EarlyBird responds to Berlin Startups Debate: On Copycats and Innovators

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Berlin has heard plenty of heated debates in the past about copycats, from their relative merits to their continual nuisances. In the past few weeks, the intensity and tone seems to have escalated even further, with Jason Calacanis even adding his two cents last Friday on Berlin’s This Week in Startups episode.

Sure, we all love a bit of competition. Everyone has learned by now that Facebook wasn’t the first social network and so on. Improving on and executing better than existing players in a market is an essential part of the way our economy works and we’d be doomed without it. But how can you possibly not be against the aggressive systematic pixel-for-pixel style of copycatting? It’s easy to take a side, easy to unite in outrage. And a lot of people are.

In response to a particularly passionate feed in the Berlin Startups group on Facebook this Monday, I’ve decided to offer to the discussion the perspective of a Berlin VC. There were many points exchanged at some length (33 comments total) and many emotional reactions stirred. I’d like to use this space to respond with some of my views on what points came up during the discussion. First up, the press:

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1. Copycats in the press

The debate is a field day for easy/cheap tech press and they are not doing their job properly while wrecking our reputation

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Who can blame the press? Copycats are simply generating more news!

Even though the copycat system is being continuously marginalised by the more innovative crowd in Berlin, the former system is significantly older and better-oiled.

This has simply created more news in the past. It’s also easier for traditional media to understand than more innovative projects that are going on and overtly challenging us. The topic is so emotional and engaging that it is a clear traffic driver for all related media outlets. Coverage will only change as we start seeing more newsworthy success stories from innovative start-ups as well.

The good news is we are already seeing a massive shift towards this. In the meantime, we can pay heed to our reactions and the credence we grant these stories. To give you one example of a possible mislead – if you read the headline “Copycat X raises €50m to beat Y in Europe” the initial reaction is “Holy cow, we could never compete against these guys! Innovative ideas would never get so much money here.”

Relax – usually the actual round size is only a small fraction of this and a simple trick is used: investors agree to invest say €5m at a pretty reasonable valuation and if some outlandish milestones are met a further €45m at a pretty crazy valuation. What comes in the press release? Of course, “we raised €50m”.

2. Funding of Copycats vs. Innovative Companies in Europe

Innovative start-ups in Europe can raise say €30m-€40m from a syndicate (contrary to the rumour there are really only one or two “proper VCs” that focus on copycats in Europe, the rest easily have a 90 per cent + innovation rate) over a lifetime. This is sufficient to get any startup to a stage where if it is outlandishly successful it can look towards the US for a massive funding round.

What is true is that because there are so few VCs in Europe with largish funds that this type of funding is available to far fewer startups than in the US. (Short excursion: a large portion of the really huge later-stage “financing” rounds you read about in the US actually are in many cases secondary transactions – where most of the money goes to old shareholders and founders, rather than to the company itself).

3. Copycats as contributors: Do they add anything?

Copycats have made a valuable contribution to getting the Berlin scene off the ground

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They are just building unsustainable businesses and there’s little cross-fertilisation is going on

Like it or not, copycats that have created thousands of jobs and companies (Zalando/CityDeal/Groupon, etc) look like they are here to stay. Like any other part of the startup ecosystem they too have failures. That said, I doubt there is empirical evidence showing that the copycat system is more or less unsustainable (many have tried but failed to prove this).

Unfortunately, what we are not seeing so much is that copycats are great “universities for entrepreneurship”. This is usually the first argument for people defending some of the copycat factories around, but there’s no chance of witnessing it here on the ground in Berlin.

In this town, there’s a huge divide between the innovative crowd and the people currently or previously at a copycat. Usually former copycat people tend to come up with a niche version of something they were already working on, or the same model in a different market. This makes sense: really driven entrepreneurs passionate about innovative products and services probably wouldn’t join a copycat in the first place and it is naïve to assume the experience at a copycat will change anyone into that kind of person.

4. Entrepreneurship is about great people – the best people

It’s difficult to innovate with aggressive copycats biting at your heels

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It’s your own fault if you’re too easy to copy…

Remember that copycats are really at a huge disadvantage to the original. Copycat success is indeed usually limited to low-innovation models (eg see e-commerce focus). The more innovative and disruptive you are, the increasingly difficult/impossible it gets. Copycats are always behind the curve and that’s a very bad place to be when you are trying to build up users: they will never be as passionate as you are about the product nor will they be able to take it to the next level. Copycats will always struggle to be authentic when engaging with and building a community.

A copycat simply can not attract the best people due to the lack of intellectual challenge. You cannot copy people. The aggressive, structured and well-funded copycats we see hanging about discourage openness. Sharing of ideas is absolutely key for any successful startup ecosystem – and we need more openness, not less. In many case, they are intellectually depriving.

I would love to see some of the developers at these copycats use their intelligence and energy to build great, disruptive companies; or at least to add a new spin, make something better.

5. Chin up, innovators. We’re keeping our eyes on you

I’m sad but not worried because great entrepreneurs with the best products will always win and we look forward to backing many more of those in the future. As an entrepreneur I would also focus my energy on my product and users and little energy on worrying about someone who is incredibly unlikely to beat you – even with all the funding in the world.

For more articles by VV contributor and EarlyBird VC Ciaran O’Leary, check out:  

Ciaran with Twitter’s Ryan Sarver on Berlin’s USP

The (grossly exaggerated) difference between American and German Founders

An EarlyBird’s View of Berlin: The good, the ugly, and the missing

 

For more articles on the copycat dilemma, read: 

Casacanda acquired by Fab.com, CEO Roman Kirsch praised for his passion and originality

Fab.com CEO waxes poetic against Bamarang, the latest Samwer clone

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