December 2, 2020

What is a 'European' startup in the era of remote work?

What makes a startup belong to one country over another?

Nicolas Colin

4 min read

Pipedrive, founded by an Estonian team, now incorporated in the US. Picture: Pipedrive.

Europe’s startup ecosystem can get caught up in the game of pitting one city or one country against another. Is Paris catching up with London? Is Berlin still in the race? Does Sweden have more unicorns than Finland? What about Poland and Romania? And why isn’t Italy on the map? 

But it’s a vain and rather useless endeavour. Many European tech companies wouldn’t exist if they hadn’t tapped resources from different countries and cities. The typical European startup was started in London by Italian founders, relies on talent based in Bulgaria and Ukraine, raises funds in the US, and serves customers in several European countries and beyond.

That picture is being made even blurrier by the massive conversion to remote work. The pandemic has forced many in the tech world to stay home, leaving the office behind. When people began realising this would be a lasting situation, they started to relocate further and further from their employer’s headquarters — some by simply finding a more enjoyable place to live and work, others by embracing nomadism as their new lifestyle. In the meantime, remote tools and practices have been catching up, with the likes of Zoom, Slack, Hopin, TransferWise and Deel becoming part of a normal business stack.

What makes a company 'belong' to one country rather than another?

In this new context, what makes a company “belong” to one country rather than another? Is it the address of the headquarters, the nationality of the founders, the main market that the company serves, the location of the majority of its employees? More often than not, these four characteristics are so disconnected, geographically-speaking, that they hardly form a nexus.

The case of Pipedrive

Think about Pipedrive, a company founded by an Estonian team, now incorporated in the US, that just welcomed US-based Vista Equity Partners as a majority shareholder, but with part of its talent still based in Tallinn and its customers scattered in 170 countries all over the world.

Today, Pipedrive describes itself as “headquartered in New York”, and we know why. The US is likely its largest market from a revenue perspective and thus where its largest customer accounts are located; being US-based sends a reassuring signal to those key partners. Likewise, US-based investors may be more and more outward looking, but they still prefer to invest in a company that’s incorporated locally — and why not make the decision a bit easier for them?

Crossing the Atlantic is a one-way journey.

Ultimately, however, crossing the Atlantic is a one-way journey. Once a tech company that started in Europe is reincorporated in the US so as to send a strong signal to customers and early-stage investors, the drive for an eventual IPO will make it impossible for the company to head back to Europe. A large proportion of its talent might still be based over here due to cross-border arbitrage, but the company definitely becomes “American” at that point — most of the founders live over there, and its mindset and positioning are designed accordingly.

So what?

Does it even matter? After all, in the era of remote work, the question "Where are you based?" is becoming ever stranger to ask someone. So why would we ask it regarding a company?

Still, I do think it matters, for at least two reasons.

The first is that the self-described location of a company is often correlated with the place where most of the value created by the company is realised. Startups that were originally European decide to describe themselves as US-based companies because that is effectively where most of the value created by the organisation translates into wealth. Most of their customers are based in the US, so that’s where the consumer surplus is located, and a significant fraction of their investor base and their executives are also in America, meaning all the money that they derive from the business is spent and invested there.

If a company switches location... it becomes less of a role model.

The second reason why it matters is soft power. A significant contributor to the success of an entrepreneurial ecosystem is the existence of role models: successful teams that have made it all the way from a tiny startup in a garage to a large company that serves several markets and creates wealth for everyone. If that company switches location during that process, it becomes less of a role model: interactions are less frequent, switching everything to English makes it harder to understand from a local perspective, the company culture shifts. All in all, it becomes more difficult for the founders’ compatriots to relate — whether those are other founders, employees, journalists or policymakers.

Maybe it’s time we acknowledge the rise of remote work and curb this backward-looking reasoning about a company being 'based' in one country or another. Once people in the startup world get used to having most of them working remotely, all other parties (customers, investors, journalists) will begin to accept the truth: there’s no such thing as a company being 'based' somewhere. What really matters is where the value it creates is realised and how it can serve as a source of inspiration for the next generation of entrepreneurs in a given startup community.

Nicolas Colin works for The Family and writes a regular column for Sifted.

Nicolas Colin

Nicolas Colin is cofounder of VC firm The Family. He writes a regular column for Sifted