fill to reach parity with the US. And to hit Draghi’s headline figure of $900 billion to completely transform the European economy, investment must rise by around 5% of GDP.

Some of the transformation capital will come from Europe. Anticipating protests from free markets-loving California Libertarians, the report lays down the expectation that only 20% of the required investment outlay will come from public sources. 

But what of the rest? 

Europe is in need of massive capital deployment into innovation projects at their earliest stages. Domestic investment funds should look towards the US, where all that cash is sitting around, for funding. The issue, however, is that those who would make the best use of the money likely don’t have market access. And those that do, such as the funds with over €500m in AUM, have unconvincing track records of investing in dynamic new technologies that can move the needle on productivity and competitiveness.

What we need is a new type of financial organization. One that pairs knowledge of the micro/deeptech VC landscape in Europe with deep connections to American capital. One that can channel capital towards managers who have a mandate to back entrepreneurs figuring out how to make Europeans more productive and competitive with technology. One that can articulate the case to American capital holders for why such an undertaking is in both their financial and strategic interests.

The Draghi Report lays out with heroic clarity and perspicacity that significant changes are needed in Europe’s innovation economy to arrest declining productivity and make Europe competitive again. There is a need for almost $1 trillion in new investment to keep European living standards constant in the face of competitive pressures from China and the US, security threats, and constraints around energy resources.

Deploying the required capital likely requires a re-think of how we in Europe finance innovation. Especially because the jury is still out on whether incumbent VCs nominally focused on financing breakthrough tech in Europe are truly fulfilling their mandates.

There are trillions of dollars in the United States looking to be allocated more effectively. If Europe’s inventors could have access to only a small fraction of that money, it likely could move the needle towards delivering innovations that can meaningfully increase European competitiveness and productivity.

Specialists who have access to American capital markets, deep knowledge of the European frontier technology landscape, and are aware of the regulatory environment are crucial to bridge the understanding gap and channel capital towards strategically important projects. 

Fund-of-Funds (FoFs), who pool capital from both domestic and foreign sources to identify emerging managers, are best positioned to steer the coming European innovation wave. However, they remain too quiet. FoFs structurally make venture capital more attractive for institutional investors due to their larger portfolio size and returns from emerging managers have historically outperformed those of incumbents.

FoFs should lead the charge in this new investment paradigm by funding genuine innovation. Besides having the mission to move money from where it’s abundant to where it’s necessary, they have the responsibility to educate and communicate a better ecosystem into being.    

Let’s get to work!     

Thank you to Antoni and Matthias for their input. 

Tunisian Diaries Part 2

The Bilbliothé and a road trip to the desert

I saw the future in Tunis. It’s there, a beating heart in the boisterous city, The Cultural Café Liber'Thé at 55 Rue d’Iran.

The cafe occupies the ground floor of an apartment building that would not look out of place on Rigaerstraße in Berlin. One room, twice as long as it is wide, the back wall is a tripartite bookshelf made of steel, overflowing with volumes in Arabic, French, and English. Three old-fashioned light bulbs hang securely from ropes over the service area, where Aziz slings tea infusions and sugary coffees for the young crowd, who sit primarily in foursomes around wooden rectangles.

Stammgaste (regulars) point to the cafe’s creative spirit as its calling card. It’s a spot where composers see the initial motifs of their score emerge and physics students grasp for the first time the interplay of their equations. It is an intense place. There is no alcohol served, naturally, but a patron can easily plow their way through an entire pack of cigs in one visit. There are three industrial strength fans on the south wall that whirr continuously, even in winter, to push cigarette output through the large doors.

I don’t think I have ever seen a better example of a Third Place. In a cagy and difficult part of Tunis’ downtown, the BiblioThé is a beacon. It is a place where you can display your latest fit, meet with a study partner, and see a local band perform all in the same day. One also senses that patrons are aware of how special the Café is. Can’t wait to go back. 

Nour by me

Me by Nour

I drove 600 kilometers tout seul to the desert. From Tunis to Tatouine. On the way, moving quickly on the Trans-Africa highway, I got pulled over in what was, in my experience, the shoddiest designed checkpoint I have ever seen. I was accused of speeding: radar, they said. Complete nonsense.

I was asked to step out of the rented Kia Picante, hand over my passport, and open the trunk. The commander came over. He asked me, “Why are you square?” (he said “scared” but the accent obscured.) 

“Because I am uncomfortable,” I replied. The commander winked and let me go, Scot free.

I visited the Roman colosseum at El Jem on the way. Magnificent, in great shape. They built it around the year 200, towards the twilight of the Empire. I overheard a guide saying that it had been heavily involved in the action the country saw during World War II.

A lesson in humility? A vendor let me park in front of his shop in El Jem. When I came back from the monument and my lunch of lean albeit well-seasoned lamp chops cooked over coals, I thought it important to review his wares in gratitude for the parking. He had nothing special: bunch of antique tea china, recently manufactured mosaics in the Roman style, standard-fare jewellery that is available in every tourist area. I picked out a necklace and an earring that looked decent enough.

I needled him for the price. He said nothing until he wrapped the pieces in newspaper and handed it to me — a tactic.

“Quatre-vingt-sept,” he muttered while intentionally looking away from me.

I think the bartering experience is inherently unsettling to an American. What kind of merchant are you if you don't know the value of your own product? We certainly want to pay a fair price, the judgment of which is 95% predicated on what the vendor offers.

This friction is further exacerbated when you are in a strange country with a strange currency that is big: 30 dinars is about 10 euros; 3:1. A ten dinar difference seems large but it’s just three euros.

Anyways, back to the barter. For reference, entry into the monument was 12 TND while my lamb lunch was 33 TND, which was frankly rather spenny but it was delicious. My friend the merchant started the barter at 87 TND (29 EUR).

I would be surprised if the two pieces wholesaled for more than 10 TND. Plus, they are available pretty widely.

I should have walked away immediately. This was a bad faith offer and he knew it.

I countered with 20. We ended up at 50. I should have paid 30 max. It’s just a 6 EUR difference but I smarted for the next three hours by myself in the car. Drama queen.

As I continued south from El Jem, past Sfax, and into the desert propre, I realized that my Kia was low on fuel. I had less than 70km left in the tank and, with my speed, that would last me about 30 minutes.

In my hometown of Westport, Connecticut there are at least 10 gas stations for a population of ~27,000. I was not in CT any more. I had one option 50km away in the town of Mareth, the namesake of the Mareth Line, which was a system of fortifications built by the French in the 1930s to repel a potential Italian invasion launched from their Libyan colony.

I turned off the AC. The tank started emptying 20% slower than before. As I approached Mareth, I eyed Google Maps every sixty seconds, hoping that the rate of depletion would remain constant. If the gas station was not operational or I encountered another contingency, I was in a baddd spot.

After driving 15 minutes on a county road, I approached Mareth. Like many Tunisian towns, the main street is itself a living organism teeming with lifeforms both mechanical and organic. They don’t do a half-bad job building sidewalks in this country. The problem is that no one uses them. Pedestrian, motorcyclist, and camel all co-mingle on the main thoroughfares.

I made it to the Total station with 20km left in the tank, as projected. I filled up and I was back on the road. Some drama but in the end everything worked out fine. I had a little over an hour to go to reach the house of Karima and Tauphik in Tatouine.

I got off the Trans-African highway at Al-Naffteh and changed the music to Stevie Be Zet’s Archaic Modulation. An inspired move.

I drove west under an enormous sky. The sun was slowly setting in front of me, finding its resting place somewhere behind the Atlas Mountains. The mechanical, long-duration synthesizer notes added an appropriately ethereal epicness to my venture into the Sahara. Already in solitude, Stevie’s tracks made me feel like I was in a spaceship to Alpha Centauri. The light from the flagging sun dropped shadows on the desert plain. The brush was spooky.

It was unequivocal night when I landed in Tatouine. I navigated the Kia through the bustling streets of the city of 70,000 and eventually found my way to Karima’s house, where I was greeted by a girl of around ten, who yelled “over here!”, gesturing towards a lightly rusted metal gate…