Is the EU too big as a startup ecosystem?

The other day I attended an event in Rome where Greg Horowitt discussed how theĀ Rainforest model for fostering a healthy startup ecosystem could apply to Italy. It was a fairly interesting presentation and discussion, but I was a little disappointed by the lack of any reference to the bigger European context (and market).

Curious to know if this was just because the organizers were only interested in the Italian specific case – the conference title was “The Italian Rainforest” – or for other, more profound reasons, I asked Horowitt what he thought about a possible “EU-wide rainforest”.

His answer was that, above a certain size, the transaction costs become too big for an ecosystem to work, and that the EU was, in his opinion, above that size. I then asked about Italy’s size: the Italian population is 1.5 times that of California, and around 20 times that of Silicon Valley+San Francisco. During the conference Horowitt had said thatĀ the very different Italian regions should work to create their own ecosystems to leverage their different strengths, but his answer was that in Italy’s case it would make sense to work for an Italian rainforest.

This made me think. The 27-states European Union is home to 500 million people. Obviously, the EU could never be the “Next Silicon Valley” – just like the whole USA couldn’t be a “Silicon Valley”. But would the transaction costs really be too high? Are the problems that startups in the different EU states have to face so much different? Wouldn’t it help if we started thinking in terms of a EU startup ecosystem, thus creating a cross-pollination of experiences, solutions, talents – and, why not, some EU level lobbying?

I don’t have a definitive answer yet. But, from the many discussions I follow about EU startups, I see a lot of common problems, and the transaction costs are getting lower every day: At least among innovative startups throughout Europe, English is already the lingua franca; we have very cheap and frequent flights connecting most of the EU; Internet communication options are getting better and better every day; regulations are converging more and more.

And, most important of all, only at the EU level our startups could have a home market able to rival in size the one US startups have privileged access to, with all the advantages in terms of economies of scale and publicity this brings. No matter how well we develop our national ecosystems, no single EU nation could create one that could compare in size not just to the US, but also to China, Japan, and soon India, Russia and Brasil.

So, no matter how difficult it could be, and even if there are no guarantees that a EU rainforest could work, EU startups should start thinking at a EU level, and at least try to find ways to turn the EU single market, and the EU common institutions, to their advantage. The only alternatives are to settle for also-ran ecosystems, or move to the US.

I thank Horowitt very much for the insights he shared with us and for taking the time to answer me, but I hope EU startups will prove him wrong.