Why Can’t Europe Create Tech Giants Like the U.S. and China?

You know what’s cooler than a $1 billion company? A $500 billion company, many in Europe think.

While the region is giving rise to more of the world’s most promising technology companies, the giants of the industry mostly come from the U.S. and China. For now, there’s no fast-growing equivalent of Ant Financial or Uber in Europe. Two of the most promising tech firms—Sweden’s Spotify and Germany’s Zalando—have a combined market value of around $42 billion, according to data from GP Bullhound. Alibaba is worth approximately $480 billion, and Facebook’s market cap is $550 billion.

Among tech firms founded since 2000, European companies lag far behind in valuation terms:

The disparity is notable given that the EU’s $17 trillion economy is comparable in size with the U.S.’s and bigger than China’s. And there is no shortage of talent; Europe churns out plenty of top-of-class mathematicians, computer scientists, and software developers.

Big money

One of the biggest reasons Europe lags behind the rest of the world is funding, and in particular the size of the funding rounds, according to Manish Madhvani, managing partner at GP Bullhound. Raising large amounts of money allows young companies to quickly put together all the pieces of a business they need to keep up their momentum.

The biggest American and Asian tech firms created since 2000 raised an average of about $7.3 billion, while the European equivalent was $1.6 billion, according to a report by the advisory and investment firm: “Without an increase in mega rounds Europe will never catch up with its American and Asian competitors.”

There are signs of a pickup in funding, however. Nine companies, including fintech firms TransferWise and Klarna, raised $200 million or more last year, according to GP Bullhound. There were only two that raised that much in 2013 (one of them was by Spotify).

Given this optimism, GP Bullhound thinks Europe has several promising candidates to make it to valuations of $50 billion or more:

Pay it forward

Another reason Silicon Valley sprints ahead is because of its culture. For Maria Scott, CEO of TAINA Technology, this is even more important than the venture capital money sloshing around in San Francisco. The London-based co-founder says the mentorship, support, and advice from veteran tech entrepreneurs in the Valley is “palpable—it’s like walking into an oasis.”

The startup network matters when the going inevitably gets tough, and a founder is tempted to sell the business or lower her ambitions. Seasoned counsel can give a young executive the confidence to keep going, Scott says: “You can only get that from people who have done it many times.”

In London and Paris, there are high-profile efforts to foster a stronger community. TAINA, a regulatory technology firm, ramped up in Level39, which was founded in London’s Canary Wharf to build a community of mentorship and support for tech companies. Scott says these kinds of programs are making a difference, although cultural change takes time.

GP Bullhound’s Madhvani says Europe didn’t originally have that pay-it-forward mentality, but it has increasingly adopted it at a time when the spirit of giving in Silicon Valley is arguably being distorted by superstar celebrity entrepreneurs.

He says you can tell European startups are opening doors for each other because there are more billion-dollar companies. There are 69 unicorns in European now—led by the UK—more than double the number in 2014.

Share the risk and reward

Index Ventures started in Europe more than 20 years ago, and invests in a portfolio that’s split between companies on both sides of the Atlantic. The venture capital firm argues that one of Silicon Valley’s “key ingredients” is employee ownership through stock option grants, which help tiny startups attract top-tier talent.

It creates a virtuous cycle—the success of “Google millionaires” helps pull more bright minds into the ecosystem. Besides motivating young coders to work hard, it also encourages them to stick around the company long enough to reap the rewards. Index published a book to help founders in Europe navigate the complexities of stock-option regimes in a region made up of 30 different countries.

Criteo, an advertising platform founded in Paris, discovered this difference when it expanded in the U.S. and began hiring: “It’s just not part of our culture,” said Jean-Baptiste Rudelle, CEO of Criteo, one of the executives quoted in Index’s book. “Interview candidates in Paris asked us about meal tickets, not about share options.”

The company agreed with the principle of sharing the reward, however, and adopted the practice. At least 50 employees became millionaires when it floated on Nasdaq in 2013.

It’s also worth asking whether Europe wants a tech titan. What’s the point? Facebook and Google, after all, have become powerful surveillance behemoths—potentially monopolies, depending how you define it—that governments aren’t sure how to regulate. The EU is wary of these kinds of issues; it has strengthened its data protection laws, while competition officials have taken aim at U.S. tech giants.

Madhvani agrees that some officials in Brussels would probably prefer there weren’t any tech titans—at all. Even so, if the growth of Big Tech is inevitable, he points out that Europe’s watchdogs would probably rather that the key players were European.