A lot of tech companies thinking global these days have their sights set on Latin America, India and China. Many startup founders in the global community of Silicon Valley have family roots in other countries, and they see the potential there.
But you can't ignore the big, developed market just on the other side of the Atlantic. I talked to Dan Amzallag, the CEO of Ivalua, a French b-to-b procurement software company that sells to big corporations, about his advice for startups considering European expansions. The biggest lesson: It's probably easier, cheaper and more rewarding than you think.
"You may think it's hard to penetrate the European market," said Amzallag. "But they are very open. There's a lot of stories of American startups in Europe.
Amzallag talked up France. Ivalua has 150 employees, 50 of them in a Silicon Valley office, and $33 million in revenue, up 50% over last year, he said.
I went into the interview thinking that I'd learn about expansion in Europe -- which I did. But Amzallag also reinforced something I've heard in interviews in the past five months from four different international entrepreneurs. It's the idea the U.S. business community is incredibly, and maybe uniquely, open to new and good ideas, no matter where they come from: Amzallag, Amr Awadallah of Silicon Valley-based Cloudera said a version of this. Wael Attili of Amman, Jordan-based Kharabeesh told me the same thing. And reaching back to an older generation, Charley Ellis, the founder of the iconic institutional investment advisory, Greenwich Associates, said "I could not have done what I did in any other country. People in the United States are more open to new things."
But, back to Europe:
Labor costs can be surprisingly low in Europe
Don't write off Europe as too expensive, especially if you are comparing the costs there to Silicon Valley. "There is much more competition for engineers in Silicon Valley," said Amzallag. "The cost is much lower in France, even with all the taxes."
He said labor costs are 30-40% lower. That's because when you hire people for research and development, all the salaries are tax deductible. "We're been profitable for 14 years, and ... we've never paid a dollar of corporate tax there."
There is a difference, said Amzallag. In its Silicon Valley office, the European workers tend to cluster around the coffee machine first thing in the morning. American workers head straight for their desks. But workers, especially technology workers, have more similarities than differences.
But it's probably easier for European startups to come this way than the other way around. Amzallag said he has not found any stereotypes of Europeans to hinder Ivalua's expansion in the United States. It won its first big contract in the United States from Whirpool Worldwide, competing against 25 different companies.
It took a couple of months to establish trust. Amzallag said he worried that it would matter that his company was "foreign." But I think it's not (a problem)," he said. "As soon as you are able to say what you want to say, and as soon as you are not afraid to show why you are the best company, people are open."
He said that American companies will find open-ness in Europe too, thought not as universally, perhaps as in the United States.
You will need legal support
Europe is a divided market. For each country, you'll need a different legal entity. Most U.S. firms tend to start with the United Kingdom because of the similarities in language. After that, you can divide Europe into six regions: the UK, France and Switzerland, Germany and Eastern Europe, the Nordic region, Italy, Spain and Portugal and Southern Europe.
But while there are legal barriers between countries, you might find that some countries have laws that can play very much to your advantage -- like that French R&D law, or the fact that in the U.K., there are already startups and a legal framework for equity crowd funding, unlike in the United States.
"France is very easy to penetrate," said Amzallag. "What is easy in France is that everything is in Paris. Everything is within an hour driving distance."
Pay attention to the cities. Just like in the United States, there are technology hubs -- and just like in the US, the cities compete for the label of biggest and best. US tech companies invested $130 billion in Ireland between 2008 and 2012, said a recent report by Colliers International, reported in the Independent. It said Dublin was nipping at London's heels for the title of tech capital.
But the VC market in Europe is tough ...
There is money available for VCs -- but you may be more likely to find U.S. VC money to fund your European expansion. Venture capital activity in Europe fell by 22.8% in 2014, from 2,429 financings the year before to 1,876 in 2014. But mirroring the U.S. venture industry and pointing to increasing valuations for VC-backed companies globally, capital invested spiked last year to €8.8 billion, a 43% increase over 2013’s total of €6.2 billion. This is all while VC activity has actually decreased for seven consecutive quarters from a post-crisis high of 667 financings during 1Q 2013 to just 370 in 4Q 2014, said research firm Pitchbook in its 2015 report on PE and VC investing in Europe.
