Invasion of the Europreneurs

Baldwin Louie — Mon, 14 Feb 2000 17:00:00 -0500

Most European entrepreneurs follow a well-beaten path in the United States. They take their ideas to Silicon Valley, gather a team of engineers and MBAs, and set up shop amid the faceless maze of office parks. They play it safe.

A rare few, however, seek a bigger thrill. They pack up and go home, carrying their crusade for innovation - and their IPOs - back to Europe. There they battle with conservative venture capitalists and timid partners; they stave off prohibitive stock-options regulations in France; they endure hardships they'd never face in the States, all to prove they can make the high-tech revolution work in the Old World.

"The single biggest asset I brought back [to Germany] was the optimistic mindset," says German engineer Gerhard Fettweis. "Every single researcher [in the U.S.] has some loony idea he or she is working on. And a year later, just like that, they turn it into a company."

After four years in the San Francisco Bay Area, Fettweis decamped in 1994 and moved to the eastern German city of Dresden to assume a newly established chair in mobile telecommunications funded by telecom giant Mannesmann (dossier). Last June, the 37-year-old professor founded a chip company, Systemonic, to develop integrated circuits for mobile communications devices, so-called digital signal processors. He has $5 million in venture funding and a staff of 20. His company is a poster child for the East's economic revival since the fall of the Berlin Wall.

Of course, he'd not be where he is now if he'd listened to his doctorate adviser in Germany, who told him in 1988 to embark on what Fettweis disparagingly calls "the classic German quest: Get a [research] assignment, perhaps take out a loan and then pull yourself up by your bootstraps."

The old-school engineer-cum-entrepreneur in Germany always planned for the worst-case scenario, Fettweis says. "Their exit strategy was to get bought by Siemens (SI) or, even more absurd, to buy back the stakes in their company. It still happens. If I hear somebody talking about approaching a bank with a business plan, they're already heading down the wrong path."

That's why he quit his lucrative job as head of a research group at TCSI (TCSI) in Berkeley, Calif., and went back to Dresden. He wanted to evangelize his students and colleagues, to convince them that they could and should start their own companies. "I was literally trying to get disciples," Fettweis adds, "to create the mentality, the hunger for a startup team."

He encouraged his students to spend one semester out of 10 abroad, advice that only half of them accepted, to Fettweis' disappointment. "We need more people to learn on-site in Silicon Valley to catch up in the next five years," he notes.

THE MARCO POLO EFFECT
You could call it entrepreneurial tourism. John Griffin, an American expat living near Geneva, calls it the "Marco Polo effect" - Europeans traveling to the United States to learn new ways of doing business.
"The idea is to go off to this exotic place, see what's going on," says Griffin. "You can't get it by reading or hearing about it. You have to experience firsthand the lack of fear, the feeling that building a company is a natural thing."

Griffin moved from San Francisco to Switzerland four years ago and now advises startups in Austria, France and Germany on the nuts and bolts of entrepreneurial financing. The 49-year-old former Hewlett-Packard (HWP) executive deals with the intricacies of structuring options packages in countries that until very recently didn't even consider the stock market a sound investment for individuals.

But aside from the urge to bring American know-how back home, Griffin says there's another reason why Europeans are returning to the old country: quality of life. "Europeans go to the U.S. and see how exciting it is, but then they realize that other things are missing. Things like culture, lifestyle, the well-roundedness of life are not as good in Silicon Valley. So they say, 'I'd rather go back and try to do exciting stuff at home.'"

But before there's a true shift in the status quo, Griffin adds, more entrepreneurs will have to make the trip to America. Once the entrepreneurs reach critical mass, he says, change will build on its own.

To push things along, the European VC scene needs to evolve as well. Financing is now about where it was 15 years ago in the United States. "Three years ago they were 30 years behind," Griffin says. "The catch-up rate is ever-accelerating." [See "Old World, New Economy,".]

Why does Griffin put up with the laggards? For the same reason Europeans go home. "If you know the recipe to make bread, you can apply it anywhere," he notes. "It's the business equivalent to technology transfer. Besides, I like life much better over here."

LE COLD SHOULDER
Croissants, cobbled streets, free schools - nice perks, sure, but not enough to lure every European back across the Atlantic.
"Honestly, most of my friends don't go back after spending three, four, five years in the Valley. After that much time, you've become a local," says Pierre Cesarini, CEO and founder of Paris-based software maker TempoSoft. He lived in the Bay Area for nine years, rising through the ranks of Apple Computer (AAPL), before his wife finally talked him into going home.

Repatriation was a double-edged sword for Cesarini, 36. "I knew things were slowly changing, but I had lost touch with France," he says. "Going back was about as hard as first coming to the States in 1989. I knew more people in the U.S.; I could have put a team with global experience together faster and come up with funding more easily."
Instead, Cesarini got "le cold shoulder" from the risk-averse financial community in France. "They want to see not just a business plan," he adds. "You need to have a team, a product, customers. But if you have all three and still seek VC funding, I think you did something wrong."

After knocking on doors for a year, the determined Frenchman finally scored $5 million for his idea: software for enterprise workforce management. "I think that was a first in France, to get that much funding without a line of code, without a customer," he declares. He launched TempoSoft in April 1998 and now has 40 employees in France, the U.K. and the U.S. Sales are expected to hit $10 million this year.

Cesarini sees an upside to leaving the easy access in Silicon Valley for the stodgy ways of his native France. "The odds are much higher," he says. "You have to accomplish more in a much more fragmented market; you have to deal with three or four countries in the first year, otherwise you will be perceived as a local company. On the other hand, valuations in Europe are 10 times under what you see on the Nasdaq. There's enormous potential."

FRONTIER EUROPE
Youssef Ghazal, Clemens Henle and two other students from Switzerland and Germany took their Harvard MBAs and their Silicon Valley exposure and went back to Europe to get seed money as fast as they could.

The four had been runners-up in their school's high-profile business-plan contest with a scheme for Vitago, their European knockoff of Drugstore.com, and immediately had East Coast VCs banging on their dorm-room doors. Instead, they moved to Munich a few months after graduating last May. Why haggle with European financiers instead of taking the easy U.S. money? Because the payoff is bigger in the less-crowded European market, explains Vitago cofounder and CFO Ghazal, 32.

The Austrian investment banker gives a lot of the credit for his initiative to Silicon Valley, where he got religion within a week. "You feel like a martian walking around there," he recalls. "Everything is new, everybody is talking shop all the time. It's hard not to want to do something immediately, too."

Before he went on Harvard's annual WesTrek excursion to California, Ghazal figured he'd do consulting. Then he didn't know what to do anymore. "I sat down with my girlfriend and spent night after night talking about it," he says. "What's my unique selling proposition as a European?"

He decided to take his insight and his management tools back to Europe. "We figured the opportunity is much bigger back home," agrees cofounder Henle, a 28-year-old German who's now VP of purchasing at Vitago. "Our goal was to become players in e-commerce from the very start. Sure, we debated whether to start a business in the United States, like others from Europe do all the time."

Advantages, Henle points out, were a language and culture they're familiar with and the window of opportunity that's been left open by Europe's lagging adoption of the Net. Young entrepreneurs can pursue a niche without bruising competition and get huge exposure should they succeed.

Still, if they hadn't gone West first, there likely wouldn't be Vitago, which just closed its second financing round in the double-digit millions.

"The impulse from the U.S. and Silicon Valley in particular was absolutely necessary," Henle says. "It liberates you from that German mindset to get a job and climb the career ladder over decades. You realize people in Silicon Valley are just normal guys who were raised with entrepreneurial spirit and are not afraid to fail."
They needed all the motivation they could get, since implementing their vision of an online health-care store - without any experience in either industry - turned out to be a bumpy ride. Henle remembers meeting with CEOs of large firms who were very curious about their business model but couldn't act on it even if they wanted to. "They would tell us how fascinating they thought our concept was, but they'd say, 'We have 15,000 employees. No way we can do something like this that fast."

TempoSoft's Cesarini met with similar intransigence when he went looking for executives in their 40s or 50s who would drop their careers to join a startup. "It just doesn't yet happen in France," he sighs.

Vitago's founders even met resistance from their backers. Where American partners in an international venture firm would aggressively push for a deal, the Europeans were cautious, asking Vitago to think smaller and forcing them to negotiate longer.

If it works out, though, and Vitago goes public on Germany's Neuer Markt, its founders' decision to leave the relative safety of Silicon Valley for the European frontier could be right on the money.

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Invasion of the Europreneurs