A New Great Divergence?
Today: Trains in America, globaloney, exits and liquidity in Europe, DARPA.
The Agenda 👇
Everyone wonders about trains in America
‘Go global’ is almost always bad advice
We might never solve the liquidity problem in Europe
Why are people obsessed with DARPA?
Echoes from our ‘Work From Anywhere’ summit
Find a cofounder for your startup
🚂 Path Dependency in Transportation Systems ✈️
I’ve been intrigued over the past year by the fierce discussions on (mostly American) tech Twitter whenever someone mentions the idea of deploying more railroads in the US. China has a massive investment program in high-speed trains, and you can travel across most of Europe using only trains. Why isn’t the same thing possible in the US?
Inevitably you’ll see the simplistic argument of, “Look, the US is too large for trains to make sense. Plus, railroads are financially unsustainable and can only survive with higher taxes.” But I find that thinking comes up a bit short. America has long been glad to waste tons of capital in money-losing railroads, and it’s one of the things that made it into a more prosperous country. The real question is: Why did it stop?
Well, airlines came along. And while those are still capital-intensive, they’re more flexible as a business. And so the paths diverged, even though trains are more convenient from a traveller’s perspective, they’re more climate-friendly, and they contribute more to urban clustering. Does this mean the US is bound to lag behind on all these fronts—user experience, saving the planet, and urbanization?
Read my essay On Trains and Geography 🚂
🌐 Global Business Is a Myth
As I explained in a previous essay (The Great Fragmentation), there was never such a thing as global business. At best, there were a few brands known all around the world, even if not everyone bought them. In general, ‘global’ has long been a pleasant synonym for ‘doing business in the US, some European countries, and Japan’—like has long been the case in the music industry.
I find it even more urgent to cure our obsession with businesses going global now that there are many trends contributing to making the world economy even less global. In my essay Is Going Global Still a Thing?, I list several of these trends, each corresponding to a bias regarding global business that is bound to wither away:
The combination of various trends such as the geopolitical fragmentation, the rise of remote work, the acceleration of the pace of innovation, the demand for more local production, industrial policies focused on reshoring and affirming economic sovereignty could all translate into a prejudice against globalization, even on the part of business people.
The result is that fewer people will fall victim to [Paul Graham’s] “schlep blindness”, there will be fewer trials and errors when it comes to global expansion, and that reversal of expectations will translate into an effective reversal when it comes to real-world globalization. A typical case of W. Brian Arthur’s increasing returns!
🤑 We Need Liquidity
Venture capital is an asset class that (sometimes) rewards investors with outsized returns, but it’s also illiquid: if you’re an angel investor or a venture capitalist, you need to be prepared to hold shares in tech companies for periods extending from 5 to 15 years. And there’s probably no place where this problem is more acute than Europe.
In a new round of my writing on the topic, I discuss three scenarios related to liquidity in Europe:
Scenario 1—The problem remains unsolved, which prompts the most ambitious European tech founders to reinvent their startups as US-based companies so as to benefit from the higher frequency of successful exits on the US market.
Scenario 2—European tech companies keep multiplying and growing, the pan-European ecosystem reaches critical mass, and acquirers and investors finally enter the stage so as to provide liquidity to those who have made bets in earlier rounds.
Scenario 3—There’s a paradigm shift in European VC whereby capital is deployed more and more often through broad vehicles that are effectively indexes, which lowers returns but also minimizes risk—and also spares everyone from having to count on those big, smashing IPOs.
👉 Read more in Round 2 on Liquidity & Exits 👀
😫 Enough With These DARPAs
European entrepreneurial ecosystems need more liquidity if they ever want to grow tech companies that succeed at a global scale. What they don’t need, on the other hand, is European governments or the European Commission funding more ill-advised subsidy programs that try to emulate the legendary American DARPA.
It’s a topic I’ve been covering a lot in the past few years, but sending daily essays is a great opportunity to refine my arguments and update them to account for the current context. In yesterday’s edition, Does Every Country Need Their Own DARPA?, I explain the four reasons that, according to me, should make Europeans realize that they shouldn’t chase after their own DARPA.
What does Europe need, then? Well, better entrepreneurial ecosystems, for starters; more liquidity; bringing down the barriers and frictions that contribute to the continent’s fragmentation; learning from others, but applying it to our context; above all (and the hardest of all), admitting that maybe we’re not a developed economy anymore and that we need to embrace the mindset of a developing economy.
On that note—subscribe to European Straits and let me know what you think!
🌐 In The Family’s online events, we’re starting to publish videos and articles related to our most recent summit: Work From Anywhere. Check out the videos on our YouTube channel, Startupfood, and here’s an article on what it means to be a CEO in the covid-19 era.
💻 We’ve also recently held the 6th edition of our Be My Cofounder event, which is a kind of online speed dating for founders. It’s proven to be very popular, responding to people’s need right now for a burst of energy and inspiration, with the added bonus of really being able to find your cofounder. The next edition is on Nov. 7, and you can get more information and early bird tickets right here!
From The Great Fragmentation (June 2019):
Like all human beings, those working in tech base their assumptions regarding the future on what they’ve experienced in the past. It’s true that the past years highlighted a global digital economy. But now that we’re going through the next stages of the current “great surge of development” (Carlota Perez’s words), we have to acknowledge that the world is indeed fragmented and that it’s going to become even more so in the future.
All recent editions:
Does Every Country Need Their Own DARPA?—for subscribers only.
On Trains and Geography—for subscribers only.
Round 2 on Liquidity & Exits—for subscribers only.
Is Going Global Still a Thing?—for subscribers only.
Venture Capital Is Hard—for everyone.
The Corporate Contract (Coinbase Edition)—for subscribers only.
VCs: Would You Rather Be Yahoo or Google?—for subscribers only.
You're Gonna Need Bigger Exits—for subscribers only.
Why Is It Still So Hard to Raise in a Time of Cheap Capital?—for subscribers only.
Where Does VR Fit in the Transition?—for everyone.
European Straits is now a 5-email-a-week product, and from now on all essays are subscriber-only (with rare exceptions). Join us!
From Normandy, France 🇫🇷
Nicolas
