Saul Klein
Video Island (LOVEFiLM)
Saul Klein was the founder and CEO of Video Island, which after several mergers became what is now LOVEFiLM International, the leading European film subscription service acquired by Amazon in 2011 for $312 million. After Video Island, Klein was part of the original executive team at Skype. In 2007, he co-founded Seedcamp, a European based micro seed fund for Internet technology companies.
Klein is also the co-founder of The Accelerator Group (TAG), a London based seed fund for investing in early-stage Internet services, e-commerce, and digital media businesses. The TAG portfolio includes investments in companies such as Bit.ly, Dopplr (Nokia), Erply, Fizzback (NICE), Graze, Last.fm (CBS), LOVEFiLM (Amazon), Mind Candy, MOO, TweetDeck (Twitter), Wonga and Zoopla. Klein is currently a partner at Index Ventures.
Pedro Santos: In 2002, 2003, you started Video Island. Why did you start it and were you aware of Netflix?
Saul Klein: I wrote a long blog post at the time of the Lovefilm sale to Amazon that there were many companies started who contributed to the business that became LOVEFiLM. LOVEFiLM had a complex history. There were three start-ups just in the UK, and there were others in Scandinavia, and others in Benelux. And ultimately all of these start-ups were amalgamated under the umbrella of LOVEFiLM International. I think there are between five and ten people who could credibly say that they were co-founders of what became LOVEFiLM.
I think there are some interesting lessons. People very often focus on the single or the dual founder story. The Steve Jobs/Steve Wozniak story, that then just becomes the Steve Jobs story. Or the Bill Gates/Paul Allen story that then becomes the Bill Gates story. Or the Larry Page and Sergey Brin story, which is still the Larry Page and Sergey Brin story. Or the Jeff Bezos story, which is just the Jeff Bezos story. Or the Reed Hastings story.
But the reality is, before we got into the questions of how Video Island started, it's really important to understand that fundamentally no great company is ever just created by a founder.
Whether it's people like your wife, your girlfriend, your boyfriend, your parents, or your sister who you bounce your initial ideas off of, or even your friends in the park, the journey between having an idea and starting a company and then building a company and selling a company is a journey that many people take together. While founders are mythologized in the media in books like Founders at Work, the reality is, even if you look back at Hotmail, Steve Douty or Scott Weiss, who were around employee number 15, were probably as fundamental to the success of Hotmail as Sabeer [Bhatia] and Jack [Smith].
I want to get that out of the way, because I think although I can definitely tell a part of the LOVEFiLM founding story, but you can also get five or ten other narratives that are also very interesting and important.
Santos: I completely agree with that view. Actually, reading the LOVEFiLM story, it would be very interesting to have all points of view, but the point of the book also is not mainly to create this myth, but to show how it can be done for people who want to start something. How they can go and start something.
Klein: But I guess what I'm saying is one of the most important things is this: you don't really start anything by yourself.
Santos: True.
Klein: And you certainly don't grow anything by yourself. One of the interesting things to me about LOVEFiLM is that the different people who co-founded the different businesses which ended up making up LOVEFiLM have all gone on to start other businesses. And many of the key contributors at Video Island, at ScreenSelect, at Boxman, at LOVEFiLM, have also gone on to either co-found or start other businesses. Actually the companies that end up being successful are not just the ones that are successful in and of themselves, but who also spawn other successes through the founders and through the core team that go on and do interesting things.
But to answer your question, yes. I was aware of Netflix. Not only was I aware of Netflix, but at the time, this was 2002, I just moved back to the UK from New York. I had been in the States from ‘95 to 2002. I had recently met my wife. We got engaged. She was living in Johannesburg. I was living in New York. We decided that we would move to London, and I knew I wanted to start a company. And I started looking around for good businesses to start.
I had seen Netflix in the US. I thought, “This is a great business. It's a great consumer value proposition. It's a problem and an industry that I can personally relate to. It involves technologies that I'm very familiar with.” The whole aspect of personalization and collaborative filtering had been something that I had been involved with in the mid-'90s at a company in Boston called Firefly, where I'd been a part of the founding team, not the founders, but the founding team.
We built what was the web's first personalization technologies for music, for movies, for books, for web sites. This notion of recommending movies or as Chris Anderson at the time (around 2002) was talking about, Netflix being a great example of a long-tail business. I really understood that, because it was stuff I had worked on six, seven, eight years before.
And then moving to London and wanting to start a business and raising money for a business, it was at a time when basically the funding market for Internet companies was non-existent. Not just in Europe, but even in the US at the time.
The bubble had burst. Everyone thought the Internet was stupid. And if the Internet was stupid, then certainly the consumer internet was really stupid.
The great thing about Netflix was not just there was a clear business model, a clear proposition, but the company had been public for at least a year, year and a half. There were several quarters of analysts' coverage of data that you could look at. You could point to both yourself and also to a potential investor and say, “Hey, this is actually a real business. It's working. It's generating revenues. There is a clear revenue stream. You take money from people. You send them discs. And as long as you keep offering them a good service, you've got a good business.”
People at the time really understood, this was in a down economy, that a subscription business was a very good, predictable revenue model. People looked at mobile phone companies. People looked at cable companies and said, “Okay. I understand the economics of a business like this.” In terms of “Is there a need? Is there a market? Is there a good business model?”—it ticked all the boxes.
Santos: So, you decided to go forward with this business. What was the first thing that you did to actually put it on the ground?
Klein: I did a lot of research. I was lucky. It wasn't like starting a business where there was no comparable. I could do a lot of research in terms of Netflix. I did a lot of research internationally to see if anyone was building businesses like this in the UK, in Europe, internationally. And I came across a few businesses. There were two in the UK in particular. One called DVDsOnTap that had a subscription model similar to Netflix. That was started by a very talented young guy who was just nineteen-year-olds at the time, Graham Bosher (who went on to start Graze) and an older business partner. There was another business called MovieTrak, which had also started with more of a conventional rental model on a pay-per-disc basis.
Then I saw in Australia there was a business. I can't actually even remember what it was trading under, but their company name was Riverdale. They had also developed a version of Netflix in Australia. The interesting thing about what they were doing, they'd spent a lot of time and energy actually building software to automate the picking of the DVD on the back-end logistic side of things.
Obviously, what was interesting and challenging about a business like this was it wasn't just the front end of a web site. You have to think about all of the back-end systems in terms of purchasing, inventory management, logistics, customer care, CRM, etc. I looked at all of this stuff. Originally my view on the market was, “Why don't we find a team to back?”
This was my father and I, because we had been doing seed investing together for a couple of years through something called The Accelerator Group, TAG. We looked at DVDsOnTap. We looked at MovieTrak. We looked at the Australian software. And we came to the conclusion that no business had gone far enough, that actually starting with a blank piece of paper was the best way to go.
We raised a very small amount of angel money. Half of which came from us, half of which came from a business partner in the movie space, because I felt like I understood consumer Internet. I understood technology. I knew absolutely nothing about the movie business. What should we put in our library? Who to talk to in the studios?
I was introduced by a friend of mine to a guy in London, Simon Franks, who had just had a very big success as a producer. He had been the producer of a movie called Bend It Like Beckham. I don't know if you remember that movie.
Santos: Yes. I remember that movie.
Klein: It was a very independent movie. Low budget, but did incredibly well and really put his company on the map. They were both the producer and also distributor of movies. He knew that industry very well. Because Simon was a young, entrepreneurial thinking guy, he was very open to new distribution models for the movie industry. We basically co-founded, if you like, this business. In that they were, along with us, the founding investors in this business. They were called Redbus. They later sold their company to Lionsgate. Together we put in, and I think, I don't remember the exact figures, £250,000 or £300,000 to get the business going.
I said, “I will run this business for the first couple of years to get it going, to get it off the ground.” The intention was that I would get the business going. And then ultimately I would hire a team to take the business forward and scale the business. That was the beginning.
I didn't have a technical co-founder, so I reached out to actually an old high school buddy of mine, Matthew Taylor. He had a background in computer science and had been involved in a number of very good start-ups as a CTO. The two of us set to work on doing a first release of the product.
Santos: During the first year, how big did the team get?
Klein: It's hard to remember. Going back to the first few months, it was me and Mat. We made the decision that we felt that there were going to be a number of other people wanting to be in this market. We were concerned that Netflix was going to enter the market. We knew that there was DVDsOnTap. We thought they had a really good service. We knew that there was MovieTrak. I had spoken to William Reeve, who had been an early investor in MovieTrak. I had spoken to Alex Chesterman. He and I were at high school together, so I knew he was looking at this business and starting to talk to William.
We decided we had to move fast, and as a result, we actually decided that we would license the technology to get up and running from these guys in Australia. Because we thought that a big differentiator was going to be this automated logistics component that they had built.
Little did we know that this was the stupidest idea ever. But at the time, it seemed like this was a great idea. It would get us to market quicker. We would have this competitive edge in terms of technology and logistics that no one else would have. Basically, Mat went ahead and worked with these guys.
We hired a project manager, Pam Burton, in London to help us think through just everything: office management, building the DVD library, dealing with marketing materials. We hired Dave Webb, a New Zealander and a back-end developer, who was going to help us with the integration with the guys in Australia. Both Dave and Pam are actually still with the business.
Basically we rented some space from Mat's brother, who was running a web agency in London in their basement. The agency was called Oyster at the time. It's now LBI, the big digital agency. We were basically their tenant in their basement.
We cobbled together the beginnings of a library from some of the DVDs we had at home, my wife and I. Like Blade Runner and a couple of other things. We bought some secondhand DVDs from one of the partners that Redbus had introduced us to. A now defunct DVD rental business called Apollo that had like five or six stores in London. We didn't have to spend a lot of money on inventory.
We put our heads down and we tried to get the site up. It took us three to four months to go live with the first version of the service. At the same time, I went out and I raised the first round of capital for the business from Index, and from … Benchmark, now Balderton.
Santos: Two things: you launched the product—how did it go at launch? And how did you actually get the message out that you had the product?
Klein: I think one important piece of research that I'd done and one very important strategic direction that we decided to take with Video Island that the guys at DVDsOnTap and ScreenSelect weren't taking into consideration was this notion that very big players were likely to come into the market. And there are two responses for that. One is go it alone and out-execute them, which was the approach that ScreenSelect took and DVDsOnTap. The approach that we decided to take, and some of this was based on the fact that in the US that I had seen that Walmart had started, and Blockbuster was starting to enter the market to compete with Netflix. My hypothesis was that if Walmart was competing with Netflix—because they were the biggest retailer of DVDs, and Tesco in the UK was the Walmart-equivalent and was the biggest retailer of DVDs in the UK—that they were likely to want to compete with us.
Several months before we launched our service—I guess this is what Steve Blank today calls “customer discovery”—I went and I tried to talk to a number of big partners or potential partners. Everyone from Lastminute to Brent Hoberman, who was still running Lastminute, to the guys at Tesco and Argos, the biggest retailers in the UK. To talk to these guys and try and figure out is this was a market they're interested in. Are they likely to launch a service in the space?
If they're going to launch a service in this space, are they going to try and do it on their own? Or would they be open to doing it with us? Because I felt that ultimately … Netflix was going to come into the UK or Blockbuster was going to become aggressive. And to be honest, I didn't really think about Amazon at the time, although I probably should have. But I was more worried about Netflix and Blockbuster.
I felt that if someone like Tesco was working with us—they had muscle in terms of both … the marketing side and on the buying side with the studios—that we would never need to be afraid of anyone because they were much bigger than Netflix would ever be in the UK. And they were much bigger than Blockbuster would ever be in the UK, and actually they were much bigger than Amazon probably will ever be in the UK.
I just felt like if we could secure a relationship with the biggest retailer, the biggest online company, the biggest media company, then we could work with many other distributors to get our product out there. Then that would be what would create awareness within the UK. That this new way to rent DVDs was available.
I felt as a start-up brand, especially at a time when no one wanted to give you any money for marketing it was going to be very challenging for us to create category awareness. Here was a new way to rent DVDs. We took a very deliberate approach of targeting the biggest players.
My goal was to get Tesco to let us power Tesco DVD rentals. We aimed in online for MSN, because they were the biggest portal at the time. We aimed in media for ITV, because they were the biggest commercial TV channel. Then we aimed for the Easy Group, because they were doing lots of new products. Easy Hotel. Easy Office.
I felt that Stelios [Haji-Ioannou], his brand and his personality would elevate the awareness of the sector. We could also test a slightly different model with him than with the other guys where we were doing subscription services. With Easy DVD rental we did the traditional £1.99 per movie that people were familiar with from just going to the local video shop.
A very fundamental part of our strategy was to create a platform that we would run our own brand on, Video Island. But really, we put most of our emphasis initially on bringing volume and big brands onto our platform to raise awareness.
It was an incredible experience as a start-up to have someone like Tesco as a partner. Because they hold your feet to the fire like no one was ever going to do for us, even our investors. It was very good discipline for us. But it meant that we were building a technology platform and an operations platform in terms of customer support, in terms of packaging, in terms of our DVD inventory that was able to support them.
So we had to be able to support multiple brands, not just one. It was a fundamentally different strategy from ScreenSelect, which was much more capital efficient, they were going to have a simple, clear, Netflix-clone proposition. And they executed on it incredibly well. They had software geared to do one thing very well.
DVDsOnTap, effectively having been acquired by Arts Alliance, renamed their business LOVEFiLM. They took, over time, more of a hybrid approach.
At Video Island, we were very much the platform player more or less from day one, if you like.
Santos: How hard was it for Tesco to actually receive you as a new start-up and to negotiate with your partnership? Considering that you were not a known brand, a known company, how hard was it to get the deal then with them?
Klein: It was really difficult. I remember Mat and I taking Tesco on a tour of our warehouse, which was effectively half the size of a student's bedroom at university in the back of a rundown video rental store, on a high street, in a suburb, in the south of London. And just thinking to myself, “There is absolutely no way these guys are ever going to work with us.” But for whatever reason, they did decide to work with us. We delivered on time, and they ramped up slowly. They tested us to a small base online and then when they got more confident they sent an e-mail out. And they had two million e-mail addresses on their database.
That first day the e-mail hit, our systems basically fell down. Then as they became more confident, they marketed us in-store. And they marketed us to their club card database, etc. We did the best job that we could to answer all of their questions. And actually having investors, VCs, in the company made a big difference at that stage.
I remember we had made the decision having launched in December using the Australian software in terms of getting to market quickly. We knew immediately it was the wrong thing to have done. If you don't own your own technology, if you're not building your own technology and you're a technology company, you're screwed.
We had basically made the decision that we're going to launch this thing, but in parallel we're going to start building our own platform and our own systems. We'd also realized that the whole automated logistics that the Australian guys had developed were completely wrong. Totally on one level, overkill, and on the other level, totally unsuitable for a scaled-up system.
We basically had to redo everything from scratch. My co-founder Mat was a real open-source advocate, so we built our platform on the LAMP stack. Linux, Apache, MySQL, PHP. We had to go into Tesco and say, “Hey guys” because they did the full technical due diligence and security due diligence. And they were very uncomfortable, because we were running all of this on our servers. That it was going to be running on an open-source platform.
My investor, Danny, now my partner in Index, Danny Rimer, came up with me to Tesco. And he was actually also on the board of MySQL, so it was nice to have access to the guys at MySQL. The guys at Tesco, all they knew was Oracle and Microsoft. To have an investor saying, “We've put money into these guys, these guys are going to be in business in two years' time. We've put money into this open-source company. They've got big customers like NASA and the US government. Don't worry about it.” That made a big difference to us in terms of being able to calm people like Tesco down.
Santos: I can believe you. One year after Video Island started running, you decided to merge with ScreenSelect?
Klein: Yeah. One year, eighteen months. I don't remember the exact timeline. Basically, all three companies—start-ups that had broken through. DVDsOnTap now LOVEFiLM, ScreenSelect, and Video Island. We all knew each other very well. I went to high school with Alex from ScreenSelect. I got to know William in the whole due diligence process on the industry. The guys at Arts Alliance, who acquired DVDsOnTap. Thomas, who is the principal at Arts Alliance, I'd known since '95, '96. When he was at Harvard Business School, he became best friends with one of my old high school friends, a guy called Simon Levene. We knew each other. Adam Valkin, who worked for Thomas and led the acquisition of DVDsOnTap, he and I had known each other since literally he was born in South Africa.
His parents and my parents are good friends. His sister actually introduced my wife and I to one another. Then we had looked at, as TAG, my father and I, in investing in DVDsOnTap. We all knew each other extremely well. On some level it was only a question of time and how you would break up the pie. But it was inevitable.
We all knew the real competition was Blockbuster and Netflix, and increasingly potentially, Amazon. And that there was very little point in the three of us beating one another up. It made us stronger and it was really good to have great competition, and we all had slightly different approaches.
Video Island, we'd raise more money from top-tier VCs. We had big partners like Tesco. We'd spent more time and energy working with the studios. I'd hired someone from Blockbuster to help us negotiate those relationships.
The guys at ScreenSelect were much scrappier. They're like, “We're just going to raise angel money. We don't care about talking to the studios. We don't care about partners. We're just going to execute really well on the service and build our own technology.” They did a great job.
Then the DVDsOnTap, LOVEFiLM guys, they'd been in the business the longest as DVDsOnTap. And then they started to build a really good team at LOVEFiLM and Arts Alliance put some real money behind it.
I think we all came to the conclusion that we're going to be better off together. From ScreenSelect's perspective, from William and Alex's perspective, joining forces with Video Island meant that they were able to access our investor base, Index, and Balderton. I'd also then gone out and raised a subsequent round, bringing in Cazanove Private Equity, now called DFJ Esprit.
We'd raised money from three top-tier VCs. The guys at ScreenSelect started to see it was going to be a very expensive journey, and it is. To build a business at that scale is a really expensive journey, and together we knew we would be much stronger.
We recognized early on the different strengths and weaknesses of both of the businesses. To William and Alex's credits, William is probably one of the most methodical, detail-oriented, executionally, operationally strong people I've ever worked with. He really had a good vision for how on a detailed level—software, operations, etc.—to bring these two businesses together. Alex is extremely talented commercially and strategically.
For the time that we were together, the three of us were a good team.
So I really enjoyed that period of raise the money, get the product out, hire the team, generate our first five, ten, fifteen million dollars in revenue. But really, I felt that my heart lived elsewhere and the person who was going to be able to take this from a business doing $10 million a year in revenue to $100 million a year in revenue and scale it across countries, was a different person than myself.
This is when having done the deal with ScreenSelect we actually then identified the Nordics as an international expansion opportunity. We went out and we hired a CEO who could operationalize and scale this business and take it to the next level. This was Simon Calver, who to his credit did exactly what we asked of him, which was to grow the business 10 times in the last four years. In fact, he probably grew it fifteen times to twenty times in that time.
Santos: What kind of deal was made with ScreenSelect?
Klein: When we acquired ScreenSelect, it was a two-thirds/one-third merger. What was great is we got their technology platform, which was awesome. We got William, who is amazing. We got Alex, who is amazing. We got their head of technology, Simon Kain, who is amazing, who went on to start Zoopla with Alex. We got Fern Wake, as she then was their operations director, who is still the operations director of LOVEFiLM. They got our capital. They got our investors. They got our relationships with Tesco, with ITV, etc. Together it was a really powerful unit. And then, we knew that we were acquiring these businesses in the Nordics. And then LOVEFiLM started to acquire these businesses in the Nordics. We knew the two businesses were going to need to come together.
On a number of different fronts for me personally and professionally, I knew I wasn't the person who was going to be able to do that. I think it's very hard when Alex and William were founders. I was a founder. It was less difficult at LOVEFiLM, because although Graham was a founder, the business hadn't been run by Graham for two or three years. It had been run by Mark Livingston, Simon Morris, and Jim Buckle.
But it became clear that actually Simon Calver was more than capable of taking the business from where we all had it up to this point. He had run a billion-dollar P&L at Dell. He had been a VP of supply chain at PepsiCo. The guy had an amazing résumé, but the reality was that not only did he have an amazing résumé, he had really, prior to joining us, got his hands dirty in a turnaround situation in a private-equity-backed business called River Deep.
He had seen the good, the bad, and the ugly, as well, as like: “How do you scale things?” We needed someone like Simon, not only for the business, but also because you needed an outsider to bring all of the businesses together. And move it on from a founder-staged businesses to businesses run by an executive management team.
Santos: But you stayed always connected to LOVEFiLM as a shareholder?
Klein: Initially, I was on the board when I joined Skype. It just soon became clear in terms of my role at Skype that I was just so involved and so busy at Skype that it was not practical. We were growing like crazy at Skype: we went from thirty to four hundred people in a year, from two hundred thousand dollars in revenue to sixty million in revenue, from two offices to seventeen locations. I had no time to think about LOVEFiLM, to add value as a board member.
Perhaps one of the best experiences I had in terms of the narrative of being a founder, was sitting in one of the first board meetings after Simon had taken over. I was at Skype and just watching the rest of the team present. Seeing the investors around the table and just thinking, “This is an incredible bunch of people and they are running this business that I still have a stake in. Aren't I lucky?”
Santos: One question about Skype. You passed from a founder's role to a VP role in another company. And at the same time, you have the investor background. It doesn't seem like a very normal move. What convinced you to go to Skype? Which became a huge success, as everyone knows.
Klein: Look. I think you have to trust your instincts in all of the important things in life. My wife and I decided to get married after four days of really knowing each other, and eight, nine years later we're very happy with two kids. And that was good instincts. As far as Skype goes, I've never been someone who was hung up on titles. I'm hung up on responsibility and how much I can learn. I knew that at Skype, even if I was sticking stamps at envelopes, I would have joined Skype. I just thought that this was the most exciting piece of software I had seen since I downloaded in '94 the Netscape browser.
When my friend Danny said to me, “Hey, take a look at this thing. I'm thinking of investing in it and I'd love you to meet the founders. They're coming through London and they're thinking of moving here.” I just said to him, “This is fucking incredible. This is a rocket ship to the moon. How can I get involved?”
I spent three, six months probably, every few weeks sitting down with [Zennström] while I was still running Video Island. Talking to him about some of their business challenges, advising him on some stuff. And over time he said, “We'd love you to come and join us.”
I said, “I've got a business to run. But if I can find someone great to run the business, I would love to do it.” Not just because I thought it was an amazing company and we could do really well, because I could learn a whole new raft of things. First of all, this was the first company outside of Silicon Valley that was ever a global consumer web business—and this was in my backyard in London. That's incredible.
Secondly, even though I hadn't fundamentally day to day done a marketing job for seven or eight years, marketing was my primary background and I felt that the challenge of defining the Skype brand, of marketing through multiple channels because we had hardware. We had software. We had retail partners. We had online partners.
Klein: The works in every country, in every language, with virtually no resources was a really, really exciting challenge and learning experience that I couldn't pass up. The other thing was Niklas knew I was an entrepreneur and I think he wanted entrepreneurial people on his core team. And I knew that in a company growing that fast, there's no shortage of things to do. Your responsibility, whether you're senior or junior, is basically limitless because you're growing so fast. Even if you're a twenty-one-year-old kid, you're going to get responsibility that most forty-year-olds don't get, because the company doesn't have enough time to worry about what you know. It's just you sink or you swim.
Santos: True. Okay.
Klein: Just to go back to what we first talked about. I fundamentally believed that no company is started just by the one or two people who have the spark of the idea. Every person who is the first one hundred, one hundred and fifty people at Skype are founders.
By the way, as genius as Niklas and Janus [Friis] are in terms of the business idea and the product idea, the technology is all the guys in Estonia. They are like superheroes.
Santos: Yeah. They built an amazing technology that's still the best today.
Klein: Yeah. By the way, they also implemented the product and the operations. Skype's heart is still in Estonia. Microsoft, I hope understands that. The only person I think in the last five years that really understood that was Josh Silverman.
Santos: We'll see. Time will tell. I had some more questions not related to the ScreenSelect or Video island, because of your very particular experience in the Seedcamp, and being an entrepreneur and investor at the same time, and being in Europe and with links in Israel and the US. Basically, what do you think are the biggest differences, challenges, and opportunities for European entrepreneurs vs. US entrepreneurs? Because there is this Silicon Valley vs. the rest mentality. What's your opinion on that?
Klein: I think I really don't like that notion. I think it's a very cheap idea that is only sort of useful for getting re-tweets and blog headlines. I think the reality is that it's not about Europe vs. Silicon Valley. The best entrepreneurs in Europe understand Silicon Valley very well. They have spent time in Silicon Valley and developed relationships in Silicon Valley. Take all of that and all of the value that comes from that because you're a fool if you think that Silicon Valley isn't the most sophisticated, vibrant place for technology start-ups on the planet. It probably will continue to be so for the next twenty-five to fifty years because of the network. And the ecosystem is so profound there and keeps on getting stronger with Zynga, with Twitter, with Facebook, etc.
I think any European entrepreneur or any entrepreneur in this space that doesn't want to spend time or learn from Silicon Valley is foolish. But I think there's a lot of things that you can learn and be aware of as an entrepreneur if you're not in Silicon Valley, that you can use to your advantage. I think many times there is a groupthink that emerges in Silicon Valley.
The main argument is that there are many people in Europe who have fundamentally changed industries. From Niklas and Janus in the telecom space, to Daniel Ek in music, to Martin Mickos in enterprise software, to the guys who reinvented anti-virus software at Message Labs and AVG, Ventee Privee, Wonga—the list goes on. That's just tech companies. Look at Zara. Look at H&M. Look at IKEA. These are companies in the last twenty, twenty-five years that have fundamentally disrupted massive industries through Europe. I think there's no shortage of European entrepreneurs and this notion of “us against them” is pathetic. It's a waste of people's time.
I think European entrepreneurs should figure out their advantages, which is that you're more likely to be able to think outside of the box. You're going to be more culturally attuned to a global market because of multiple languages, because you have no home market that's big enough to satisfy you.
And because you have less access to capital, you actually have to be smarter to be successful. So, if you can be successful in Europe, you're damn good basically.
Santos: Interesting. It comes in line with most entrepreneurs that I interviewed until now.
Klein: As an investor, both at Index and TAG, it's why we're so excited about Europe and Israel as places to invest.
Santos: Yeah. It's because there's plenty of untapped opportunities.
Klein: Yeah. And great entrepreneurs and they're just getting better every year.
Santos: Yeah. But Israel has a very specific ecosystem, doesn't it?
Klein: What do you mean?
Santos: It's also a hotbed in the sense of the entire country is very technologically advanced, where Europe has some spots like London, Denmark. Amsterdam also has some interesting things, but Israel as a country has a lot of concentration.
Klein: I think Israel is a national start up. It's sixty-five years old and over thirty percent of its exports are technology. The country relies on the technology industry, not just for innovation, but for its fundamental impact on the Israeli economy. This is a society where, like in Silicon Valley, it's not unusual for people to know someone who works in a start-up. It's not unusual for someone to start a company. It's not unusual for someone's family member to start a company. Everyone knows someone who knows a VC. There are huge American companies from Cisco to IBM to EMC to HP to Google to eBay that have big, mainstream R & D centers here.
Not like outsourced, offshore R & D but cutting-edge R & D. Clean tech, life sciences, medical devices. You have world leadership here. Very educated country. Highest number of patents per head of population. It's sort of like Silicon Valley as a country.
Santos: How do you use your entrepreneurship skills in the investment world?
Klein: We haven't talked much about investing, but this isn't a book so much about that. Although one of the things that at least at Index we think of, and at TAG and of course Seedcamp, is that you have to invent the VC model in Europe as well. The way I'm putting my entrepreneurial energies to work nowadays is in founding and developing venture and investment vehicles, rather than companies, because that allows you to touch fifty, one hundred, one hundred and fifty, two hundred companies. The most important thing I believe, as I said in that LOVEFiLM blog post, is that no business that becomes worthwhile is the result of one or two or three or four or even five people's work.
The way you build great businesses is through founding teams. Even if you're a single founder or co-founder, you're spending a lot of your time bouncing ideas off your family, off your friends. And you wouldn't be allowed to be entrepreneurs if you didn't have their support as well.
I think people take a very one-dimensional view of what it's like to be a founder often.
Santos: Until they actually start and then they realize.
Klein: Yeah. The role that a team plays, the role that your friends play, the role that your family plays is very fundamental. [Laughter]