Do Asian startups have a future in the European market?

Photo credit: CIEE

Silicon Valley is the startup dream. A global hub for entrepreneurial triumph, it’s known for being the home of tech giants like Apple, Facebook, Google, and many more.

Startup hubs in places like Singapore, South Korea’s Pangyo Valley, and China’s Zhongguancun all lay claim to the title of being the “Silicon Valleys” of their respective regions, further perpetuating the hype associated with the name.

It’s an association that is well-earned. In the summer of 2017, the Valley had 128 unicorns, a record-breaking number that fuels founders’ fantasies of becoming the next Jeff Bezos if they could just set up shop in the global tech hub.

But the high volume of winners in the Valley’s startup space brings intense competition to those looking to make a name for themselves. “Tech firms vying for traction usually must raise tens if not hundreds of millions of dollars to elevate themselves above the noise level,” wrote Silicon Valley native and former entrepreneur Mark Bivens in a 2014 piece for Tech in Asia.

As such, startups seeking opportunities may want to look to Europe instead.

Europe on the world stage

Made up of 50 sovereign states, Europe is easily one of the largest developed regions in the world.

This shows in how venture capital (VC) has spread rapidly across the region. In 2015, European VC activity ranked third highest by deals and value worldwide with a record US$14.4 billion in total funding, next only to US$72.3 billion in the US and US$49.2 billion in China, according to a study by Ernst and Young.

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These record funding rates, coupled with rising valuations, are making Europe’s startup hubs “increasingly competitive with Silicon Valley, “ according to Entrepreneur First Singapore managing director Alex Crompton. He set up the VC firm’s operations in the city-state in 2016.

Aside from VC support, startups in Europe are increasingly gaining assistance from governments and institutions in the region. The European Union (EU), for example, offers various subsidies and tax incentives for VCs and angel investors to facilitate investments.

International education organizations such as the Council on International Educational Exchange (CIEE) also offer Europe-based courses under its Entrepreneur Lab programs: eLab Emerge and eLab Advance. The courses are designed for those who want learn the necessary skills to launch their own startups and for founders looking to scale up their businesses to learn how they can grow and expand. Students are given the chance to network with successful founders and advisory board members, while also learning about the rules and regulations of European markets and how to raise funding.

This growing support makes Europe not just a conducive environment for local entrepreneurs, but it also makes the region desirable to Asian startups looking to expand their horizons.

Open for Asian business

Asian startups setting their sights on Europe can expect to draw from a large pool of talent.

“In continental Europe, we see Berlin and Paris emerging with high concentrations of tech talent,” says Crompton. He adds that there are opportunities for Asian startups to capture “highly sought-after tech talent in certain domains more cheaply, or capitalizing on a difference in talent quality within certain domains.” For instance, while Singapore may be a great source for communications talent, Europe may have a better crop of talent specializing in artificial intelligence.

Photo credit: CIEE

Enterprise-focused Asian startups, in particular, have the opportunity to broaden their reach in the global market by entering Europe first.

“For enterprise or B2B companies, there are many sophisticated large customers in Europe who may also have an Asia base,” explains Crompton. “This can lead to some good international success stories and large rollouts, but it is hard to navigate.”

However, eager startup founders planning to go West should err on the side of caution, because as attractive as the benefits are, there are challenges aplenty.

The arduous journey to the West

Despite the EU’s aspirations to become the world’s largest single market, the European region is made up of several countries with vastly different cultures, languages, and regulations. Navigating around these elements can be difficult – a challenge that Asian startup founders may be familiar with.

“Localization and scaling across the whole consumer base of Europe can be a challenge for B2C companies,” observes Crompton. “Europe is challenging for the same reasons that Asia is challenging – it’s a bunch of countries which require significant localization.”

Despite these struggles, Crompton notes that “B2B-focused companies have been doing very well.” He adds, “We see a lot of growth in technology-led B2B companies in our portfolio as their customers tend to be concentrated in a few commercial hubs.”

Another obstacle that Asian startups may face is that while European investors seek the same characteristics in startups that Asian investors do, they may be less likely to invest in foreign startups that don’t have imminent plans to move to Europe.

Crompton points out that it would be hard for them to have “good oversight into the company or see a compelling reason as to why they would be good investors for the company.”

He continues, “Often, European funds will not be able to invest in Asian companies that don’t have a European base due to obligations to investors [that were] set out in the initial fund strategy.”

However, Asian startups who are lucky enough to gain the favor of European investors will benefit from their focus on generating revenue and building scalable, profitable companies.

“European early-stage VC investors will be a little more long-term, risk-tolerant, and less valuation-sensitive” compared to Asian investors, contends Crompton.

This means that startups working with European investors are less likely to burn money for the sake of it, ensuring the relationship is focused on keeping everyone’s best interests in mind.

CIEE is offering two courses for entrepreneurs: the eLab Emerge for people aiming to launch their own businesses, and the eLab Advance for startup founders who want to scale up their companies.

Both courses take place in London and Berlin, two of world’s leading startup hubs. You can take just one course in one city, or combine the two and then take eLab Emerge in one location and eLab Advance in the other. Registration for the January program ends November 1, 2018.

Visit CIEE’s website for more information or to register for the eLab Emerge and eLab Advance programs.