After two years’ wandering around the European startup scene, I have finally started to take my eyes away from the upper circle members like London, Berlin and Stockholm, and turn to those rather small startup ecosystems who have never made on any list.

European startup development is ranked far behind the US and China, in terms of either the number of entrepreneurs or the exits, including those fastest leading ecosystems mentioned above. Even within Europe, the market is also fairly fragmented and described by diversity and different degree of maturity. After a deep dive into Italy, Croatia, Switzerland as well as Norway, I am gradually changing my preconception on these obscured members who have never been in the limelight: They never fall short of tech innovations, having the products showcased on the world arena; They also gather a roster of faithful entrepreneurs, living the life of 24/7, just like those from any of the larger ecosystems. The small startup ecosystem does create dilemmas for them to develop, but it never stop them from finding their own approach to get around. 

Tight-knit community

Croatia might be the smallest startup scene that I’ve ever come across. And it is just so small that everyone knows everyone in the community according to Mr. Ivo Spigel, the co-founder of IT software and services company Perpetuum-Mobile and Croatia’s first startup incubator ZIP.

Based on the nature of its late start and small size, the resource limitation ties the community up as a hub of market intelligence and business know-how. Since 2012, Croatia’s startup ecosystem has slowly developed its own infrastructure, not yet with big exit so far. The most developed tech startups like electric vehicle creator Rimac Automobili, and Launchpad Venture Group invested Repsly, are still in their scaling up phase, leaving peer learning scarcely available in the local community for further experience.

Nevertheless, the urge of development and the high-quality of startup projects naturally bridge them up to well-developed startup ecosystems and introduce them to more mature investors. Y-Combinator and 500Startups are both examples of Silicon Valley VCs who have paid attention to this small startup ecosystem from the very beginning, and have also made investment into many valuable companies such as Bellabeat and WhoAPI with their network and knowledge resources to bring alone.

You might argue that these investments have also shifted the top startup teams away from their local community, for example, agtech team Farmeron, who has moved their HQ to Silicon Valley after it received $1.4million seedfund from NextView Ventures and SoftTech VC.

However, if you look closely at these small startup ecosystems, such as Croatia or Italy, the most common practice is to keep their R&D centre locally while moving their HQ.

Furthermore, we have also witnessed the return of these teams after their stint in incubating or accelerating programs. Farmeron, the Croatia startup team mentioned earlier in this article, has also moved back after being acquired by Virtus Nutrition last year. By starting a brand new project, what the value that Farmeron has pumped back to the tight-knit community, has not only been a successful team, but also the 5-year accelerated development experience in Silicon Valley, the broader network that can be introduced to the fellow entrepreneurs, and the most important of all, the first case of the completed life circle of a tech startup from ideation to exit.

Funding scarcity

Funding has been always the shortest plank for European startups, with much less deals and much smaller size comparing with the US. The startups here are generally confronting problems of fund-raising of all kinds. Especially series B or C, or any large scale fundraising are not readily accessible even for the startups in the mature ecosystems like the UK and France. Let alone the small ones.

To look from the other side, European startups have been benefit a lot from the shared resources and open markets within Europe, leading to a better climate for entrepreneurs seeking capital on the early stage. Not only many angel investors are willing to operate cross-border, startups teams are also used to join incubators and accelerators cross-country in Europe, for instance the smart energy startup Sympower (Estonia) joined Rockstart accelerating program in Amsterdam; graph database startup Memgraph (Croatia) joined Techstar accelerating program in London. As explained by Mr. Spigel, what is specially significant of joining EU, is that the policy enables the Croatian startups to raise fund from the outbound crowdfunding platforms, especially equity crowdfunding.

The dilemma still lies on the way. However, it is not coming from the shortage of the capital, but from the lack of the experience on how to invest in tech startups. Norway has been an example. This young member of Scandinavia startup scene hasn’t taken shape until the drastic plummet of oil price from 2014, which directly resulted in the boom of tech startups. Yet the unfamiliarity of investing in the tech startup sector has held back the development from the capital side. Moreover,  Norway’s robust welfare system has been long influenced the Norwegian investors to be more risk-averse, making the development of startup investment be greatly left behind.

Thus, Angel Challenge organised by Startup Norway, which happens at the same time as the Startup Challenge, are exactly dedicated to bring more operational know-how to the front of the potential startup investors and to streamline in-depth communication and networking between the investor and startup, says Mr. Hans Hag, the project manager of incubator Nyskapingsparken from BTO.

Similar to Norway, Italy investors are also suffering from the limited experience in this new type of high-risk investment. As introduced by Davide Dattoli, the co-founder of the Italian co-working space Talent Garden, in react to this situation, they have been constantly making efforts to educate the potential investors on the basics of startup investing. What is different from Norway, giving the fact of the great amount of successful Italian brands from traditional industries like automobile, food and fashion, the experienced entrepreneurs from these industries are also getting involved into the game, aiming to bring both financial support and mentorship into the startup ecosystem in Italy. 

Talent gap

Other than the limitations on the experience and resources, the talent gap is rather fatal for these small startup ecosystems. This doesn’t necessarily refers to the local engineers and developers, which is partly explained by the common practice of keeping the R&D centre locally as mentioned before. In fact, Europe is a highly innovative place for science and technology in related to the high quality universities, although they are barely mentioned in the popular global rankings.

But if you take a look of Switzerland, who has been continuously topping on the ranking of Global Innovation Index for the past 5 years, knowing that ETH and EPFL has always been the best breeding ground of the tech startups, including the first swiss unicorn Mindmaze, you will find out how much the European universities are contributing to the local tech talent pool. Similar cases are also happening in Denmark, Luxembourg and Iceland, which none of them has a thriving startup scene comparatively.  

However, the talent gap which is getting larger between mature startup ecosystems and the smaller ones are lying in the international talent pool, leading the small startup ecosystems to be more local-focused, that generates obstacles for business expansion from the undersized local market. This on one hand, results from the conservative immigration policies, on the other hand, is also affected by the language and culture threshold. 

Take Italy as an example. Italian government has introduced Startup Visa not long after the tech startup trend started. However, comparing with the US, the UK or the Nordic countries where English penetration is much higher, Italy become less competitive in attracting international entrepreneurs. Furthermore, policy wise, little has been done to bring more international talents who works for the startups into the country.

According to Mr. Dattoli, there are about 30% to 40% international students in the universities in Milan, but there is not many benefits in working visa application process designed to keep them stay. What sustains the development of a startup, is not only the core technology, but also a vision and horizon. Only with the diversification coming alone with the international talents, breaking through the obstacles of language and culture, the virtuous circle of talent flow can eventually formed to facilitate the evolution of the ecosystem. 

To some extent, the startup ecosystems are pretty similar everywhere. People are following the same technology trends, facing the same startup problems. I find a quote from Mr. Spigel very inspiring during our talk, which I would like to use to end this article with: the founders everywhere are almost the same, while the environment just change the way how they approach.