It is a formula that has made a select group of European entrepreneurs and investors very rich: Identify a new online model that is rapidly gaining traction in the U.S., create a European clone and then sell it to the Americans for an inflated price.
Think of the daily deals sector: Germany’s CityDeals was sold to Groupon in 2009 for $600,000 in cash plus Groupon shares valued at $125.4 million as of the acquisition date after only 5 months in business. CityDeals was created by the Samwer brothers, who made their fortune by creating and selling German versions of eBay (eBay eventually bought them), Facebook, eHarmony, Zappos, and a number of other businesses.
But where once these clones may have been viewed primarily as pests, today U.S.start-ups are starting to see the advantages of buying into or partnering with their European carbon copies.
Consider Groupon’s perspective on its CityDeals acquisition, as expressed in the Groupon blog: “…we realized that [CityDeals] were among the best operators we’d ever met….It’s absolutely insane how quickly they’ve scaled, with 600 employees working from 80+ European cities….”
And now new models for international expansion are starting to evolve: take the October deal between Springstar, a Berlin incubator co-founded by Klaus Hommels, one of Europe’s most successful angel investors, and Airbnb, a U.S.crowd-sourced marketplace site for turning your apartment into a hotel for a night. In a new twist that could just become a trend, Springstar will help Airbnb expand internationally in exchange for a stake in the mother company.
Hommels, a scheduled speaker at the DLD conference January 22-24 in Munich, has made early-stage investments in some very successful Internet businesses, including Skype, Xing, QXL.com and Adjug. He and partner Olivier Jung have also refined the process of helping companies expand internationally in the couponing and flash sales businesses, providing guidance to businesses such as Russia’s KupiVIP, Turkey’s Markafoni and Brazil’s Brandsclub.
It’s a natural step to add North American start-ups to the mix, says Hommels. U.S. companies have realized that it is smarter to partner than to try and go global on their own. “US start-ups need to go global way earlier because there are copycats all over the world. But buying yourself into different markets is costly and time-consuming.”
“Springstar recently partnered with Airbnb to accelerate its global expansion, which strategically is extremely important to the company given the rapid cloning of the concept in markets around the world,” says Jeff Jordan, a general partner at Silicon Valley venture firm Andreessen Horowitz and an Airbnb board member. “We are optimistic that the Airbnb partnership … will indeed enhance the company’s competitive position globally, as a result of which I’d expect to see a lot more deals like it.”
Springstar offers start-ups its experience and connections in exchange for equity stakes in the parent U.S company. “If there is an alignment of interests then we can design a common equity arrangement where we can partly finance the rollout of the U.S. company, or the U.S. company can finance the rollout,” says Hommels. “There we are flexible.”
There are a several other movements afoot to bring together U.S. and European tech start-ups, and their investors, for mutual advantage.
In 2011, the “Silicon Valley Comes to Cambridge” program, created by serial entrepreneurs and angels Sherry Coutu and Reid Hoffman, broadened its vision to become “Silicon Valley Comes to the UK.” SVC2UK hosted a series of events that brought together investors, serial entrepreneurs, students and angels from the UK with their Silicon Valley counterparts to discuss, debate, create and fund disruptive internet, gaming and fashion start-ups. Clearly the Continent could use a similar initiative.
Another example of cooperation between the U.S. and Europe is “London to NYC,” a mission that aims to promote trade and investment between the two cities. Created by Judith Clegg of The Glasshouse and Stephen Strauss of NYCEDC, the program is supported by both cities’ mayors. Rightster, We are Social, and Notonthehighstreet.com will all join the February mission.
European start-ups aren’t only connecting with their U.S. counterparts and investors: increasingly, third parties are helping them to reach large corporates, which could become customers, distribution channels, partners, or even acquirers.
Seedcamp, the UK-based early-stage mentoring and investment program,takes start-ups on a U.S. roadshow for three weeks every spring. The trip features a number of meetings with product development, developer relations, marketing, innovation, business development, and corporate development teams at large corporates. Seedcamp has also recently launched Seedcamp Seed Dating, a speed-dating platform to bring together more corporates and start-ups.
Xooglers (ex-Google executives) Anil Hansjee and Rob Kniaz and angel investor Hussien Kanji are also looking to help connect the European start-up community with U.S. corporates.
“Too often VCs do not have the right insights into corporate business development and product plans to make start-ups more relevant, exciting and challenging to larger corporates, says Hansjee, who until recently was in charge of M&A for Google in EMEA.
“There is a big gap and an important gap to fill,” he says. These connections can help start-ups find the right homes: Kniaz helped orchestrate the sale of Stockholm-based online video editor Jaycut AB to RIM late last summer.
There are clearly a number of new and innovative initiatives developing to create closer ties between start-ups, investors, and corporates in Europe and the U.S., and to help start-ups on both sides of the Atlantic expand outside their home countries. The bridges are being built but they remain a bit shaky.