Jan Ameri sat down with Atomico founding Partner and CEO and Skype co-founder Niklas Zennström at Arctic15 to discuss the tech ecosystem in the European, Nordic and Helsinki level. They touch upon the ambition level of founders, the importance of diversity, funding, technology transfer and more.
JA: Let’s start with Europe. The European startup ecosystem has been maturing steadily, but are we able to emulate the Silicon Valley success? Or should we even do that?
NZ: No, we should not emulate Silicon Valley, we should build our own thing. And we have been doing an amazing job in the last 15 years and today it’s beyond doubt that the European tech ecosystem is flourishing and I would think it’s even at an inflection point of faster growth. We have so many success cases like Supercell, Rovio, Spotify, and Klarna in Finland and Sweden alone. Since 2003, we’ve had over 60 companies at the billion dollar valuation, we had seven over 5 billion dollar companies and we had five over 10 billion dollar companies. This is a real value and 54% percent these companies have actually had exits. So it’s real. We should take advantage of our own uniqueness that we are coming from a diverse set of countries and we are already very international and we’re really good at creating global companies in Europe, specifically in the Nordics. I think that in Europe we are really good at understanding the rest of the world and because we all speak languages and we all are forced to scale our companies internationally from the beginning, that’s something that is an advantage for us and we should play to our strengths. But also we should continuously increase our ambition level. In the past, we had too little ambition and were too afraid of taking the risk. When I speak to founders today, many of them are quite ambitious and are not afraid of going after big opportunities
JA: What are you personally most excited about in a European tech ecosystem at the moment?
NZ: While a lot of the successes we’ve had – Supercell, Spotify, Skype, King – were all consumer-facing companies. What I’m really excited about is the fact that companies are going after bigger challenges using deep technology, “deep tech” and of course AI. We see so many companies using advanced technologies to create competitive advantages on what they’re doing. Many of them go beyond software. We’re excited about companies building flying cars or chipsets for AI, or meat replacements.
JA: Is this also Atomico’s opinion?
NZ: We are a pretty big team and we all have very diverse backgrounds. We all have our own opinions and we sit around a table and debate and discuss. Of course, different people in the firm have different themes that there are going after. Some people are maybe looking more into different technologies and different types of businesses but in general, as a firm, we believe in deep tech as a big opportunity. It doesn’t mean that’s the only thing we’re investing in. We’re still investing in consumer services and consumer apps, but we see much more opportunities in deep tech.
JA: We are here in Finland and we know what happened to Nokia, which released plenty of tech talent. How do you see this kind of events impacting the tech ecosystem?
NZ: I think companies go through cycles. First, they’re really big and then sometimes they get disrupted by others. That is exactly what happened to Nokia as we all know. It also happened to Ericsson as well, and to a bunch of companies. It happens every day to a lot of companies. That’s a part of evolution, and it results in talent being exposed to doing other things. I think it had a positive impact, as now we have people coming to entrepreneurship from research institutions and universities.
JA: With all the amazing research talent, how do you see the opportunities? Is there something that could be done to improve the technology transfer in business?
NZ: You need to have a bit of patience. All these things are about role models. When research-oriented people and scientists see their peers becoming entrepreneurs or teaming up with entrepreneurs and starting companies, they may gradually get more excited about doing business. I think this is happening slowly. We can see that in places like Cambridge and Imperial College in the UK. It’s a really good ecosystem. A lot of scientists are actually starting companies and working with business-minded entrepreneurs. It creates diversity in teams. To have a successful startup you should not probably be one person doing both technical and commercial tasks. It happens sometimes, but it’s easier to find it in two different people or three even, who can be co-founders. We’re fortunate to be dealing with intelligent people, those who understand that it’s actually good to team up with someone who is more business-minded. That’s probably where you have more success.
JA: What’s your view on Helsinki startup ecosystem?
NZ: I think Helsinki has always been one of the top places in Europe where you have a lot of innovation and a strong ecosystem. Of course, you have some strong leaders with Ilkka and Mikko from Supercell, Lifeline Ventures, you know there is a really good set of seed and angel investors. There is Maki VC, Wave Ventures and many interesting seed programs. And of course, Slush really helped put it on the map. So I think there’s a lot of things brewing here. Last year or the year before there was a lot of excitement about the next big gaming company. I’m sure there would be a few really good game companies coming out of Helsinki. But I’m most excited about things beyond games, and there are some really cool companies in VR and wearables coming from Finland. Plus, there’s a lot happening in the deep tech field. I think you need to support the startup movement and encourage them to grow into successful companies.
JA: You mentioned a couple of VC funds, and you’re also personally supporting some of them?
NZ: Yes, one of our missions with Atomico, and I’ve been on a mission personally over the last 10-12 years since I started the Atomico, was really to help and support the ecosystem in Europe and specifically in the Nordics to flourish. To do that you need to have a lot of things. First of all, you need to have a lot of founders. Without founders we have nothing, so let’s remember who we should focus on. The founders are the most important people as they encourage more people to start companies. I think the best help they can get comes from angel and seed investors who have been founders themselves, who can give them the best mentorship and the best guidance. So I think it’s really important that we have entrepreneurs who can eventually become seed investors. We want to be supportive, that ’s part of our broader mission at Atomico and also my own. I believe that’s the way to build up a lot of very good companies, and of course, then we can come in and invest in these companies a little bit later. We typically come in at Series A or maybe Series B when there’s a product market fit. So we are collaborating with these local seed investors, and later on we can help these companies to scale. It benefits everyone – founders know that their seed investors have good relationships with bigger VC funds like us, so it’s easier for them to get financing later on. And for us it’s a great way to get access to the best founders.
JA: What other Nordic activities are you involved in, both with Atomico and personally?
NZ: We’re very actively participating all around the Nordics. Sophia Bendz, who’s my colleague and who’s was an early Spotify employee, is in Stockholm keeping eye on the opportunities in the Nordic area. We have a lot of activities in Copenhagen, such as Nordic Makers and byFounders. Founders in the Nordic area are really collaborative and are helping each other instead of trying to kill each other, and this is how we as a region can be really really strong. Stockholm has more really big players now and I think there would be a lot of people coming out of Spotify who would become angel investors, so we’re gonna have a really strong angel investor community in Sweden.
JA: What about the Baltics?
NZ: Tallinn, Estonia has been really strong for its size. There is a really good talent, and a lot of ambition also because a lot of people were part of the Skype story, and that’s the ambition level. Now you have Transferwise and Pipedrive. I’m on the Board of Pipedrive, they are the world leader in small business CRM so it’s something to be proud of. It’s a smaller ecosystem but it is really strong. I believe we’ll see more exciting things coming from Estonia.
JA: Let’s talk a little bit more about the ambition level of the founders. In the last 10-12 years, when you’ve been looking from the investor perspective, has there been any change in the ambition level of the founders?
NZ: Yes, I think it’s been quite transformative! There was a stereotype of European tech companies being copycats at the local level, which was true 10-15 years ago. We had a German copy of eBay and a Swedish copy of Amazon which was back then selling books. But that has changed. We built companies that are defining their categories globally. Founders see that everything is possible. They see someone next to them going to the same school, building a global company and it’s like “well, I can do it too”. So the ambition levels of the founders are way bigger and also the support they are getting from the investors now way higher. Investor prefers to have a founder shoot for the stars and maybe crash, than taking it easy. If you have a bigger ambition and a real plan to build a global company, actually it’s easier for you to raise money. If you’re careful, you’re probably going to struggle with fundraising. So this is a big, big shift.
JA: The Nordics is a very small market. How do you see going global from here? We of course think globally, but should we go global ínstantly, or take care of our home market first and then expand gradually?
NZ: First of all, it depends. It’s different for different business models but I think having a mindset that eventually my company is going to be a global business, that depends really on what kind of a business model you’re into. If you’re doing something very localized, let’s say, logistics, maybe a European company or even a Nordic company can be really big. If you do more consumer-facing you’re probably more global. I think it’s important to have that mindset to realize that any country in the Nordics is so small by itself and also the region by itself is small, so you have to have that international mindset, and also that means building a team that has people from different countries
JA: Talking about diversity, how do you see female founders in the tech world?
NZ: This is a huge problem. We publish the State of European Tech report every year at Slush. One of the things that we brought up last time was gender diversity and it was appalling how few female-led companies there were. The research and statistics show that companies which have a diverse set of founders are more successful. If you have a diverse set of people making decisions, whether that is gender diversity or cultural diversity or backgrounds or age and personality, you come to much better decisions. But it’s also understanding your customers, especially if you’re in a consumer-facing business. If you’re a bunch of guys you’re not going to understand half of your customers very well. We think it’s a big problem so we’re actively trying to find founding teams that have mixed diversities or female-led teams.
JA: But the situation is improving, right?
NZ: The first thing you need to have is the insight of a problem and a commitment to solving it. I think at least everyone I speak to in the Nordics and probably most people in the Nordic and European tech environment are recognizing this is an issue and that we all need to work together to fix it. We need to also be long-term and think about how can we fix this. It is not a short-term game. We need to have long-term view, but we need to be committed to do that.
JA: Let’s talk a little bit more about funding. With these great ambitions in Europe to take over the world, do we need more capital, and if we do, where it should come from?
NZ: I think, again, we need to have diversity. I think that Finland for example has a really good system with Business Finland that works really well. I haven’t seen any other country that has such a good system so that’s something that the Finnish government should be proud of, and that’s something that you can export to other countries. When I speak to governments in different countries I tell them they should go to Finland to see what they’re doing. We already talked about seed investors, there is so many more of them now which is great. The reality is now that last year you had over three times as many seed rounds compared to 2012. There’re many more companies being created, and so we need to have more opportunities for seed funding. And then on the venture side, where we as Atomico are playing – Series A and B – we still need more. When we see another VC fund being created we don’t say there’s more competition, we say welcome, we need your help, let’s collaborate! More and more companies will be created. Today we have a lot of global growth funds, like Softbanks Vision fund, a 93 billion dollar Growth Fund and they’re actually headquartered in Europe, in London and they’re very happy to invest in companies here. But they’re not the only ones. We also have tech giants like Tencent who led ninety million series B to Lilium for example. And you have other big growth funds coming in and realizing that European opportunities are here. I would say also that we need to get the the pension funds and institutions in Europe to participate because I would hate for them to miss out on the value creation. When we think about technology as a sector is driving growth, there’s three times faster job growth in tech than other sectors, so if you care about job creation, if you think about driving value to the tax income in a country, you should support local tech investments. So I think the pension funds should participate and they should invest in to VC funds and son on and so forth. Then we also have the public market, stock market. In fact, last year Europe had more tech IPOs than the US and China and European startups raised more money. This gives founders really good long-term exit opportunity.
JA: As putting money in the local ecosystem creates jobs, whose job would it be to activate these pension funds?
NZ: You have to remember that the pension funds are there to preserve capital for the future, so they are the opposite to what we are doing in terms of taking risks. So they need to be really comfortable before they take that step but I would say that they’re now starting to understand that much more than they have before. And maybe it’s been good that they have not been on the cutting edge of this, that they had to wait a bit to get a grip. Putting 1-2% of their assets into venture is probably already good, as if the European pension funds would put in half a percent of their assets into European venture, we would have as much venture funding as they have in the US. And then we can really super-scale companies here. I think everything is pointing in the right direction and the reason why it’s pointing in the right direction is because so many great founders building fantastic companies, and ultimately, that’s what it’s all about.
JA: Any last comments?
NZ: One thing I want to say is that as we talked about founders, I would modify it to talk about entrepreneurs. We want to encourage people to start companies but I also want to encourage people to join the founders. Because the biggest challenge for all these tech companies, whether in Finland or Sweden or London or Silicon Valley, is to hire the best talent, so we can encourage more bright young people and also more senior people to join startups. To go and join these early stage founders and support them. That’s also how we can scale faster.
JA: Niklas, thank you so much, it was so lovely to talk with you
NZ: Thank you, my pleasure!