Startup clones are common in the European start up scene – it’s been widely reported. Internet heavyweights like Airbnb, Pinterest, Amazon, Fab, and Groupon have all fallen victim to the infamous German Samwer brothers and their incubator Rocket Internet – and Square’s next: a new venture called ZenPay is on its way. Tom Allason, founder of same-day delivery start-up Shutl, speaks out.
Is the investment ecosystem in Europe to blame?
“I think part of the problem is the investment ecosystem in Europe”. Allason continues -”European venture has not fared well as an asset class due to the paucity of big exits. This has made it hard for VCs to raise big funds which in turn has made them reluctant to place big bets on new ideas, instead they focusing on protecting downside and invest in business that are relatively safe… these have tended to be backing experienced teams pursing business models that have already been proven elsewhere. This strategy whilst sensible from a risk management perspective when investment £ are in short supply, makes the home-runs which our eco-system really needs hard to come by. Not only do those big new ideas not get funding but the success of copycats encourages others to go down that route.”
Venture investors in Silicon Valley have been successful for the best part of a century. ”It can all be traced back to Sherman Fairchild’s backing of the ‘Traitorous 8’ who deserted Shockley Semiconductor to embark on their own startup using their angel investor’s name.” Allason tells us – continuing to say that “Fairchild Semi’s success created a virtuous cycle of reinvestment fuelled by 6 decades of billion dollar exits. Names such as Intel, Silicon Graphics, Apple, AOL, Netscape, Amazon, Ebay, Paypal, Yahoo, Google, Salesforce, Linkedin, Instagram, Yelp and most recently Facebook are just the ones that pop into my head as I write. There are many, many, many more. These startups not only made their backers great returns, they have also created tens of thousands of millionaires from their teams (particularly engineers), a large proportion of whom have gone on to start their own businesses and become investors themselves.”
“Europes problem is quite simply that we haven’t yet had our Fairchild moment. Bebo came close in ’08 – and while the 15x Balderton made on their $15m investment made their fund and raising the subsequent one a synch – it’s got nothing on the 800+x Accel made on the $12m they invested in Facebook. The Bebo founders became prolific angel investors in their own right, however how do you think their impact will compare to that of the 1,000+ millionaires Facebook has created? (Not even worth mentioning the billionaires)”
What are the examples?
- Alando eBay clone (sold to eBay)
- Citydeal, Groupon Clone (sold to Groupon)
- Zalando, Zappos Clone
- Lazada, Amazon Clone
- Evopay, Square Clone
- Pinme, Pinterest Clone
- Wimdu, Airbnb Clone
- Bamarang, Fab Clone
In the UK:
- Lovefilm, Netflix clone (sold to Amazon)
- Streetcar, Zipcar clone (sold to Zipcar)
- Seatwave & Viagogo, Stub Hub clones (not yet exited but raised tens of millions of dollars)
- While I would not call Hailo an Uber clone, the tens of millions that Uber & GetTaxi had raised undoubtedly helped it raise its $17m
So what, in real terms is the damage that these startups cause to the businesses targetted?
“I don’t think they really do damage our business at the moment. If anything it is a badge of honor that we have been cloned… validation that we are doing something right. If they do not execute well then I suppose they could prejudice us with potential investors however we are unlikely to be talking to the same people.
They will have been able to learn from the mistakes we made at the beginning to move quicker than us into markets where we do not yet have a foot-hold. If they are so successful in a market before we have had the chance to get there and that makes it harder for us to take that market then they will be causing damage to our business.
It may have been harder to raise capital for Shutl than it would have been had we been copying a proven idea, but the real damage is to the eco-system. That clones have been successful and that they are held in high regard in Europe reinforces such behavior and stifles innovation.”
What’s the answer? “We need our Fairchild moment”
The answer is for European entrepreneurs to focus on conceiving and building business capable of leaving the world… not just ones that might be useful to bigger American companies.
European entrepreneurs should not hesitate to head to US to raise investment where they would be considered a relative steal. When one of these makes it big, it won’t take long for local investors to change investment focus with aim of getting in on the next home run. We need our Fairchild moment.
Others sharing a similar view, include Jason Calacanis, internet entrepreneur and host of of This Week in Startups and Fred Destin who has written extensively on the subject of shortcomings of European Venture capital. Davor Hebel at Fidelity Ventures however, is a vocal supporter of clones