Europe: Fertile ground for Web 2.0 startups

news analysis Europe may not have the equivalent of a Silicon Valley--a single geographical location where money and connections come together to spawn Internet giants like Google and Facebook.

But the decentralized nature of European innovation and entrepreneurialism is not proving an impediment when it comes to social networking and other so-called Web 2.0 services.

The continent is veritably overflowing with Web 2.0 startups--many begun by experienced "serial entrepreneurs" who have built one or more companies before, sometimes in the United States, and are back in the game again.

Consider the story of Pierre Chappaz, founder of Paris-based online shopping comparison site Kelkoo, which was sold to Yahoo in 2004 for more than US$700 million. Chappaz went on to become president of Yahoo Europe and co-CEO of France's NetVibes, a startup that lets users personalize their Web home pages.

NetVibes' tools already have been used by more than 10 million people. Now Chappaz has a new venture, called Wikio, that is a Europe-based blog and media search engine intended to compete with the likes of Digg, Topix, and Technorati.

Showcase for startups
Who needs another rival to Digg? Chappaz says Wikio's ace card will be a broader range of topics and availability from the get-go in five languages—English, French, German, Italian, and Spanish. That could give it more global appeal than its U.S. competitors. And Wikio not only aims to be the No. 1 European information portal but also is targeting the U.S.

The ambitious dreams of Wikio are typical of the 25 Web 2.0 startups that were chosen recently to show their wares at a Nov. 15 conference in Montreux, Switzerland. Sponsored by the European Tech Tour Association, the event brought together venture capitalists and a select group of small companies chosen from 420 applicants.

The quality of the finalists, who were chosen by a panel of investors, reflects the increasing sophistication of European tech entrepreneurialism. "More and more companies with innovative business models are coming from Europe," said Sven Lingjaerde, head of the European Tech Tour Association and a venture capitalist with Geneva-based Endeavour Vision.

Increased investment
Investors are following the opportunity with more financing. According to British research firm Library House, in the first three quarters of 2007 just over US$1 billion was invested by venture capital firms into European Web 2.0 companies, representing 17 percent of European venture capital investment. That is up from 11 percent of investments a year earlier.

The second quarter of this year was particularly strong, with Web 2.0 companies attracting US$451.68 million.

Industry observers say the increased investment is a sign that many of Silicon Valley's strengths are finally taking root in Europe, even if all of the entrepreneurs, key universities, and venture capitalists are not all in one physical location.

For example, serial entrepreneurs, a Silicon Valley staple which was until recently absent from the European landscape, run many of the companies that were presented at the opulent Belle Époque hotel on Lake Geneva where the conference took place.

Their track records are impressive. Andrej Nabergoj, for instance, the CEO of Slovenia-based NEO, has co-founded four Internet companies. MyThings CEO Benny Arbel has founded two startups and served as associate vice-president of Comverse. And Marc Rougier, CEO of Goojet, a Toulouse-based company targeting the mobile Internet, was founder and CEO of Meiosys, a U.S.-based company which was acquired by IBM in 2005.

Even some of the funding is coming from serial entrepreneurs. Martin Varsavsky, the Madrid-based founder of several companies, including Jazztel and FON, is among Wikeo's initial backers. Munich-based Amiando has raised money from several European entrepreneurs, including Stefan Glanzer, CEO at Britain's Last.fm, which was bought by CBS in May for US$280 million.

But it is not just Europeans pumping money into Old World Web 2.0 startups. A growing number of U.S. firms are crossing the pond to make investments and sometimes even to set up shop.

Wikio, for instance, nabbed US$5.88 million earlier this year from Menlo Park (Calif.)-based Lightspeed Venture Partners, among other firms. Refresh Mobile tapped Accel Partners, a Silicon Valley veteran that has an office in London.

Bridge to global markets
Behind the growing interest in European startups among Silicon Valley firms is the realization that they can offer a faster route to global markets. Indeed, says Philippe Collombel, a general partner in the Paris office of Partech International and an investor in five of the companies presented in Montreux, serving local communities in local languages can be a big business.

Consider the fortunes of Dailymotion, a French video-sharing portal that competes with YouTube. Headquartered in Paris, it has racked up more that 15 billion page views since June, 2006, and in November was ranked among the top 30 most-visited sites in the world by tracker Alexa. Dailymotion was multinational and multilingual from Day One--and YouTube is now playing catch-up among non-English speakers.

Another reason for the profusion of Web 2.0 startups in Europe is the continent's relatively high broadband uptake. "It is not totally by chance that Dailymotion was born in France," which is one of the world's largest consumers of Internet-based TV and VoIP phone services, said Partech's Collombel.

At the same time, traditional disadvantages of Europe, including a paucity of venture capital, have eased. And besides, said Collombel, "Web 2.0 is much more about smart people than about having a lot of capital. You can get something with a lot of traction for just a few million euros of investment."

To be sure, a number of Web 2.0 companies in Europe, as in America, may prove to be more interesting ideas than they are viable businesses. But the dozens of entrepreneurs chasing Web 2.0 dreams in the Old World are convinced that there's big money to be made with the right positioning, the right backing, and the right business models.