The disconnect between tech and politics and the invisible hand.

Here’s a scenario for Europe:

1. There’s a big worldwide fragmentation going on i.e. US vs everybody, within EU, Russia and China meddling etc and that would lead to trade barriers, travel frictions and cultural misunderstandings.

2. Politics would lead to a slow down of cross-border investments, American investors will be deterred to have a global approach and favor a US-centric focus, w/ more ops triggered by the covid crisis within the 52 states.

3. EU founders will have to learn to live without the rest of the world and will have free rein on their own local markets, inventing Europe-centric models.

4. The EU investors will learn to cope with less impressive returns, and investors from outside the tech world will back startups whose risk-adjusted returns they recognize as more familiar.

Authored by Nicolas Colin, you can read the entire piece here.

It is a scenario that looks a bit like a politician’s calculation. And then you read about how France plays the prey role for foreign buyers, shake your head and think Nicolas could be right, we’d better gun up.

Here’s what I think: that drama ain’t going to happen. The French are over-reacting (both Nicolas and the state) and the world of tech, both as business and as asset class, is a bit bigger and more complex than that.

And here’s why: there is a big disconnect between politics and the tech world.

Tech is decoupled from politics

The tech ecosystem has developed tremendously in the past 15 years, in spite of the shitty politics from across both ponds.

That is the very reason for which governments want to regulate Google and Facebook. The gap is so big between the two worlds that the politics is out of control.

More regulation and protectionism will not narrow it down, au contraire, it will force tech to be more creative, they invent things for a living after all. And yes, US is a very different beast than Europe but smart people adapt.

Europe is already local-centric and it’s not really working out

There’s two types of entrepreneurs - the ones who think locally and the ones with global ambitions.

Europe’s default was very local until we started to have access to the internet and real benchmarks. Arguably, today we have not gone that far and most of the founders here are still too country-centric, doing stuff locally and waiting for outside inspiration, copying or adapting from the Silicon Valley. This is as opposed to being a leader, pioneering and creating something on our own and conquer the world with it. It is a mentality thing, we talked about this. Copying Silicon Valley has become an obsession - being competitive is good but I mean how about inventing something from your head and lead the way, like they do.

Heavy protectionism is exactly not being competitive. Copying the other guys but without competing with them will be worse off for consumers - less worse choice - and for the investors - where will the exits come from? Add to that that most of the early stage investment funds are already heavily subsidized by the EU. The loop is closed.

And btw what the hell stopped Euro startups until now to get “free rein on their own local markets”?

Nothing, really - that is just another way to complain that they can’t keep up with competition as they’re out-innovated.

Think about it - Europe is the place where the Germans founded Rocket Internet to copy all SV ideas and where the French keep cloning Google, Airbnb and Amazon or whatever cool toys the smart kids invent and they can’t. Throwing money at a problem doesn’t automatically solve it - you also need a different mentality.

Uhm, Johnny, have you seen this cool stuff those guys did in America, it makes a lot of money, let’s copy it quickly in Europe and trick those suckers to buy us if they come over here!

Anonymous European VC investor looking at scooters circa 2018.

That is the usual European approach - and don’t get me wrong, being opportunistic is not bad at all and can definitely be a very lucrative strategy.

And, besides this mentality, we complain that we have the inability to expand to foreign markets, which is usually bad management, caused by not understanding the cultural differences. And not only from UK or Germany to US but also from France to Italy or Scandinavia. Of course, it’s also the other way around i.e. Yelp, Uber coming to EU etc etc. They even teach international expansion in schools nowadays.

There’s also good news

There is more and more European founders thinking big rather than small. Every day more evidence shows up - it is an irreversible process, again, in spite of politics, Trump and Brexit and the racist idiots from around us making life a zero sum game.

Yes, geo-politically we are at a global turning point. Brexit, Trump, China, Russia - all because the politicians would like to explore opportunities globally with new kinds of regulation and public policy. It’s a stress test for EU’s unity as well. This may not be a bad thing either.

But follow the money - the top guys are backed by the power poles, namely the investors. Arguably, politicians raison d'être is to help people with money make more money. And now, as opposed to 15-20 years ago, there’s more money to be made internationally than locally, it’s a simple arbitrage fact. Especially in tech, which is easier to scale.

As an anecdote, I have never seen my friends who run hedge funds or big fat pension funds more bullish in spite of the covid situation. That is because:

i) in general the balance sheets are clean and
ii) there’s never been such an aligned and concerted governmental effort to get over the hump since WWII.

Even the US stock market is not really affected by the BLM-related events happening these days over there. It is weird but that is the investors sentiment - probably because the latest US employment numbers are better than expected.

There is a lot of fresh powder on both sides of the ocean.

When I say I lot, I mean probably the most VC money it has ever been available to deploy in the world. And when the stakes are so high, no professional VC investor from anywhere will settle for “less impressive returns and local familiar business”. Do you think VCs convinced their LPs to give them billions of dollars with fund-the-next-Google and the-world-is-flat theories to just settle and “cope with less impressive returns”? VCs have a mandate to take risks and their job is to maximize the portfolio’s returns, as simple as that.

The whole logic of raising venture money is scale and grow as quickly as possible across as many markets as possible. You don’t even need VC money to build a mobility service available in Paris and Lyon, with optionality to expand to the south of France. A few angels will do.

Location has become less important.

You can build stuff from anywhere and sell it anywhere without even traveling there. The WFH has become normal these days because of covid, but that’s a train that was already coming.

It has never been easier to open companies, set bank accounts, get customers and build networks in a foreign country. It’s a fact.

Another anecdote - in the past few years I have moved and lived in three different countries on three different continents for a few months in each and have built network and business without knowing anybody there. And I am just a small cookie.

The tech infrastructure as the invisible hand in the startup world.

I don’t agree with Nicolas’ hypothesis but I do share some of his underlining skepticism and sometimes have an acute sensation of end of the world when I check the news. It is in real time, and simultaneously from different parts of the world - it is as if you’re in the middle of all of it and you get swallowed by a bad movie.

We need to change many things in the world but when you get back to work, you realize that actually change starts with you and your own contribution and attitude, and that the ball is still rolling on and we progress each day.

But I don’t think, tech-wise, we will see a geo-fragmentation. Even the covid period shows us that if there is a will there is a way and biz starts to get done all over the world, in spite of the quarantine, lack of travel, BLM protests or even people dying because of the flu. We adapt and that is the beauty of tech-enabled business - the tech stack has become a solid infrastructure which acts as an invisible hand for the startup world.

Add to that plenty of smart people willing to tackle big important problems in a collaborative way. And, unlike in politics, in the tech world people mostly create value don’t destroy it, as they work together and help each other no matter their location. And, not least important, there’s plenty of money available to fund solving those problems.

It’s a great time to be alive.

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