Is ES2 Leading A New Wave Of European Startup Companies?

LONDON—Picture a young company, incorporated in Luxembourg and headquartered in Munich, that conducts research in Britain, France, and West Germany, manufactures its high-tech product in France, has offices in six European countries, and owns a subsidiary in San Jose, Calif. Corporate Europe after 1992? sure but for at least one European startup, it’s a reality of today. European Silicon Structures (ES2) is one of the first pan-European companies: a company without a country. Or, perhaps more correctly, a company with many countries. Launched in 1985, ES2’s charter was to become a major player in the European integrated chip market. Advent Ltd., a London-based venture capital firm, liked the idea. It seeded ES2 with about $5 million. ES2 co-chairman Robert Heikes and his colleagues then gathered another $60 million from eight European corporations, including Italy’s Olivetti, Sweden’s Saab, the U.K.’s British Aerospace, and the Netherlands’ Philips. That, says Heikes, makes ES2 Europe’s largest-ever startup. “Investors’ attitudes here are becoming much more flexible,” he says—adding that this is especially so as 1992, the year that Europe will become a single common market, ap proaches. “I doubt that we could have done this even five years ago.” “It’s a question of economies of scale,”, explains CEO and cofounder Jean-Luc Grand-Clément. “And it’s a question of critical mass. We wanted to be able to reach critical mass very quickly.” And it appears to have worked. ES2 expects to clear $15 million in sales this year’ 95% of which are in Europe. By 1993 Heikes predicts revenues could hit $100 million. “We can now create one new integrated circuit design a day, and will be doing two a day by next year,” he says, adding that the company is aiming for 20% of the European custom chip market. A U.S. division of ES2 is planned for late 1988. In addition to a multinational resource base, the company’s technology has been critical to its success. Conventional integrated circuit production calls for a set of photomasks at an average cost of about $25,000 per set; the process pays off only by producing 10,000 or more circuits for use in personal computers and other major mar- kets. But instead of masks, ES2 uses an electron beam to write the circuit directly on the wafer. As a result, says co-chairman Heikes, the company can economically make as few as 100 custom circuits for use in specialized telecommunications systems, medical equipment, and other low-volume applications. A typical ES2 product was a chip for CERN, the European Center for Nuclear Research, which replaced a whole printed circuit board and allowed the physicists to fit their electronics into a cramped experimental area. But breaking new ground has been tough—economically, logistically, and even culturally—and ES2 still has few, if any, multinational imitators. Being able to employ scientists, engineers, and other staff in different countries has made it easier for the company to recruit people with the requisite mix of specialized skills. But vice president and director of operations Rod Attwooll notes that it is still difficult to lure Europe’s computer scientists and engineers away from their home territories. Communications and travel expenses are dramatically increased for a company with development teams scattered across Europe. On a day-to-day basis, explains Attwooll, E82’s scientists stay in touch through a computer network: “Once you’ve got that, it’s no different from the guy being a mile away.” Nonetheless, he notes, much time—and money—is spent on traveL “We have regular meetings so that people get to see each other. There is no substitute. You do have to meet.” Neither were European laws ready for a pan-European com pany. There had to be a holding company and national subsidiaries. "Before we could do business we had to have 10 companies," says Grand-Clément. “It was approximately six months before we got more employees than companies.” National boundaries are still a headache. The high-tech nature of ES2’s product means that even within Western Europe, export licenses are needed in addition to all the usual transport documentation. Laws, taxes and accounting practices are different in each country. All that should become simpler after 1992, though operations chief Attwooil doubts whether harmonization will be complete before the end of the century. But despite the hardships, no one doubts that ES2 has taken the path of the fixture for European companies—and CEO Grand-Clément offers his company as a model for other high-tech startups. “The times are finished when you could do business in high technology in France, or in Germany, or in the U.K., and be safe,” he says. “I think it’s a must, to start these companies on a European level. Otherwise they are going to be wiped out.” Tony Durham is a freelance technology’ writer and consultant, based in London.

Is ES2 Leading A New Wave Of European Startup Companies?

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