Europe, Israel spawn more startup mafia despite tech rout: Accel

According to Accel, the average time for a startup to reach unicorn status in Europe is now just seven years.

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Europe and Israel are casting an average of five tech startups for each venture-backed company valued at $1 billion or more, according to a new report from venture capital firm Accel.

Citing Dealroom data, Accel said 221 of the region’s 353 “unicorns” have spun out 1,171 new technology startups as employees left to start their own businesses.

A similar report from the firm last year showed that 201 of 344 venture-backed unicorns spawned 1,018 new startups.

The biggest examples of former talent going on to start new companies include Spotify, which spawned 32 new companies, Delivery Hero, which spawned 32 new companies, and Criteo, which spawned 31 new startups.

These types of companies are known in startup circles as “the Mafia”—no, they’re not like the thugs in Italian-American gangster movies. The startup mafia has been around for decades. These “mafia” are companies started by employees of other tech companies and have historically led to the creation of some of the largest tech companies known today.

Elon Musk, for example, started electric car maker Tesla and space exploration company SpaceX from US fintech giant PayPal, while Peter Thiel co-founded big data company Palantir and is now a prominent investor with his Valar Ventures and Founders Fund The venture capital company.

Venture capitalists say the entrepreneurs come from a risk-taking culture in Silicon Valley that didn’t exist in Europe for years.It began to take shape as mature internet platforms such as Skype emerged, Niklas Zennstrom founded venture capital fund Atomico and Taavet Hinrikus co-founded fintech giant Sensible.

“I did it in Palo Alto on the west coast about 30 years ago when I came back to the valley to start. Then I went back to Holland and my friends and parents would say, why would you do that? Why wouldn’t you Going to work for Shell or Unilever? That’s holding Europe back,” Accel partner Harry Nelis told CNBC.

“Now, unless you come out of college and learn the exact same way I did, then you go straight into a startup — not like a startup, but a full-fledged company where you learn a craft and then You’ve had your career — I think over time this new philosophy will help Europe and has been helping the ecosystem.”

Today, companies like Spotify, Delivery Hero, Klarna, and Wise are founder factories in their own right.

The largest group of newly formed startup mafia comes from fintech, with almost 20% of European startups spun out of the sector’s unicorns.

According to Accel, startup employees in Europe and Israel tend to choose their own cities to start new businesses, with more than half of new companies founded in the same city as the unicorn they exited.

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Tel Aviv is the largest single center for producing start-up factories, with 127 new companies spun out of 33 unicorns, Accel said. In Europe, London has the most single-city startup factories, with 27 unicorns and 185 startups, while Berlin follows with 25 founder factories and 165 startup spin-offs.

More than 59 percent of startups from the so-called startup mafia have managed to raise venture capital funding, with 45 percent attracting roughly $1 million to $10 million and 30 percent more than $10 million.

The data also provides insight into people’s journey to becoming a founder.

According to Accel, it takes second-generation founders an average of 28 months to launch their startup, and the average age of these entrepreneurs is 33.

Three-quarters of second-generation founders have received higher education, including 60% with a master’s degree.

More than 59 percent of startups from the so-called startup mafia have managed to raise venture capital funding, with 45 percent raising around $1 million to $10 million and 30 percent getting more than $10 million.

The average time for a startup to reach unicorn status in Europe is now just seven years, Accel said.

bleak outlook

Still, with rising interest rates, the outlook for tech startups has dimmed, putting pressure on valuations of late-stage companies in particular. Companies like Klarna have seen their market caps plummet as investors reassess the tech sector.

Last year, more than $400 billion was Erasing the value of Europe’s tech industryaccording to data from VC firm Atomico.

Layoffs have also plagued the industry.Music streaming platform Spotify cut 6% of its workforce, “buy now pay later” company Klarna announced 10% layoffs, and remittance unicorn Zepz recently announced layoffs 26% of employees fired.

An Accel spokesman said the impact of layoffs on the new generation of startups was not addressed in its report.

But despite the bleak outlook for tech, Nellis said he is hopeful about the future.

He said the figures showed that Europe’s tech industry had matured to a level where employees were able to muster up the courage to leave to start their own new companies.

There is now a flood of talent that employees believe has the skills and experience to turn their ideas into full-fledged businesses.

“While founders and their teams are navigating a difficult macroeconomic environment, the European and Israeli tech ecosystems are in a better position than they were during the 2008/9 financial crisis due to the compounding effect of repeat entrepreneurs,” Nellis told CNBC.

“With more than 350 venture-backed unicorns across the continent, we firmly believe that this solid foundation of talent and success will be passed on to the next generation of ambitious entrepreneurs.”

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