Why Asian startups should prioritize Europe

The Dome of Germany’s Reichstag (Parliament) building.

Mark Bivens is a Silicon Valley native and former entrepreneur, having started three companies before “turning to the dark side of VC.” He has been working as a venture capitalist in Paris since 2001 (aka the RudeVC) and is currently based at Truffle Capital. You can read more on his blog here.

In my travels as a venture capital investor, I’ve had the honor to meet hundreds of inspiring entrepreneurs from all over the world.

Setting aside China, and in a gross over-simplification, domestic markets in East Asia could be characterized as either i) mature or ii) emerging (Japan, South Korea, Singapore, Taiwan, in the former; the rest of Southeast Asia in the latter). For the mature economies, the domestic markets may be large and lucrative, though not necessarily large enough. Many ambitious Japanese and Korean tech firms for example are smartly setting their sights on international expansion. Southeast Asia seems to be a favored region for many, and I understand this if the objective is a land grab of a rapidly emerging user base.

Those startups targeting developed markets, however, seem to focus on the two largest economies in the world: China or, even more predominantly, the US Although it is ironic for me to say this as a Silicon Valley native, I believe that many Asian startups should consider prioritizing Europe over the US and China in their global expansion plans.

The glamour of Silicon Valley

I understand why growing tech firms favor the US Historically, the epicenter of tech entrepreneurship and its corresponding financing sources is Silicon Valley. History witnessed a virtuous cycle of creating, enterprising, destroying, and rebuilding there, so even today Silicon Valley symbolizes the entrepreneurial dream. Films like The Social Network perpetuate the glamour.

Startups launching in Silicon Valley — or increasingly, other pockets of entrepreneurship, like NYC, L.A., Austin, Boston, Chicago, Seattle — benefit from a vast pool of talented workers in a domestic market. That market is both huge and sufficiently homogeneous that enables massive scale without even worrying about the localization for other countries.

So although the US market is undoubtedly ‘large enough”, the aforementioned fortuitous conditions have also fostered a tech ecosystem that is a red ocean. Tech firms vying for traction usually must raise tens if not hundreds of millions of dollars to elevate themselves above the noise level. Talented developers gravitate to tech hubs yet also demand substantial remuneration and retention packages or else they jump ship in a red ocean full of competitors and substitutes. It seems that to be taken seriously these days in Silicon Valley one almost has to enter the “billion dollar valuation club.”

Europe: undervalued and underestimated

Europe, on the other hand, represents a compelling market which still remains somewhat undervalued, at least for the moment. Collectively, Europe is the largest developed market in the world. Of course, unlike the US, Europe is not homogeneous, but rather a collection of nations, each with its own unique governance and culture. So penetrating Europe in any real depth requires an understanding of each country, or at least the major ones, which is the primary reason that US tech giants tend to look toward India or China before Europe.

Yet for many sectors in which Asian startups lead, I submit that Europe is more attractive than the US, India, or China. After Japan and South Korea, Europe boasts the best wireless network infrastructure in the world. Mobile penetration in Europe is the highest on the planet.

EU member states comprise a developed market of consumers and businesses with substantial proportions of disposable income and capital expenditure. In revenue potential, European consumers demonstrate some of the highest levels of mobile monetization in the world, often higher than American consumers and trailing only Japan and South Korea.

The explanation for this is manifold. For one thing, Europeans spend more time in public transport than Americans (who commute in cars). This excess time in trains, metros, and buses day in and day out adds up to a lot of spare time to engage with a mobile device. The vast majority of EU mobile subscribers have unlimited data plans, and pay less for them than Americans, thanks to a fiercely competitive telecoms market (EU telecom carriers are consistently struggling for this reason). Data connectivity is fairly ubiquitous now too.