Zennström — Going Global Outside The Valley, We Were ‘Too Eager’ With Fab

Despite being quite a self-effacing person, it’s clear Niklas Zennström, co-founder of Skype and now a VC with his Atomico fund, is actually something of a rebel. He has consciously chosen to build a portfolio outside of North America and looks for great companies almost anywhere else.

Zennström co-founded Skype, which he sold to eBay for $3.1 billion in 2005, later re-acquiring it and selling it to Microsoft, for $8.5 billion in 2011. That takes quite a resolute person, especially if you are also in the middle of creating a venture firm that has made more than 60 investments and last year raised a $476m growth fund – mostly from limited partners outside the U.S. – to focus on Europe, Japan, Brazil, Turkey and China, amongst others.

Zennstrom is known for keeping his distance from the tech communities on the West Coast, and even the East Coast. So at TechCrunch Disrupt NY we wanted to find out why he thinks like that, when so many seem to do the exact opposite.

For starters, yes, he occasionally gets a ribbing about buying and selling and buying Skype but, as he says, he wanted to create a company for the long term. “In the early days we didn’t know if we’d survive against big players like Microsoft,” he says. So when it came up for sale again, he was eager to get it back. He wanted to build a company that would last for a long time – so he wanted to continue the journey. That’s not something most founders would say today.

Is he motivated to work outside the Valley for any particular reason?

Well, he says, he’s from Sweden, which is small. That gives you that mindset to build internationally.

That’s what Atomico is all about: “If you have something that works, you go international.”

The sweet spot for Atomico is in the growth stage – choosing a company that starts off focused on one market but now wants to expand.

Unpacking that, he pointed out that while technology marches on, how people do business in markets like Latin America and Japan does not change nearly as fast. If at all. So this is something Atomico brings to the party.

Surely this can be reproduced? Just hire people to expand internationally? He emphasises his team’s experience, which is hard to just reproduce or buy-in. “You can’t just fly in and do business development in these markets.”

With much of his team being ex-Skype – for long time the only Western company to break China – he’s got a lot of experience.

But, I asked, this international growth strategy has not always worked. Atomico led a $105 million investment in home decor startup Fab.com, which then set on a round of acquisitions.

But since then Fab has famously withdrawn its local operations from Germany and then the rest of Europe, shedding staff like the Titanic shed passengers, despite still service some market remotely. Fab is now almost certainly below its $1bn valuation of last year.

“Sometimes,” he admitted, “we’ve been too eager to help companies expand.”

Leaving that statement there, he also cited Wrapp – a Swedish startup in social gifting. “We had a plan, then competition came up.” Rocket Internet aggressively launched against them in multiple markets. “We expanded before the product was ready.”

He admitted Joost also fell this way. It was the wrong time – as content owners went with Hulu and others.

In addition, streaming music, where his Rdio portfolio company plays, has also met stiff competition from Spotify. “Spotify has done an amazing job,” he says.

But Atomico is also an investor in Supercell. Last year Japanese telecoms and Internet giant Softbank and its subsidiary Gungho Online Entertainment acquired a 51% stake in the Helsinki-based mobile gaming company for $1.53 billion. International expansion can clear work for Atomico.

But surely there is a problem with games companies that sometimes become one-hit wonders? How can they be Abba, not Biz Markie?

“Supercell has been great at building a skill set around building more than one game – it’s not luck it’s skill,” he says. “It comes back to people – recruiting amazing game developers.”

Ultimately, he says, Alibaba’s IPO this week shows that you can not only build great companies everywhere but also great exits can come from everywhere.

To back that up, his team has produced research to the effect that over the past 10 years some 44 ‘billion dollar’ companies were created in Silicon Valley, 18 in China, but outside those markets 55 were created in the rest of the world.

He’ll always be known for Skype, but what about Microsoft’s curation of Skype? He says he backs Founders. Once Gates stepped down, “Microsoft became less relevant”, he says.

Is Microsoft over?

“It’s a challenge and an interesting period, they need to focus on product and innovation. They haven’t for a long time. Office, etc. will become less relevant. Pivoting into the cloud, and mobile – they are not there yet in either. They are behind.”

If Gates going has badly affected Microsoft, then would he try to keep his founder entrepreneurs in place for as long as possible? That’s his ambition – even when they scale.

“Success is about the great founders. You can fall in love with the opportunity not the founder and that’s when you probably shouldn’t invest.”

Niklas is also a keen yachtsman, and has won three Mini Maxi World Championships and one TP52 World Championship with his yacht racing team Rán.

Does he want to be remembered as a founder, investor or sailor?

“My ambition is to drive change. And maybe not take the obvious route. With Atomico, we want to help build the international ecosystem – London, Tokyo, Sao Paulo, wherever – that’s my objective.”

No doubt along the way, he’s also learnt not to be ‘too eager’.