Are ‘Technical Founders’ The Key To Creating European Tech Giants?

A relative shortage of “technical founders” has hampered Europe’s ability to create and build world-beating technology companies. That’s the contention of a new report by early-stage venture capital investor, Antler but it’s not a static picture. Thanks in part to industry layoffs, the research suggests that increasing numbers of software engineers are starting their own companies. Antler says this is already having an impact on Europe’s innovation economy.

Styling itself as a “day zero” investor, Antler’s modus operandi is to invite founders to take part in “residencies” which last for around two months. During this period, Antler assesses the founders, their teams and the product potential before making investment decisions. In addition to conducting an analysis of 1,000 European founders, Antler also studied the backgrounds and characteristics of around 60,000 aspirant entrepreneurs seeking investment through the residency program.

And the findings? Well, Antler’s report highlights a sharp contrast between Europe and the United States. According to the report, the twenty most valuable tech companies in the U.S. were created by founders with backgrounds in computer science, data and software development. In the cases of Europe’s largest technology companies (by market cap)only 45% of founders are technical.

Does this matter? Well, the lesson Antler draws from the research is that Europe’s failure to create a tech giant is at least partly attributable to the lack of entrepreneurs with hands-on technical experience. But does this stack up?

Founder Driven

Now, over the past few years, a lot of reasons have been for Europe’s failure to create U.S.-style tech giants. They include the following. Europe started later. Unlike the US, Europe is to some extent still divided by language and culture. Despite recent progress, there is a smaller pool of investment capital. Bureaucracy stands in the way of innovation. Undoubtedly these are salient factors but Antler wanted to approach the problem from a different angle.

Christoph Kink is an Antler Partner based in Berlin. “We looked at founder-driven explanations of why Europe finds it harder to build leading tech companies,” he says. “So we looked at founders and what they can influence.”

As Klink sees it the numbers very clearly suggest that in the modern technology and innovation ecosystem founders with a background in software and computer science have a competitive edge over their non-technical rivals. Klint cites the example of emerging unicorn companies. According to the Antler analysis, 54% of these businesses have technical founders at the helm. “And then when you look at failed unicorns, the share below technical founders is below 15%.”

Arguably, those figures simply reflect a shift in the innovation economy landscape over the past few years. Many successful European businesses start with quite traditional business models – say food delivery or clothing retail – with a technology platform as the enabler. In these cases, the key skill might be, say, ideation and marketing with the necessary tech expertise bought in. However, today, much of the action has shifted towards deep-tech, big data or predictive analytics, often sold in the business-to-business market. This is where Klink sees the correlation between success and founders with direct technology experience.

“Our hypothesis is that consumer innovation has already taken place, Mobile apps are not going to drive innovation over the next ten years,” he says.

Technology Track Records

The report cites European companies such as Mistral, Synthesia and Pigment, noting the common factor that their technical founders have come from the likes of Meta and Google. As Klink sees it, founders who have previously worked for established tech companies not only have technical experience, they also have insights into problems that require solutions. Unlike, say, university postgraduates working on sometimes abstract research – they have a track record of creating products to address the problems they’ve witnessed.

Klink says that until the tech downturn began to bite, such people might have happily remained as employees rather than venturing into the uncertain waters of entrepreneurship. “The opportunity cost was high,” he says. “You had a good job, you could work from home. You were developing new products” Today, he says the opportunity costs are lower. Staff have been called back to the office. Often their work will focus on maintaining or incrementally improving existing products rather than innovation. The incentives to remain an employee are falling away. Hence an upturn observed by Antler in its own cohort of new founders with experience working for others. Antler has seen a 4 times upturn in alumni from established companies and 8 times leap in technical founders.

Now, if there is a correlation between scaleup success and the presence of technical founders, there could be some bad news for Britain. The report finds a higher percentage of tech-skilled founders hailing from France and Germany than from the U.K.. One potential factor is Brexit. Many founders are migrants and Britain’s departure from the EU has made it harder for talent from across the continent to relocate to London,

There is perhaps a counter-narrative to all this. Many entrepreneurs are sales and marketing-focused and that can be the key skill in growing a company that has a sound business model. But when it comes to applications around AI, analytics, cybersecurity, quantum computing and biotech, it may be the technical founders who will be key to understanding both the technology and the solutions required by customers. Certainly that’s the view of Antler.