There is a big change happening in the world of business in Europe that investors like family offices need to know about. It involves the next generation of talent, who they are working for, and startups.
But first, some background to illustrate the point. Since the UK voted for Brexit in 2016 there has been mounting concern that talent from the City of London would move to other financial centres in the European Union like Frankfurt, Dublin, and Paris.
That concern is probably overblown - when the European Central Bank was located in Frankfurt in 1998 there was a similar fear about the City of London losing out, but this never happened. The financial sector in London continued to thrive. Some argue it actually grew faster after the decision.
But does it really matter anyway? And is there as much “talent” in the City of London as there was 20 years ago? Because the concern about this talent shift is based on an old way of looking at the world economy - through the prism of big businesses and big financial institutions.
It’s fed by the big financial media groups like the Financial Times and the Wall Street Journal that are obsessed by financial institutions, partly because they are based in the two biggest financial centres in the world. But that perspective is increasingly looking stale and not in tune with the digital economy the world is being led and influenced by more than ever.
Yes, there’s still a lot of talented individuals whose efforts in the world of big finance contribute massively to the world’s economy. But that talent is thinning out. And it’s moving into startups, whether in fintech, big data, biotech, tech-tech, or a host of other sectors. And, of course, that talent shift isn’t just happening in the UK, it’s happening in France, Germany, Scandinavia - and increasingly it will happen in the rest of Europe as well.
Who wants to work these days for one of those behemoth-type financial institutions with their reputations forever associated with the financial crisis of 2008? Who wants to don a suit and tie, or a skirt and high heels (granted, the etiquette around what women wear in finance has eased in recent years, but it's still formal) every working day? Well, of course, many will because of the still high financial rewards. But much less than they did 20 years ago.
Why work for a financial institution when you can go into an office attired like Mark Zuckerberg and build a business that could be worth millions of dollars a few years down the road, if not a lot more. Of course, many of these startups will fail, but that won’t stop the enthusiasm for working for a startup. Whether they are or not, startups have created an ethos around a fun place to work. Let’s face it, fun was never an ethos around working for a big financial institution no matter how much money could be made.
The startup culture, imported from the US, is growing rapidly in Europe. A recent sign of that enthusiasm is the opening of Station F in Paris. The huge office space is designed to hold up to 1,000 startups. When full, Station F says it will be the biggest concentration of startups in the world. Then there is Silicon Roundabout in London, which today is the third biggest tech startup cluster in the world, after Silicon Valley and New York.
Just as there is a wealth transfer happening between the baby boomers moving into retirement and passing their wealth on to the next generation, so too is there a “work transfer” happening. And that transfer is about working for startups and being more entrepreneurial. Of course, many millennials, generation x’s and y's still want to work at the big institutions, but many will stay a lot less time in these institutions. Instead, they will be tempted into taking a more entrepreneurial path in their careers when they reach their late 20s and early 30s.
What does all this mean for investors like family offices? At the very least it means they should be looking more actively at the startup sector with added seriousness. OK, many investors are already doing so, but in Europe especially, family offices have been slow to see the potential of the startup sector, preferring to invest their money in much further develop businesses.
But, if there is an increasing eco-system around the startup sector in Europe, and more talent moves into the sector, family offices will be wise to sharpen their focus. Because this is where the money will be made increasingly throughout the next 50 years in the world economy.
After all, some of these businesses will become the next established companies of tomorrow, making millions of dollars in revenue and profits, like their family business counterparts of today. Better to get in at the start.