European High-Tech Startups Thrive, Says Skype Founder

Now head of his own venture capital firm, Niklas Zennström says the markets outside of the United States are big, and growing rapidly.

March 01, 2011

| by Michele Chandler


Niklas Zennström, the man who “shrank the world” by creating free internet voice communications firm Skype in Luxembourg in 2003, is now at the helm of his own venture capital firm that’s searching for the next billion-dollar technology blockbuster.

His company, London-based Atomico, founded in 2006, is looking for hot ideas in Europe and emerging market countries - places far outside Silicon Valley, technology’s traditional stronghold.

Why look there?

Populations and internet use are growing fastest outside the United States, Zennström told students on March 8 at Stanford GSB. His talk was jointly sponsored by the GSB’s Center for Entrepreneurial Studies and the student Venture Capital Club.

“Skype was a very successful company that came out of Europe, and there have been several others as well. That’s very important because it shows you that it can be done, that you don’t need to be in Silicon Valley to start a [technology] company,” he explained. “The markets outside the United States are bigger than the U.S. market and are becoming bigger and bigger. We always want to find people who want to go out and change the world and create worldwide category winners.”

Zennström said he started Atomico because the venture capital market outside of Silicon Valley lags when it comes to funding innovative technologies.

As he saw from his own days as an entrepreneur, “In Europe, none of the venture capitalists had entrepreneurial backgrounds. They came from banking or management consulting,” he explained. It took forever to get funding at a time when “everyone was still suffering from the dot.com crash,” Zennström recalled. “Everyone was still licking their wounds and were very resistant to investing in technology companies.”

So far, Atomico has made more than 40 investments on 3 continents.

He’s particularly excited about two businesses - FON and Memolane.

FON, founded in 2005 by Martin Varsavsky and based in Madrid, is striving to become the world’s first global WiFi network. Members share a portion of their home WiFi network with others, creating a community network that is now in 3.2 million hotspots in 150 countries, according to Zennström and the company’s website.

He said the newest Atomico-funded startup is Memolane, launched this month and jointly headquartered in Copenhagen and San Francisco. Memolane takes photos, video, blog posts, and other digital information now scattered on multiple social networking sites, and consolidates them into a single interactive timeline. Memolane’s founder, Eric Lagier, was formerly the director of business development at Skype.

In 2000, before Skype, Zennström founded Kazaa, a subscription service used to obtain music and videos. After running into legal battles with the entertainment industry at that time, he decided to sell the company. His next startup had a far-flung team, with Zennström in Stockholm and other key team members in Amsterdam. With all the long-distance phone calls that business involved, they decided to invent a way to talk for free, and Skype was born.

Venture capitalists were skeptical of Skype’s strategy to make money with software enabling users to place phone calls for free. “Trying to convince the European VCs, who were much more risk-adverse than the Silicon Valley ones, was hard,” he said.

Eventually, first seed funding came from legendary Silicon Valley venture capitalist Bill Draper, who saw his investment multiplied a thousand fold after Skype was sold to auction giant eBay in 2005 for $2.6 billion, according to the San Jose Mercury News.

In 2009, eBay sold Skype to an investment group including Zennström, who has rejoined the board of the company, which is now run by another CEO. “I decided it would be very frustrating for me to sit in the back seat saying, ‘Are you sure you know what you’re doing?’” he told the audience. “Rather than second guess, I’m very pleased with the decision, it works very well.”

Zennström urged the MBAs to “change the status quo. When Google started, it was not fashionable to be in search. The trick here is to try to figure out the thing that is unexpected.”

Every MBA student should do something entrepreneurial while in business school as a way to try on the role, and experience what it actually takes to sell things to customers. And they should keep in mind that having technology experts, not just MBAs, on their teams boosts their company’s likelihood of getting financing and being successful.

And definitely don’t wait too long to jump on the startup path, Zennström urged: “When you get older, you have a mortgage and things like that. So take that risk.”

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