Failing in Risk-Averse Europe.

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My most expensive lesson ever was to start a startup in risk averse Europe. While I don’t like to name the country (the county has a rich history and proud people), suffice to say it’s a prosperous country in Western Europe.

Not only were there virtually no other startups I could learn from (had I known about vesting, I would have had a way to regain the shares of a cofounder who left), but local laws made it almost impossible to give options to employees. On top of that I learned that most European angel investors were simply management consultants (often in between jobs and eager to join my startup as CEO or marketing manager for salaries five times I paid myself) who claimed to be friends with wealthy individuals (spoiler: they seldom were) and VCs turned out to behave more like late stage private equity and totally not interested in startups with limited revenue.

Fortunately for me, the state government offered a solution: an innovation loan for startups, to be paid back in full within five years plus an annual interest of 6.5%. And oh, I had to sign a personal guarantee in case the startup wasn’t able to pay the loan back. The government worker assured me that if things didn’t go as planned and I wouldn’t be able to pay the guarantee, he’d work something out for me.

There are three things I didn’t know when I signed the innovation loan contract:

1) It’s almost impossible for any startup to go from zero to being able to pay back a loan plus interest in five years.

2) My home country doesn’t allow people to go bankrupt like here in the U.S. (A debt is lifelong by default).

3) The government worker lied. Of course he didn’t plan to work something out if things went wrong.

I haven’t been back to my home country in over 3.5 years. If I would go back, there is a chance (a small one perhaps, but still) my passport has been marked and I will be imprisoned right at the airport.

My debt is about two Tesla Model S’ if you don’t calculate interest (three to four Model S’ if you do include interest). My debt is a huge distraction as I try to rebuild my life and try to start a new startup.

I laugh every single time when I read Mike Butcher claiming he found yet another European city that definitely will be the next Silicon Valley. And while I don’t mean to belittle other entrepreneurs in Silicon Valley, I do smile when I hear about their hardships when their VC backed startup failed while I secretly wish I could trade places with them.

  • Holy shit. That sounds awful but it makes me more thankful about the opportunities we have here in the states. I really hope you can pay back your loan and get your ass back here. Ever think about trying a kick starter campaign?

  • “It’s almost impossible for any startup to go from zero to being able to pay back a loan plus interest in five years.”

    I live this every day. We’re profitable but not sexy. Investors want sexy. So we took out a bank loan. Once we launched, we threw out the spreadsheet and the point you make has become crystal clear. Wish I had known that from the start.

  • As I understand it, even in Europe you can incorporate your startup before taking a loan, in order to protect yourself and your assets from in case you go bankrupt. Isn’t that the case with an SA in Spain or France, for example? It would be great if you could let us know what country it is, as many of us are planning to expand to Europe, or even to settle there! Thanks

    • As a European, I can confirm this is correct. Not sure what the OP is going on about and why he is generalising out of his country.

    • As a French founder, it seems pretty obvious to me that the OP is referring to France. While you’re right that SAs technically protect your assets, most government-sponsored venture loans will require you to provide some “personal guarantees” on a % of the loan amount, but I’m just not sure how insistent they would be using those in case things go south.

  • Oh OP, I feel for you! Like the last commenter, I also immediately knew you were talking about France.

    This is partly why I laughed my head off when this new so-called fund called 50 Partners (based in Paris) visited a bunch of startup communities including my US accelerator. With a straight face, they insisted there was plenty of seed capital available and that there was also govt grants and loans. Yeah right, then why are are huge #s of French entrepreneurs in places like UK and US if conditions were so rosy back home? In the US, California alone has a couple hundred thousand, mainly in LA & SF

  • This exact same thing happened to me. I eventually filed for private bankruptcy and emigrated to the US (my entry point was a top ranked MBA program).

    I had 1 million euro in debt and paid off slightly more than the required 10% to make sure the judge closes the case. At home, I wouldn’t have been able to do that: 1. Background check shows bankruptcy and no employer will hire you (goes to risk adverse bias) 2. Salary after tax is a third from the US for same job which would have made it unrealistic for me to pay that 10%, that’s why so many people’s personal bankruptcy proceedings eventually fail and they go back into the normal one taking 30 years (like in your country I guess).

    Here is some advice: Instead of starting a new firm, get a HIGHLY paid job if you can and then contact a SENIOR person in that agency or their General Counsel to work out a forgiveness / repayment plan BEFORE you pay anything or return home. There is a 90% chance that in the face of getting nothing, they will forgo at least half (I’d start with 2/3rds) IF you pay them ON TIME on a monthly basis (that’s why you need that job) and IF you talk to the right person with decision authority (this requires some respectful but persistent drilling).

    If you can’t get a job, then I think your best option is to stay abroad, although in the EU they will get you anyway as soon as you file taxes somewhere (although it can take up to three years, even longer in the south)… In the US or Canada, you will need a work visa or marry someone to get the Greencard, otherwise your options are very limited to small employers / contract work who will always take advantage of you, just look at the many Europeans who smuggle themselves as tourists into SF and have to leave broke after a year or two. And no startup can do something with you because the investors will run background checks and don’t do biz with an illegal.

    So, it would have to be a startup outside the EU, like in Switzerland?

    • Or Latin America. Chile, Brazil, Colombia and even Argentina are very inviting when it comes to foreign entrepreneurs.

  • I agree with you. I am very jealous of American start-ups. They just get access to funding that we can only dream about here in Europe and even in the UK. As a owner and director of a start-up (profitable, double turnover every year) we find hard to access funding from British Angels (who want to take your company for nothing) and banks that are so risk adverse (even government loan guarantee’s schemes comes with a requirement for personal guarantee). I am planning to spend 2/4 weeks in SF later this year raising funding.

  • Oh, and please stop referring to (or suggest that) Europe as a country.

    I mean, it’s not a bunch of states united into a thing called Europe. It’s much more like a collaboration between independent and sovereign countries. This also means that EU countries have their own solutions (laws) to common problems (based on economy, knowledge and culture).

    Fijne avond!

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