The United States is currently home to approximately 52% of the world’s “unicorns,” or start-up companies with a valuation of over $1B USD. Americans no longer seek the rainbow-filled creatures of childhood tales. Now, Americans chase these highly valued startups bringing the magic to America’s economy. In 2020, these startups largely contributed to America’s economy by introducing unique goods and employment opportunities to 331 million Americans. Unicorns have provided Americans with virtual community hubs, hassle-free vacation rentals, and timely grocery delivery services, to name a few. By catering to the population, unicorns have seen success over the years. Unicorns have thrived in the U.S. market, evident through their high valuations. With America’s increasing population, there is still potential incoming clientele for these businesses. But, have they outgrown our economy? Is the American population not growing fast enough to maintain upward growth trends? Is it time to move onto their next conquest, say, Europe? Despite the advantageous relationship between domestic unicorns and the U.S. economy, American unicorns should seek to expand into European lands if they want to maintain high growth rates and multiply their clientele.
The American Startup
Entrepreneurship runs in the American spirit, inspiring thousands of Americans to take the leap and begin their journey. The United States currently has 63,703 registered startups, making it the leading country in startup quantity and was ranked #3 in “Best Countries for Entrepreneurship.” To keep up with its titles, the U.S. has made efforts to continue motivating individuals into starting their businesses. The 44th U.S. President, Barack Obama, even launched the “Startup America Initiative”, to make capital more accessible for America’s entrepreneurs.
In addition to celebrating startups, the U.S. provides tax incentives to lessen the financial burden of starting a business. Many who start businesses are individuals with great ideas but also a great fear of risk. Corporations benefit from lower tax brackets, making 21% the maximum, and can write off losses against the corporation’s income. Alternatives to the C-corporation include sole proprietorships, partnerships, and other forms of corporations, allowing business profits to be reported on personal tax forms, and sometimes losses incurred to offset personal income. Individuals can also decide how much liability exposure they want to incur by choosing from a range of business structures. Intellectual property rights also give individuals peace of mind, not having to worry their ideas could be replicated and negatively affect their gains.
These perks have allowed American unicorns to transform from a simple start-up into a billion-dollar venture. But there is only so much an idea can grow within a constrained space. Once an idea has reached its full potential, there is not much space for exponential growth. However, a unicorn reaching its peak years in one country can still increase rapidly in another land. Expanding to new territory allows a business to reset by tapping into untouched resources not accessible within their own country, and Europe is a great place to start. By introducing new businesses into their market, Europeans will also benefit from the increase in jobs and new innovative products.
Others Have Taken the Leap, So Too Should Europe
Making the move to Europe is not something out of a fairytale. Others have done it before, and their financial gains proves the benefits. In December 2011, Uber leaped from the U.S. to Paris, where the idea of ridesharing first originated. Moving to Europe may well have been a reason for its tenfold increase in valuation, from $347.5M to $3.7B between February 2012 and August 2013. From its second month in Europe to a year and a half later, Uber experienced the largest spike in its valuation within an eight-year timespan. Although Uber was not considered a unicorn before its move, the expansion to Europe allowed it to reach unicorn status.
Another success story is Airbnb, which first started hosting guests in 2007, limiting its customers to those residing in the U.S., but expanded to Germany in 2011. That year, Airbnb’s valuation was $1.3 billion and by Fall 2013, its valuation more than doubled to $2.9B. Now, Airbnb operates in more than 220 countries and is valued at over $100B.
Following the Rainbow, as in, Europe
Europe, the world’s largest economy, is a point of attraction due to its reach of 500 million consumers and close ties with 80 trading partner countries. However, starting in Europe will take time, effort, and money. The decision should not be taken lightly. To be successful in an established market, a company must be able to contribute an idea that solves a problem. As Jochem Wijnands, Founder of PRSS acquired by Apple, said: “A startup is a modern version of an inventor. It experiences a problem and then tries to solve it with ingenuity.” For the majority of its countries, the European economy is considered developed━there are predictable technological advancements and established businesses. If consumers are buying a product or a service continuously, one in which they can rely on, a newer product on the shelves will not entice them enough to substitute products unless the newer product has something better to offer. A startup wanting to enter the European market should take note that if they cannot offer the people something inventive and creative, there is no reason why their product should be bought.
Attaining “unicorn” status in a stable economy like America’s is impressive, but one has to first look at how that level was reached, and whether it will also be enough to succeed in Europe. Many American unicorns brought a completely original idea into the market or others took an idea and made it better which contributed to their success. John Foley took the idea of a stationary bike and improved it into a successful business. Peloton is a success story because it recognized a problem–not wanting to go to the gym for an instructor-led session– and solved it. In 2018, Foley stepped into the international marketplace by targeting Canada and the UK. Now, Europeans can enjoy professionally-led courses from the comfort of their homes while Peloton generates millions in revenue. Before considering the move, CEOs must reflect on what they can offer to the market and if it is beneficial enough to Europeans.
The Magic
As previously mentioned, the U.S. has a lot to entice entrepreneurs with, but Europe still manages to surpass America in one category: immigration. Both the U.S. and Europe are known to strictly control how many people enter their borders, but their different form of control leads to distinct outcomes. The U.S. being one country means that the federal government has authority over the immigration processes. Europe is composed of 50 countries, all taking a different approach toward immigration. Although the EU does hold some control over immigration issues amongst member countries, it is still easier to immigrate into certain European countries over others.
Immigrants play an important role within unicorns, as risk-takers are the ones to drive these entities. Unicorns are built on this approach, stepping into the unknown, but willing to do so for the possibility of abundant gains. Recruiting immigrants adds diversity into the workplace, bringing in different perspectives. Having access to foreign talent also improves the business’ culture and public image, when managed successfully. With a more balanced team, employees will be happier, productivity will rise, and revenues will follow. By moving to Europe, startups gain access to this limited resource they did not have access to within the U.S and can recruit more outside talent from countries other than the U.S or Europe. Amongst immigrants are individuals with a drive to succeed because they have experienced living in a country where they cannot pursue risky business ventures. With more diversity in the workplace, startups have an increased chance of succeeding because different backgrounds usually create more ideas.
Another reason why moving to Europe is a sound business move is because American startups are already at an advantage over Europeans. As of April 2021, there were only 69 unicorns in Europe. The low amount is not due to Europe’s lack of ingenuity, but rather is a result of capital shortfall. In Europe, government participation makes up the majority of funding going toward startups. As we know, government-funded programs do not always meet the standards of their privately-owned counterparts. The government is not set up to only benefit startups but also must budget for social programs benefiting a larger mass of the population. Because of this, startups cannot receive all the necessary funding from the government. More U.S. investors have been eyeing Europe in the past few years, but it is still not enough to fund enough startups that have the potential to develop into unicorns.
Expanding at great lengths requires money. When a startup is not provided with enough capital, it can be held back. American unicorns are already valued at over $1B, meaning they either have the cash necessary to keep them running in Europe, or they have no trouble being attractive to investors in the U.S. who are already familiar with their track record. Although there is European venture capital, the amount is not as extensive as America’s due to their more conservative culture. By coming into Europe with enough funding, U.S. unicorns can afford to explore risky moves that can lead to great profits. This puts America at an advantage because not many competitors can rise against us within Europe.
Potential Disadvantage
Some may disagree with the idea of a U.S. unicorn expanding to Europe because the European economy is too broad compared to America’s. Europe’s economy is very extensive in the sense that many different types of currency are used. Without a doubt, this does pose some challenges, especially to Americans only used to trading with the U.S. dollar. If someone in California wants to purchase something in New York, the distance between these states does not change the currency. In Europe, even neighboring countries might run on different currencies, leading to the bothersome and sometimes expensive act of exchanging currency.
Different currencies within Europe is a disadvantage but it can be mitigated. With a strategic business plan, dealing with various types of currencies can be avoided within Europe. The Euro is the most common currency within Europe so a good idea is to expand a startup in an area where it is used. Most countries within the EU have already adopted the Euro to ease the difficulty of trade within various economies. The U.K. does not use the Euro for daily business trading. Doing business with different forms of currency is not necessarily a bad idea; it just lessens the hassle and makes the transition to a new country easier. U.S. unicorns should not shy away because of numerous currencies within Europe, instead, they should look past this inconvenience and focus on the gains that await.
Taking the Leap
American unicorns truly paint the American economy with vibrant colors, but these businesses should also consider other opportunities available to them. Growth should not be constrained to only one country but go beyond borders. With its drive for success and American entrepreneurialism, unicorns have the potential to succeed in Europe. It is time to take the leap!
Journal on World Affairs, UCLA 