Europe's technology sector begins to feel Silicon Valley's woes

London

AT the offices of Deliveroo, a food delivery startup with headquarters in an upmarket neighbourhood here, signs of activity are everywhere. The communal kitchen hums with 20-

something developers. A gold-painted scooter, which co-founder William Shu once used to make deliveries, stands in the centre of the office as people bustle about.

The frenetic pace belies a more cautious approach that Mr Shu, 36, a former Morgan Stanley investment banker, has recently started taking at the startup. Over the last year, Mr Shu has urged colleagues to be more circumspect with growth plans, forgoing rapid expansion in competitive markets such as the United States to focus on places where Deliveroo already has a loyal following.

And while the startup has raised almost US$200 million, employs roughly 400 people worldwide and operates in 12 countries, Mr Shu says profitability - and not just aggressive growth to beat rivals to new markets - is increasingly important as the company moves beyond its British roots.

"We need to make the economics work," he said. "We have to understand that every round of funding must be treated as our last."

The focus at Deliveroo is symptomatic of a change across many European startups. Just as in Silicon Valley, where a number of privately held tech companies have been stung by lower valuations and investor questions about their sustainability, that same unease has now reached Europe's tech community, in a sign that a move away from soaring boom times in startups is going global.

Driving the pullback are some of the same forces that have caused a change in Silicon Valley's startup scene. Tech stocks are gyrating because of fears of a global economic slowdown - exacerbated in Europe by the region's migrant crisis and persistent financial problems.

Valuations of some startups worldwide got ahead of themselves. As a result, venture capitalists in Europe and farther afield are becoming more cautious about funding local startups that do not have proven business ideas.

"When Silicon Valley sneezes, the rest of the world catches a cold," said Fred Destin, a partner at the London office of Accel Partners, a venture capital firm. "It's only a matter of time before Europe faces the same issues that we're seeing on the West Coast."

In Europe, that is leading to situations like that of Powa Technologies. Last week, Powa, an e-commerce company based in London, entered into administration, a form of bankruptcy. The startup had raised US$175 million since 2013 but had failed to win enough customers for its mobile shopping technology. Deloitte, which is overseeing the sale of the com-pany's assets, says it is working to find buyers for the business.

Truecaller, a Swedish startup that had raised around US$80 million for its caller ID smartphone application, recently laid off about 20 per cent of its staff. A company spokesman declined to comment on the layoffs and said Truecaller remained committed to its business.

And SwiftKey, a popular predictive typing smartphone application used by more than 300 million people worldwide, was bought by Microsoft this month for a reported US$250 million, which was significantly less than what many of SwiftKey's investors had expected.

"You can already see more hesitance and lower valuations," Christian Reber, founder of 6Wunderkinder, a German startup bought by Microsoft last year, said. "The market correction will continue, and that's not necessarily a bad thing."

The chill among European startups is not as severe as in Silicon Valley, where companies such as storage startup Dropbox have been marked down in value by mutual fund companies, and other startups have had to raise money at lower values than previously, in what are known as down rounds.

That's because the European startup scene is significantly smaller than that of Silicon Valley. With notable exceptions such as Spotify, the Stockholm-based music streaming service, Europe has fewer startups valued at more than US$1 billion than the US or Asia.

Some European entrepreneurs see a silver lining to the slowdown. Still, as US investor sentiment spreads across the Atlantic, European venture capitalists said they were warning startups that new capital would be tougher to come by than in previous years.

And for startups that already had raised money, they cautioned, how entrepreneurs spend existing funds will also come under greater scrutiny. NYT