Europe’s future GDP growth needs tech: Niklas Zennström, CEO at Atomico

0:00Niklas Zennström:Hello and welcome to the Scaling Europe show presented by Deal. This episode is sponsored by SurrealDB, the multimodal database for AI agents. Omni, the AI analytics platform trusted by growing companies like Perplexity and Symbesia and VentureComet, the platform that gives startups and scale-ups real-time equity tracking, daily business insights and automated management information. Thank you for joining me. Please like, comment and subscribe.

0:32Niklas Zennström:Hello and welcome back to the Scaling Europe show. I'm Seb Johnson. Today we are in the Atomico offices with Niklas Sendstrom. It is amazing to be here. Thank you for having us and how are you doing today? Yeah, well, thanks for coming here and looking forward to this conversation. Absolutely. You're one of the OGs of European tech. You've been building, investing across the ecosystem here in Europe for a long time. And crucially, before it was a done thing, before we had an ecosystem, you were building your first tech company. so the very first question i want to ask is why why was tech the thing that you decided that you want to focus on yeah sure it's a great question to start with and that why has probably shifted also along these 25 years so i decided to be an entrepreneur in christmas 99 and and then quit my good job and chinovic and and kind of timed that with with the dot-com crash at that time it was i thought it was a life once a lifetime opportunity with a dot-com era that's like now is the gold rush now is opportunity i was having an employment providing internet services so i thought i need to use beyond this journey and then the crash came and i first was like oh damn i missed the life opportunity but i was of course so wrong right because it was just the beginning but for me it was like first of all I had always like since school and probably like always thought at some point I wanted to be an entrepreneur and wanted to be building my own company but when I went to university in Sweden and in the US we didn't like didn't really know what entrepreneurs what was it you know did I didn't see an entrepreneurs around me they didn't you know you could of course you knew about you know Steve Steve Jobs and Bill Gates, but that was like so far away, you cannot relate to it.

2:21But I had that intuition, it's like, yeah, it would be great to build a company, to be independent, to build something. So that was the why to be an entrepreneur in the first place. And then why do it from Europe? Because the easy way would be to buy a one-way ticket to Silicon Valley and test your dreams there. and I think it's because I used because in my previous capacity when I was actually working for the Tele2 group building internet services all over Europe I came across talent and and we built a really good tech team that I then recruited when we built Casar which was the first company so we already had I already had a network here in Europe so that was like kind of the obvious thing and so yeah I didn't feel the need to have to go to Silicon Valley I thought we can build it from here but back then it was like pretty hard

3:17Niklas Zennström:Yeah yeah and yeah of course there's absolutely nothing around back then and you've been a long-standing advocate for European tech you know you built your firm investing in great European companies Yeah Why is tech important for Europe? Yeah so it is critical and so if today is more important than ever but even back then my mission was then to build with Atomico when we started 20 years ago today was to be a champion of building European tech which I realized that with Skype when we had this big outcome with eBay in 2005 so that was like the first really big outcome and people maybe thought that we were the one-hit wonder and it was just, it's really Silicon Valley was at the time the only place.

4:11And for me then, it was about that we need to have tech companies everywhere and entrepreneurship. And in the beginning, it was more about it's just important to have entrepreneurs and we cannot be left alone, left outside. and so I think that's why in the beginning and why the importance at the beginning was probably just more about we need to have entrepreneurs because we didn't have it and we could and for me that has evolved over the years that it's become over these 20 years with Atomico I think it's been evolving so that it's become the importance and the why is becoming even more important it's not just having entrepreneurship and tech companies for its own sake.

5:00It's actually now we see more than ever how critical it is for Europe as a region to be part of the global agenda and to be relevant worldwide in the next 20 years. It's about GDP growth because GDP growth comes from innovation, from companies. Of course, some GDP growth will come from incumbent companies, but most GDP growth in the next 20 years is going to come from innovation and technology companies. It's about being independent. It's about also being sovereign. So those are the key reasons why it's more now important than ever also that we are chistening the gear and becomes even more ambitious.

5:46Niklas Zennström:And I think on the GDP growth first, you look at the American economy, I think it's grown by 50 % over the last 15 years. compared to like 20, 15 % across the most European economies and predominantly driven by tech. How do we make sure that we capture the GDP value here in Europe? You know, one of the things like that, we see the different stages. We have the founders, we have VCs, we have LPs. Across that stack, there's different opportunities to lose or leak that value for other places. Exactly. One of the things I was talking about this week was Lagora. Lagora is an amazing company built by Swedes in Stockholm.

6:24Niklas Zennström:When you look at the cap table, 11 of the 12 VCs are American. So so much of that value is going to end up getting lost. So when we look at, for example, at the VC level, how do we make sure that we can capture that value here in Europe? It's an excellent point. We've done so well over these 20 years, 25 years in dot-com, the beginning of European tech because nothing existed. we've done sort of an amazing job to create companies the more companies being created in Europe than other regions that also get funding we really caught up on that earlier stage pre-seed, angel pre-seed and seed phase kind of series A we're really caught up, we're almost in parity with US which is fantastic but to your point when it comes to scaling that's when we have a huge funding gap in Europe we just have less capital and you know if you look at Atomico we're one of the larger firms in Europe we have a venture fund we have a growth fund but some of our bigger US peers are significantly bigger than we are so it becomes hard when companies are raising bigger rounds it's just harder for European funds to participate because we don't have the size so what we need to do as European funds, we need to scale up as well.

7:54We need to be bigger. And so we can be... And why does it matter? Because if you look at... Legor is a good example, but even if you look at Spotify went public or Klarnau or Adyen many years ago, most of that value have gone to foreign investors, primarily in the US and some Asian investors. and coming back to that question you had before why this all matters is about gdp growth right it's like we need to make sure that so one thing that the best companies they can raise from whoever they want that's not the problem for them it's not in short term is not the problem i think long term is an issue um we can come back to that but we need to ensure that that value comes back to European economy so that we can fund universities and schools and everything we have in Europe.

8:51So we have huge amount of institutional capital in Europe primarily in the pension funds and life insurance companies and but they're conservative so they are not investing that much into European venture they The pension funds in Europe are investing about, I think it's less than 0.05 % or something of the AUM into European venture through European venture funds. So they are missing out on that opportunity. And then you look at the European pension funds in terms of their performance. It's okay. You know, single digit, you know, and they're investing in public stocks and whatever. Then you look at some of the top performing US pension funds, which are heavily investing into venture, you have significantly higher return profile so that they actually provide more capital to them and more money to the future pensioners.

9:50Niklas Zennström:Yeah. So what we need to do, so the low hanging fruits that we have is that we need to convince the pension funds all over Europe to lean in for two reasons. One, to ensure that pensioners are getting better returns in the future. And two, that also we ensure that there also are European investors into these companies. And that goes back to the other point I had about why it matters for the companies. Because the more of these scale-ups, the more of their cap table and boards are, say, U.S., there's a big pull to U.S. and what we need to have. I mean, that goes back to the other kind of why question about, you know, being relevant in Europe, right?

10:36So that we need global companies that are, you know, headquartered and in Europe. And you know what? We have some really, really great role models today, right? We have Adyen where, you know, they're still headquartered in Netherlands, in Amsterdam. They actually, they're listed also in Amsterdam, which was fantastic. and you know the founders still around the company spotify you know same thing uh headquartered in stockholm global company drana headquartered in stockholm um global company the founders are still leading those companies delivery heroes salando the same thing so we have some role models now

11:16Niklas Zennström:that other founders can look after and to your point about the lack of late-stage capital and specifically on those lps yeah why do you think there has been that funding gap like why why have they been especially when we're seeing strong funding as you say at the early stage we're seeing you know emerging managers establish funds be able to raise large early funds what is it about the late stage that lps just don't have a conviction on yet yeah it's it's it's just a lag um you have to understand that like on on the kind of risk-taking scale on one hand you have the founders who are taking high risks it's crazy super kind of naive as you need to be when you're a founder because the likelihood for you to be successful is pretty low so you have to believe and you take that risk and the risk that you lose is is that you fail is is is high but it's it's you you gain an experience then you have the early stage investors uh angel investors who maybe do an angel bet and they kind of kind of write off the investment and then it's an optionality then you have like the early stage venture funds which have a portfolio approach but they are very what's amazing today is like most seed funds are led by partners who are very entrepreneurial themselves.

12:33Many of them have been operators or founders themselves so they are naturally risk takers. then you come to the like larger platforms like us of course we are risk takers we understanding our business models are taking thick bets now you come to the pension funds and this large institutional money they're not risk takers right they're looking at single digit steady return they are employed and they're paid to minimize risk and they are not kind of trained or wired to look into the future they look in the past right so then they look in the past 20 years data and try to see okay what are the evidence in the past 20 years that i can see that this asset class is performing or are relevant so that's why it's been a challenge historically to raise larger funds in Europe.

13:30The good news is that now they get it. You know, we've been publishing the State of European Tech Report for 11 years now when we started to do that to educate. And most of the institutional investors, the big pension funds, they really get it, that they really need to lean into venture and to European venture. The good news is that the pension funds and other large institutions, life insurance companies, they really now understand that they need to and they should invest in the European venture because you can see that it's a well-performing asset class. And now it's just more about how they go about to do it.

14:11And as I said, they're all kind of not risk takers. So it's hard to find the trade basers. So, you know, we spend a lot of time educating them, having, you know, roundtable lunches and meetings and it's a journey. But I'm also confident that they will start to allocate more and more into a venture. It's just about trying to get them to do that. And also, again, it's like because they're afraid of making mistakes. So then if they understand, okay, the asset class is something I should have access to, then the next step is like, okay, which are the managers I should have access to, right? And then that's where they are struggling because a lot of these pension funds are not they don't have the teams to evaluate um and uh many of the you know they're also like in the uk they're like subscale so there are also a lot of good initiatives um that are happening to reforms to kind of make it happen so i think it's not happening over overnight but we can see that already now that some of some of the big institutional investors and now looking at like significantly increase you know their sizes and what we're trying to take them on the journey and explaining that you know the many of them have been part of them investing in a lot of the big buyout private equity firms which have of course scaled to become really really big you know in in in in swedia we have a lot you know several you you know, Ecutine, Nordic Capital, and Altar, and Triton, and others.

15:49So it's about, look, you were successful there. This is an asset class that you, an invention that you should also have access to. We're dealing with one kind of myth that we have to bust, which is that venture is risky. And they read in a newspaper that a big company went bust, right? And of course, it happens all the time that big companies raise a lot of money and then something happens and they run out of money and they crash and investors kind of lost money, which culturally is not a great thing. And that's on an individual basis. So the basic education that we're trying to do is also that diversification, right?

16:33And it is interesting when you look at venture and also European venture in particular as an asset class. it's like if you are investing in in funds um like even if you have a single manager you know over vintages it's like if they're good right then you will always make kind of always make money but if you make if you invest across several funds across several vintages it's it's outperforms private equity and you know we looked at the data even you know the some of the worst performing venture funds are about the same as the worst performing growth funds but it's it's it's uh and so that if you think about it on holistically if you if you have a diversification across several venture managers several uh uh exposure of course then therefore also to different sectors um and vintages then you're investing in innovation long-term innovation and you're taking a bet that technology always gets better and technology always have new technology always have an opportunity to transform and make something all the better which is pretty basic and if you believe in that that you know that that that technology you know throughout history has created wealth and value then you should that should be a no-brainer to invest in venture but that's unfortunate to how they always think.

18:03Niklas Zennström:Yeah, yeah, yeah. So we definitely need more capital, not just more capital, more late-stage capital from European LPs to make sure that we capture that value here in Europe. You know, when we look at GDP, we look at technology as a driver of GDP, it's about 15 % in Europe. We want to get to 30 to 50%. Late-stage capital from European LPs. What else do we need? So what we need more, there's the ambition. we need to kind of really really really up our ambition um and and i think and we are we are gradually opening our ambition i can tell you like when when we raised money for skype and said hey we're going to create this peer-to-peer company that's going to transform the global telecom industry it's like this is like what why don't you just do something in copy something to the u.s in in one market and you have a language kind of uh advantage like no we're not interested in that.

18:57So that back then it was like ambition was out there, right? Today, if you look at some of the latest cohorts of founders in Europe, they want to build the biggest companies in the world. And I think it's like if you go to Stockholm today, there's no doubt that that cohort is like a few of those founders is like, yeah, of course, we're going to build much, much bigger companies than Spotify. Just like when Sebastian and Victor and Nickles built Klarna, they kind of drafted like we can build as big or maybe a bigger company than Skype as they did because with time, the opportunity set just gets bigger.

19:40So ambition, we need to continue to raise the ambition level. There really is no glass ceiling in Europe. There's nothing that holds companies back to become as big as any other company from other you know from u.s or china there's nothing that holds that back there is more friction however um you know we do have friction in europe that's just the reality um you know out of this whatever 440 plus unicorns from from europe as a region uh which is amazing number by the way it's like we have it's a divide you know the total value of European tech is 3.8 trillion dollars been growing 12 % CAGR the last five years which is like amazing and and I would never if you had asked me 20 years ago a big European tech would be I would not say that number I would say something significantly lower so ambition and and and so going back to the friction so we have had this company founders building amazing global companies despite this friction so the friction is not hindering companies to be built friction is not hindering companies to scale it just makes it slightly harder yeah and i think that's important nuance because it doesn't stop companies like from happening but we would like to remove that friction as much as we can the reality is that i think that's also one of the beautiful thing in Europe that we have these 30 plus countries uh of course different languages and and and uh you know some countries are really smart about together to this union which is great um because European tech is really one like yes we have the hubs and everything which is great but entrepreneurs are really fluid very mobile also the investors so we you know it's one community really yeah so all if you ask any entrepreneur and investors like we would like to have as much harmonization as possible there are great initiatives uh which is good you have the eu inc the 28th regime which will make it uh easier to to incorporate companies online very quickly uh and very in a simple way which will make it easier for investors to invest in companies for different countries.

21:58It will make it easier for companies. So that's a very, very, very good start. There are more things that need to happen, though, that is harder, which is about taxes and employment law, which still each country, also within the EU, are still very protective of their own kind of employment and tax situations. You can say, in a way, it's good because it makes it competitive. So, of course, founders can figure out where to start their companies but ultimately as a scale because i'm talking about scale-ups they need to employ people in many different locations and taxation of stock options is problematic because it's not harmonized so it's very it's like a whack-a-mole it's like you've tried to optimize it in one country it's not optimized in another country um and so that's that's certainly one thing that we need to to work on and the other one is just make anything be easier to hire and and fire people because as we see throughout the cycles and you know you have a company that's scaling hiring a lot of people something happens it becomes a bit harder for them to raise money they have to reduce their workforce significantly and that it's very costly and more costly so in some countries and it really is no benefit to anyone because the reality is that those individuals will get snapped up in another scale up you know the day after so that's something that we need to kind of recognize and and and and fix so that it becomes easier to to to uh uh yeah to to hire you know because then the companies will hire more actually yeah

23:36Niklas Zennström:when you talk about some of these things that we need to happen in things like eu inc but also uh you know employment law tax changes a lot of these things would almost require some giving up of local sovereignty yes to europe or eu and there's a lot going on geopolitics about the US and China. Do you see a future where Europe becomes more federalist? That I don't know. I think it's so ingrained in I think. I also think it's a beautiful thing that we have all these little bit nations. But I think that it shouldn't be impossible to imagine that just like you have this you know, the EU, being the 38th regime, that you apply that to employment.

24:28Maybe just like an opt-in that for individuals as well, like, yeah, I'm going to opt in to be employed in this 28th regime, which is much more flexible, kind of like you don't have the job security maybe, but then on the flip side, maybe that taxation on your stock options could be more as capital gains actually used based on cash, cash proceeds rather than something else. I think it's doable, but I think it's a lot of resistance. The best thing that happened, not the best thing, but sorry, I would take that back. We had a big Catholic moment a year ago, right? When Trump came in and he basically told us, like, you know, you guys, you're going to be on your own.

25:13And that has really woken up people. and on the highest level and Ursula von der Leyen has been you know, doing some really, really powerful speeches you know, at Davos she was speaking at Italian Tech Week last year when I was there she gets it she talks about this is well, this may be an unfortunate situation but she says that we need to be independent this is like permanent and what's critical is to create the best platform and environment for startup and scale-up. She understands that startup is working well. Now we have to do the scale-up. She gets it. And so she's also kind of proponent of the 28th regime and that we need to do even more.

26:04I think on the country level, I don't hear as loud voices, which is interesting. Some countries are, you know, certainly Macron has been a big proponent for many years, right, for building the French tech ecosystem. I think what the challenge we have is that when it comes to a national level, when it comes to kind of putting money to work and whatever, they want to make sure it comes back to their jurisdiction. and then we get this fragmentation. We need to understand that for Europe to be relevant, we need to do it on a pan-European level. And when I say that, I also include UK. I think that's like, maybe there's an elephant in the room, but we as investors and entrepreneurs, we would love this one region for us.

26:54We take the train between London and Paris, two and a half hours all the time. It doesn't matter. But it's unfortunate that this is this fragmentation because the UK is still a third of all venture investments in Europe.

27:07Niklas Zennström:Yeah, it's amazing. It's one of the things that I've always, I've spoken to the EU and Tim about because we talk about it as Europe as opposed to necessarily EU specific, but it does look like there'll be an opt-in available hopefully for the UK. I want to talk about Sorovinti. Before we do, I've got one more question on GDP growth and it's specifically around climate policies. So we're seeing, you know, the growth of AI that we need, energy, and Europe has always been quite proud of its kind of leading the globe in a lot of the energy policy and climate change. Do you think that now some of the climate policies that we've implemented have hampered GDP growth?

27:41Good question. Not what I can think of right away. I think we are in a cycle right now when we try to ignore the climate because we have other things to deal with. and the kind of current discourses like, oh, climate is in a way for growth. I think, unfortunately, the climate crisis is still there, whether we talk about it or not. And I'm personally a believer that if you take a longer perspective, like a 10, 20-year perspective here, companies and nations who are addressing the climate transition are going to be coming out as winners. In a competitive environment between different nations and jurisdictions, if you are then adding too much restrictions or incentives, whatever you call it, for climate transition, you know in the short term it might be less competitive you know we see that now with we were very progressive in Europe with about about when you know we would stop selling combustion cars which have now been delayed because to save the European car industry and the European car industry is pretty important for economy, right?

29:20And then I think it's a really, really big challenge because at the same time the country that is now leading the green transition is China, right? This is like, so and because they lent into it and so I think that it's a very, very short-term thinking to kind of try to be if you think that ignoring climate is going to be good for business.

29:48Niklas Zennström:Got it. And let's talk about sovereignty. It's like a real buzzword in tech. With everything that's gone on the Trump, it's become a really hot topic. What does it really mean to be solid? Where do we draw the line between strategic vulnerability versus a level of healthy independence? It's a very good question because it's kind of undefined. What does it mean? It's a great word and I think people buy into and I think it's so many multiple levels and the reality is today that if you do a thought experiment and if you would kind of cut the internet cord between in Atlantic and we no longer have access to the US internet and we would not have supply from US hardware we would be challenged You know, we have a problem.

30:47And then we call code red, and it's like, okay, we need to do something. We're not there. I don't think we'll get there, to be honest, and I really hope we're not. But I don't think it's like, I think it's extremely unlikely, right, that it will happen. But it's an interesting thought experiment. You know, it's like, if you look at China, that happened to them, right? It's like today, Western tech companies, you know, didn't want to sell to them, and they want to be independent. So they built the whole stack. They might not have the GDP, the AI processors yet, but they have built a lot of the stack.

31:26In Europe, we don't have that incentive because we're super happy to use our Apple devices or NVIDIA chipsets. And on a software level, we're super happy to use Google and Microsoft then we're using meta social networks and stuff like that. And I think it's a problem because these companies are just monetizing our consumers and our enterprises, right? So we have to use economy. I think that's not the recipe for growing our economy. But also it's about values. I think that I'm really proud to be European. I lived in the US, went to school there twice, high school and university, and I think there's so much great things in the US.

32:23It's like the ambition and amazing. But I'm also very proud to be European. So I think we need to make sure that we can have that economical growth, but also coming back to values. I think that today value seems to have diminished in tech.

32:44Maybe 10 years ago or something, there was a lot of, and before that, there was really sound values in general. Entrepreneurs wanted to build companies with, we talked about stakeholder capitalism, and then you'd think about all different stakeholders. And that in the US seems to be not relevant anymore. now it's just an arms race to be the world dominator and uh and um and therefore values about you know privacy and and and you know third party consequences doesn't seem to be that relevant um even those who think those leaders which are some which think is relevant they cannot do much because then because the competitors are not considering it so i think that if we can have build realist scale-ups in Europe that are global relevant, but they're rooted in fundamental European values.

33:38I think that would be a good thing for the world as well. So, I mean, I don't know if that's okay. So that's on the sovereignty, right? It's like, you know, if you think about that whole stack, it's like, is the critical infrastructure that runs the internet on? You know, the chipsets, You know, there are problems. We see several companies in Europe building, you know, chipsets and no one is yet competing with NVIDIA. We have ASML. There are other kind of next generation of photography companies here in Europe that are promising. So that's one. And then we have the kind of the operating systems, right?

34:26We have some of that that are European. Linux is European. So there's like a lot of actual operating systems is open source and kind of actually from Europe. I think then on the, then I think a lot of the kind of infrastructure layers and on the kind of the stack on cloud and so forth, I think that's also changing. So there's, I can see, we see a lot of startups that scale up in Europe that are building that as well. I think then the social network layer is important because that's where kind of the discourse and kind of democracy matters, which is under a lot of threat today. And the social networks today, they're just about extracting value from consumers, right?

35:07And they're creating this huge problematic second order effect of polarization. So again, is there a paradigm where there's a European social network that has more privacy and also trying to be really balanced in the discourse? Maybe that would be amazing. But it could happen, right? We haven't seen it yet. And then, of course, it's defense, right? Which, of course, that's where it really hits home, right?

35:37Niklas Zennström:So you mentioned quite a few different things there. And I guess I'd like to push you a little bit on whether we really need sovereign European versions of those things. So you talked about, let's say, the chip system. Do we need European versions? Yeah. No, my point is, like, I don't think we need it. Got it. Because I think that I really think and I believe and I hope that we will, what's happening now between Europe and the US is a temporary thing. Got it. and that we will continue to live in a symbiotic environment. So I don't think that there's going to be this, I'd like to think what happened to China, Russia, where it's like, actually, we have to, because we're now by ourselves, we have to build our own technology.

36:25I think that's more a thought experiment. I don't think it's going to happen. But I would also think that it would be amazing if you started to see European companies being created of addressing some of those technologies. And there's really no reason why they wouldn't, but we don't have to. But I think it's also thinking about, again, I think it's about the economical flows, right? It's like because there's a reason why, you know, the trillion dollar companies or the US companies which are selling software, social service, social media, and GPUs to European companies. So that's, again, it's about, if you think about the value creation.