Bloomberg Businessweek

49

Bloomberg Businessweek August 20, 2018

E

T

This seems obvious: Figure out what you do best and stick

to it. But then, imagine if Apple and Microsoft had stuck to

desktops, Amazon to books, or Tencent to messaging.

urope is also no stranger to unforced errors. London,

its largest inancial and technology hub, has unsur-

prisingly been one of the best places on Earth to

start ainancial tech company. In the U.S., companies have

to contend with each state’s banking and insurance reg-

ulators, and laws may vary widely. A company regulated

by European Union inancial authorities can operate in all

28 EU countries without applying to individual agencies.

And since January, any EU citizen who wants to try the

services of a inancial startup can demand that her exist-

ing bank share her account data with the upstart. But, you

know, Brexit. If the U.K. leaves the EU next year, that British

leg up will vanish.

For now, the U.K.’s Financial Conduct Authority and the

Bank of England remain especially welcoming of young

companies and their experiments. London intech’s streak-

ing comet, Revolut Ltd., has received $336 million in ven-

ture backing and has a valuation of more than $1.7 billion

just three years after introducing its irst product. Revolut

began with a bare-bones, prepaid credit card that didn’t

charge foreign-transaction fees; now it ofers free interna-

tional money transfers, a multicurrency business account,

checking, mobile phone and travel insurance, personal

loans, and cryptocurrency trading. Commission-free stock

trades are next. The service says it has 2.4 million custom-

ers and adds 6,000 to 8,000 a day.

Nikolay Storonsky, Revolut’s Russian-born founder and

chief executive oicer, says he’s in a winner-take-all race to

become the only global retail banking app the future needs.

“If you think that even the average bank is worth roughly 20,

30 billion,” he says, “and then think about a global intech

company, it could be worth, like, 10 times that.”

Or maybe not. In June, Polish banking regulators raised

alarms about problems Revolut was having processing pay-

ments. In July a U.K. newspaper reported the company had

discovered suspected money laundering on its platform,

which might complicate its push for a European banking

license. Revolut said catching the suspicious activity was evi-

dence that its anti-money-laundering systems work and has

ofered to reimburse customers afected by the payment out-

age. But it’s applying for that banking license in Lithuania.

o their credit, each of Europe’s tech hubs houses

promising startups that combine emerging tech-

nologies with the region’s unique brand of engi-

neering and industrial expertise. Promising arenas include

drug development (BenevolentAI), driverless cars (FiveAI,

AImotive), and electric helicopters (Lilium, Volocopter). “You

are starting to see innovation that’s playing on Europe’s core

strengths,” says Yaron Valler, a general partner at Berlin ven-

ture irm Target Global. Not all future tech giants need to be

aimed at consumers. Some of Europe’s strongest contenders

lie in ields such as genomics (Sophia Genetics) and materi-

als science (Skeleton Technologies).

In Helsinki, one of Paananen’s favorites is Varjo

Technologies Oy, an augmented-reality startup making ultra-

crisp, super-expensive goggles for use in ields such as aero-

nautics and architecture. BMW AG and the U.S. Air Force

are among those signed up to test the gear. In Stockholm,

startup Peltarion, whose founders once built AI systems for

Tesla and General Electric, is selling software that makes it

easy for other companies to develop machine learning tools.

EU oicials have also helped deine what a new genera-

tion of Eurostartups might look like by pushing back on the

global tech giants’ concentration of power, tax avoidance, and

steady erosion of privacy norms. Since last year, EU courts

have demanded $15.4 billion in back taxes from Apple and

levied $7.8 billion in antitrust ines on Google parent Alphabet

Inc. (Both companies are appealing.) The implementation in

May of the EU’s General Data Protection Regulation (GDPR)—

which has forced many companies for the irst time to inform

users about, or let them opt out of, the tracking tools that

record and sell their digital footprints—has set a higher bar

for how businesses treat consumers online. It’s an opening

for a brighter vision, one without constant GPS surveillance,

genocides organized on social media, and ever-crappier ver-

sions of Snapchat.

On the other hand, Europe likes to think it’s just crowned

its own Zuckerberg in Daniel Ek, the co-founder of Spotify.

For the irst time since Nokia, the region has produced a con-

sumer tech brand with a name Americans recognize, one with

an app in 170 million pockets. “Success breeds success,” says

Niklas Zennström, the Swedish co-founder of Skype, who now

leads London-based VC irm Atomico. Hjalmar Winbladh,

founding partner at Stockholm’s EQT Ventures, calls it the

Borg efect. After Björn Borg won Wimbledon in 1976, every

Swedish kid took up a racquet, and a slew of them became

Grand Slam champions or contenders themselves. (Today,

the Ek efEkt? No?)

Spotify may not turn out to be Apple’s worst nightmare.

Already, analysts are fretting about the stalling growth of its

free service and waning per-user revenue for the paid version.

There’s good reason to think the company will have trouble

reaching a $100 billion valuation without at least diversifying

into other forms of entertainment.

But Spotify isn’t Europe’s last hope. “We are in a very difer-

ent state than just a few years ago,” says Bernard Liautaud, the

managing partner at London venture irm Balderton Capital

LLC, who previously sold software company Business Objects

to SAP SE for $7 billion in 2007. “We have full ecosystems with

incubators, angel investors, and seed funds, as well as entre-

preneurs with real desire to build big companies.”

It’s like astronomers found the perfect Earthlike planet,

full of water, oxygen, and all the conditions necessary for

intelligent life. Now the jellyish there just have to evolve into

something bigger.  —With Stefan Nicola