19 May 2019

European entrepreneurs are scaling globally in record time: our research into how the world’s most successful companies go global

This is the best time in history to be a technology entrepreneur in Europe, or indeed outside Silicon Valley.

Over the past decade, the start-up world has undergone huge change. As data we published last year showed, the majority of billion-dollar internet companies founded since 2003 were actually built outside the Valley. For me personally, the journey has been eye-opening — from the early days at Skype, when most people dismissed the idea of building a company from Sweden, to today, when Atomico is proud to be an investor in Supercell, Truecaller, Klarna, ZocDoc and other successful companies that started life in places like Helsinki, Stockholm, New York, London and elsewhere.

How has a change this dramatic been possible in such a short time?

It’s not just because great entrepreneurial talent can be found everywhere — that has always been the case. It’s not just because VC money has finally found its way into a new set of emerging tech hubs, particularly in Europe — though this is certainly an important factor.

It’s also due to one of the most seismic shifts in technology: the explosion of the global internet, giving entrepreneurs from anywhere the ability to scale everywhere in the blink of an eye — or to put it another way, thanks to the billion-user app stores, the ability to scale at the speed of mobile.

This is widely understood as a consumer phenomenon, but its effect on how technology companies compete is under appreciated. The rules of the game have changed, and when companies are fighting for the almost two billion smartphone users in markets from Asia, Europe, the Middle East and Africa to North and Latin America, where you come from suddenly matters much less than where you are scaling into. Great companies can come from anywhere — but today, great companies also need to scale everywhere.

To explore this transformation, Atomico has investigated the way in which the world’s top tech companies, including a growing number from Europe, achieved global success. As well as analysing the data from all of the 182 billion-dollar internet companies founded since 2003, we have spoken to many of these founders to get their perspectives on the journey to international success — including Daniel Ek at Spotify, Uri Levine at Waze, Phil Libin at Evernote, Riccardo Zacconi at King, Tomoko Namba at DeNA and Niklas Östberg at Delivery Hero.

By distilling the experiences of these exceptional entrepreneurs, we hope to present some of the lessons from their companies and to demonstrate that, in the race for global success, entrepreneurs from smaller countries may have their own advantages, too.

  • International expansion is faster when you come from a small market — averaging just 1.4 years for companies with a domestic population of less than 50m, less than half the time of companies from countries with a population of over 50m people.
  • It’s critical to success — every company from a country with less than 50m population went international before hitting a billion-dollar valuation
  • Timing matters — the most successful social and gaming companies go global fastest; enterprise and security companies need to take their time

As barriers come down, small and fast can win the race

If over the past 12 years it’s become easier to build a billion-dollar company from anywhere, it’s also become increasingly important for those companies to scale everywhere, faster than ever. Driven by vastly increased internet penetration, the global adoption of social networks, common app platforms and a global willingness to pay for goods and services online, the old barriers have come down.

Everything that used to be fundamentally hard — distribution, how people will hear about you, channel relationships and logistics — are less important. These things used to be real obstacles and you would have to be a pretty big company to tackle them…The big difference for companies launching now is that it’s so much more important to just focus on the product. Everything else you’re trained to think about is becoming virtually insignificant.
Phil Libin, CEO, Evernote (founded in 2005, Silicon Valley)

Read Phil’s full interview on how he grew Evernote into a global business.

Historically, having a huge domestic market was a major advantage. But entrepreneurs from smaller countries have found a way to level the playing field, by being far faster to internationalise. In many cases, they aim to solve global problems and think internationally from the outset.

Billion-dollar Internet companies by population of country of origin:

Billion-dollar Internet companies by population of country of origin:
We were addressing a problem that exists nearly everywhere, so a solution could be applied everywhere. With this point of view we actually planned on being global from day one.However, we were trying to do something that had never been done before; we were trying to build a truly global mobile app from Israel. A lot of people simply thought that this couldn’t be done, that we didn’t have the right skills or expertise or so on. But we believed that we didn’t need a lot of the things they were saying we had to leave Israel to get and, on the day of acquisition, we only had around 100 employees based in two offices. And we had millions and millions of users in places where we had no offices, like Brazil.
Uri Levine, founder, Waze (founded in 2007, Israel)

Read Uri’s full interview on how he grew Waze into a global business.

Across the board international expansion is happening faster than ever — of the 62% of billion-dollar companies that internationalised, those founded between 2003–2008 took an average of 3.4 years to go do so; those founded after 2009 took an average of only 1.8 years.

Time taken to first internationalise from year of founding

But our data shows that companies from countries with a population of less than 50m people take an average of 1.4 years to go international, less than half the time of companies from countries with a population of over 50m people.

Time taken to go international from year of founding by population of country of origin

This is driven in large part by necessity — every one of the 17 billion-dollar companies to have been built in a country with a population of less than 50m did so by becoming an international business. By contrast, in China, 38 out of the 39 billion-dollar companies founded since 2003 only do business domestically.

Billion-dollar Internet companies by international expansion status

For those companies that have gone global, the average lag between going global and then hitting a $B+ valuation is 3 years.

% of international companies that expand internationally before reaching a billion-dollar valuation

…and companies from smaller markets are reaching super-scale faster than ever

Time taken in months to reach 100m users:
It was global from day one, we launched in five countries from the start. Of course, it wasn’t mobile — because there was no mobile at the time — but it was scalable from day one, though we had no idea it would become so big.If you put everything on a graph it looks like we started the company two years ago. But take those two years away and we did have successful growth before then… In 2005 we became Yahoo!’s biggest partner… At the time, Yahoo!, was the biggest games destination in the world. So we launched in January 2006 with them and saw a doubling up of our business, which at the time felt like very fast development… Now, when you compare all of that to our launch on mobile and the impact that had, everything seems relative.
Riccardo Zacconi, founder, King.com (founded in 2003, Stockholm)

Read Riccardo’s full interview on on how he grew King.com into a global business.

This does not come without cost, and the speed of global growth has required greater funding, too:

  • The opportunity to go global faster costs more — companies achieving a billion-dollar status have raised on average $193m in venture capital.
  • This cost is increasing over time. Although companies founded between 2003–2008 raised a median of $168m, this has risen 48% to $248m for companies founded after 2009.
  • 14 companies founded since 2003 have raised over $1B, including Uber and Flipkart. By way of contrast, at least 10 companies founded since 2003 achieved billion-dollar status with less than $20m — YouTube raised just $11.5m and Veeva raised $7m before it IPO’d at $2.4B.

Timing matters — and varies hugely by sector

Timing is critical. Too early, and companies risk huge distractions and cash burn before they are in a position to reap the rewards of internationalisation. Too late, and the risk of local players or well-funded global competitors becomes a major threat.

We launched in 3–4 markets simultaneously right from the start. The business is very local so it’s not possible to launch in too many markets — we needed a local set-up that includes local accounting, local offices, local everything. It wouldn’t have been efficient from a technology or a capital point of view to do any more at any one time.We started before the massive availability of capital. There was always a pressure to make sure we could fundraise. We needed capital to make sure we could make a land grab for early market share. I think it’s easier now.
Niklas Ostberg, founder, Delivery Hero (founded in 2010, Berlin)

Read Niklas’ full interview on how he grew Delivery Hero into a global business.

Over the period we looked at, consumer-focused companies took on average 2.0 years to go international, while enterprise companies, which require greater investments on the ground, took on average 4.1 years. Diving into specific sectors, social and gaming companies are among the fastest to go international, while enterprise applications and enterprise data and security are among the slowest.

Average time taken to internationalise from year of founding by customer segment and sector

Go global to reach $1B, unless you’re in a unique domestic market like China…

When battling for users and customers in every continent, the size of your domestic markets matters much less that it once did. Only 3% of billion-dollar companies in Europe are domestic (that’s just one company, Zoopla), compared to 24% in North America or 81% in Asia. Remarkably, all but one of the 39 billion-dollar companies founded in China since 2003 are entirely domestic (ZQGame being the exception). That’s no surprise given that China has 650m Internet users. It’s already the second most valuable digital advertising market globally and third highest grossing market for the Apple App Store.

China and Japan are both very large markets. You can be comfortable inside in each market. The US is a big market but people there are taught to be the leaders of the world. Whereas people in Japan and China are not…Culturally I think we’re all very distinct. China is China, Japan is Japan. The US is much more multicultural… VCs in the US demand that entrepreneurs are global. But in Japan, VCs — in my days at least — wanted me to be down to earth, they wanted me to be profitable within two years and they wanted me to be practical. If I’d have said I wanted to be the global leader, they wouldn’t have invested in me…The level of aggression for global domination is very different.
Tomoko Namba, founder, DeNA (founded in 1999, Japan)

Read Tomoko’s full interview on growing a company from Japan.

Billion-dollar Internet companies by international expansion status by region

…but that’s set to change, with the third wave of internationalisation

So far, we’ve seen two main waves in terms of the internationalisation of technology companies from around the world. 2003 onwards was characterised by North American Internet firms going global on the hunt for new growth opportunities away from home. 2009 onwards has seen the (still increasing) pool of North American companies — Facebook, LinkedIn, Twitter — being joined by the growing number of European billion-dollar companies — Supercell, Soundcloud, Waze — who are going global at increasing speed. We now stand on the edge of a third wave as ambitious Asian entrepreneurs look to grow beyond their borders and replicate their success at home, abroad.

If you’re starting a new company today — that isn’t about securing local IP — the benefit is there are a bunch of platforms we didn’t have a few years ago like broadband, proliferation of devices, and platforms for monetisation…All of things we used to have to do — like building your own hosting and scaling infrastructure — are tough problems that used to mean it took you a lot of time before you got to scale. Someone in India was able to corner off their market, someone in China was able to corner off their market. What happens now is that US companies immediately compete in Europe, and European companies immediately compete in the US. And of course it’s only a matter of time — a short time — before China starts competing with the rest of the world too. We’ll see hypercompetition that we haven’t seen before.
Daniel Ek, founder, Spotify (founded in 2006, Stockholm)

Read Daniel’s full interview on how he grew Spotify into a global business.

Cumulative count of $B+ companies that have internationalised by region of origin

To download the data analysed for this research, click here

To export the data in Silk, click here

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