Mississippi gives Research Commissioner the blues

There is a story EU Research Commissioner Carlos Moedas has been telling people for three years.

It originates in Davos 2014, and a meeting with Swiss venture capitalist Aymeric Sallin, who complained he could not find anyone in Europe to back a brilliant new technology: electrochromic windows that can moderate internal room temperatures.

Moedas regularly hears this kind of thing. The denouement is usually the same: the opportunity and the spoils are captured elsewhere, usually in the US.

Sallin, a Swiss emigrant who is founder and CEO of NanoDimension, a California-based venture capital firm specialising in nanotech investments, helped find backing in Mississippi.

There, the company, View (formerly called Soladigm), built a factory to employ more than 300 staff. In 2010 it was promised a state loan of $40 million, plus $4 million in other incentives, according to a news release from the Mississippi Development Authority. The company is now fitting its electrochromic windows in the headquarters of Netflix and LinkedIn.

Sallin, who is on the View board, shared the story at a debate co-hosted by the Swiss government and the European Parliament in Brussels on Wednesday. Commenting on the Mississippi deal, he said “I couldn’t get that in Europe.”

There is continued frustration among policymakers in Europe at being bested by the might of Silicon Valley or Cambridge, Massachusetts, but losing to Mississippi, which does not have a reputation as a technology cluster, was even harder to swallow.

It’s the money, stupid  

For Moedas, the crux is that Europe is a dwarf when it comes to raising money for bold ideas. “The average fund size in Europe is €60 million. It’s nothing,” he said.

The cold figures say the US VC market is five times bigger than the EU’s. If European VC was as flush as the US, about €90 billion of extra funds would have been available over the past five years to finance young companies, according to EU data.

Since emigrating to the US over ten years ago, Sallin has tried - and failed many times - to find backers for cool new projects in Europe.

“We’ve been desperately looking for deals but we cannot find the middle management here to make them happen. Since 2007, we have made 16 deals and raised €190 million in the US. We have one deal in Europe worth €5 million in the same time,” he said.

For Sallin the issue is that Europe’s pool of talent rarely cuts it. “Yes, we have the science here in Europe but [we often lack] the know-how to build massive companies. We don’t need more Nobel Prize winners – we need people who will make technology work, Sallin said. “You need to think about infrastructure, middle management and the technology.”

Belgian Werner Cautreels, President and CEO of Selecta Biosciences, a clinical-stage biopharma company based in Boston, is another successful entrepreneur/emigrant. He left Belgium for the US in 1987, returning for a brief period to manage Solvay Pharmaceuticals, before it was sold to Abbott Laboratories in 2010.

Cautreels reeled off a checklist of points which come up time and again when talking about the difference between the US and Europe. “Failing in Europe is not seen as a good thing. Failing in the US means you tried,” he said.

Add to that the problem of finding leaders in Europe, the limited size of private funds and endowments, and the failure of European regulators to grasp new ideas quickly enough.

“We have very good places but it’s all still very disconnected. In Boston, you see all the good people at lunch in the same place every day,” Cautreels said. 

Learning the lessons

If Europe has plenty of very good technology start-ups, the US really runs the show when it comes to growing mature and successful tech companies.

Yet for all the talk about US dominance, and the sometimes sweeping generalities about Europeans and Americans this entails, it is tricky to pinpoint lessons Europe can replicate.

The circumstances that led to Silicon Valley and Cambridge Massachusetts may never be repeated, but Europe has had a go, with tech hubs like “Silicon Fen” in Cambridge, “Silicon Allee” in Berlin, and “Silicon Docks” in Dublin.

It was suggested the difference is outlook is down to entrenched cultural difference, American funders painted as fearless-gamblers, backing businesses that burn through cash and without a dollar in revenue. In comparison, It is not easy to find European investors willing to take such risks.

For Moedas, the argument that the US has a more risk-taking culture is a myth. “There are Europeans in Silicon Valley, from the European culture and [they] make it work. So I think it’s a case of incentives and not culture,” he said.

It will remain a challenge to match the biggest companies in the US, but Moedas believes deepening Europe’s pools of investment capital is part of the equation, and he is working on developing a new fund-of-funds, which has the goal to make VC funds across Europe bigger.

Moedas also wants to change the way Brussels tries to picks its innovation winners. The new European Innovation Council (EIC) will prioritise the quality of people over their ideas, and generally experiment a bit more, he said.

Sallin said the one change he would make in the morning, if he had the power, would be to do away with salary caps on university professors. The President of the Swiss Federal Institute of Technology in Lausanne makes €350,000 in a year. It should be much higher. “A cap removes 90 per cent of the candidates,” said Sallin. “Let the guys make some serious money. The president of Stanford is making millions.”

His other main plea was to give help to regions so they can specialise. The phenomenon of clustering, where businesses in the same sector huddle together for mutual gain, is very real. “Identify the regions of Europe where the strategic benefits are. Then drop money and give them a serious competitive edge,” Sallin said.

Policy makers need an entrepreneurial edge too

Europe needs to stop the tokenism, said Mark Ferguson, head of Science Foundation Ireland and chief science adviser to the Irish government. “We need to be as genuinely entrepreneurial as the people we serve, and we’re not currently,” he said.

Ferguson speaks from the perspective of having been one of those European entrepreneurs who suffered the ignominy of failure. Renovo plc, the company he founded to commercialise his research into wound healing and scarring, raised £50 million when it went public in 2006. Products advanced to the late stages of clinical development and at its height Renovo employed 170 staff.

But it all unravelled in February 2011, when the lead product spectacularly failed to show any effect in phase III trials. Renovo’s shares lost 75 per cent of their value in one day.

Ferguson described one policy the Irish government has used to build its investment community, saying, “We’ve said that we will invest money from our pension funds into venture capital funds – the one condition is that [VCs] must open an office in Ireland.

However, that is as far as the arm-twisting goes. “I’m not going to tell them what to do with their money, or tell them to invest in something which is [no good],” Ferguson said. “If VCs can’t find good investments, it’s my fault.”

Christian Ehler, German member of the European Parliament, was on hand to pour some cold water on the grass-is-greener Silicon Valley talk, saying it is important not to overlook Europe’s many advantages.

Social welfare is better. The average European is richer than the average American. Entrepreneurs here do not pay the same astronomical childcare expenses they would if they were in California, Ehler noted.

However, he thinks lighter regulation would stoke innovation. As one example, “If you really want to do something for big data, get rid of EU data protection regulation,” Ehler said. And in common with Moedas, he thinks Brussels should experiment more. “Even if the EIC costs €100 million, let’s just do it. We have €80 billion.”

Editor’s Note: This article was corrected on 23 March 2017, to reflect the amount of the loan that Mississippi promised to View, and the number of jobs expected to be created. In addition, the role of Mr. Sallin in the investment has been clarified; he is a member of the company’s board of directors, as well as CEO of NanoDimension, an investor in the company.