Don’t Blame the Bankers

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A recent press release from Startup Bootcamp bears the attention-grabbing headline “Bankers Holding Back Europe’s Tech Entrepreneurs“. It echoes sentiments expressed at the Digital Sizzle 4 town hall event back in May, where members of the audience complained that banks weren’t lending money to startups.

The problem is, it’s not true. Banks don’t make investments in startups, venture capitalists do.

Banks lend money to businesses which are likely to pay it back. Given that the average startup has no assets, little (if any) revenue and a roughly one-in-ten chance of actually surviving, it’s hardly surprising that banks aren’t interested in lending money to them. It’s like expecting someone to take the same risk that a VC does, but with a strictly limited upside. It makes no sense. It’s also faintly ridiculous that people expect banks to make risky loans, given that we’re just coming out of a banking crisis that was caused, in part, by banks’ overly-lax lending practises.

The whining about banks wasn’t the only sense of entitlement on display at Sizzle 4. Audience members seemed to expect the government to solve all their problems, from rising rents in Shoreditch to the difficulty of recruiting product managers. It contrasts sharply with the attitude in the United States, where entrepreneurs neither expect nor want help from their government. In fact, their preference is for the government to simply get out of their way, as evidenced by the single issue on which they lobby the US government – the restrictions on visas for entrepreneurs.

Real entrepreneurs don’t look to the government to make life easier for them. They either accept their environment and just get on with it, or they move to a more favourable environment. Rents too expensive? Find somewhere cheaper. Finding it tough to attract talent? Make them a better offer.

To address Startup Bootcamp’s other key criticism: banks are not the reason the US is a better exit environment than Europe. The majority of venture capital is located in the US so, naturally, VCs prefer to see their investments float on a domestic stock exchange. Furthermore, the US equity markets have a long and successful track record of tech companies IPOing there, so institutional and retail investors are more comfortable taking part in tech IPOs. It’s also worth bearing in mind that, despite ongoing efforts to integrate financial markets across the EU, equity markets in Europe remain quite fragmented, particularly when compared to the US, which is a genuine single market. That means that there is a naturally greater pool of investors that will be interested in taking part in an IPO on NYSE or NASDAQ than on the LSE or Paris Bourse.

European startups need to stop expecting to have everything handed to them on a silver platter. That’s not the way entrepreneurs think in the States and it’s one of the main reasons that there are more successful startups coming out of the US than out of Europe. European entrepreneurs need to play to their strengths, not whine about their disadvantages.

For more on the topic of why Americans do startups better, check out Fadi Bishara’s presentation to HackFwd.

Cartoon by Michael de Adder for Canada’s Chronicle Herald

Written by jackgavigan

October 10, 2012 at 11:20 am

Posted in Entrepreneurship

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