The Zennström manifesto

With a 'techlash' underway, Atomico founder Niklas Zennström still believes a fourth industrial revolution can save us from the first three

At almost 86 degrees Fahrenheit, London is enduring a mini heat wave by traditional British summer standards. News reports at the weekend had relayed findings from the Met Office’s latest “State of the U.K. Climate report” confirming that the country is officially warming. Perhaps the first two industrial revolutions have finally taken their toll on the planet, just as the World Economic Forum argues that we are ushering in a fourth industrial revolution based on emerging technology such as artificial intelligence, robotics, the Internet of Things, biotechnology and quantum computing.

Knowing full well that the office building housing European venture capital firm Atomico happily pumps out air conditioning on a day like today, I’ve arrived 30 minutes early for an interview scheduled with founding partner Niklas Zennström. Prior to becoming a venture capitalist, Zennström co-founded Skype, the internet telephony company, which he famously managed to sell twice — first to eBay in 2005 for $2.6 billion, then to Microsoft in 2011 for $8.5 billion. A known environmentalist, with his wife Catherine, he is also the founder of Zennström Philanthropies, a nonprofit that supports organisations combatting climate change and promoting human rights and social entrepreneurship.

Located in Mayfair, one of London’s most expensive districts, Atomico sits within walking distance of the London offices of Accel Partners and Index Ventures. If Balderton Capital, the other of the “big four” early-stage VCs in the U.K., hadn’t moved to the trendier Kings Cross area in North London, Mayfair would be the closest thing the country has to Silicon Valley’s Sand Hill Road, renowned for its high concentration of venture capital.

I’m greeted by Atomico’s hard-working and always jovial head of communications, who seems slightly on edge, which I take as a compliment and has the converse effect of helping me relax. After taking the lift to the third floor, we find sanctuary in an empty and cool meeting room, and I remark that it feels like I’ve been reporting on Atomico for nearly as long as I’ve been a journalist. A quick count that morning revealed that I’ve covered just less than half of the companies in the current portfolio, as well as interviewed numerous members of the now 30-plus investment team. Yet I’d never met or spoken to Zennström.

The Atomico founder doesn’t give as many interviews as he used to, preferring to share media duties with the wider team, even though there remains a feeling within the organisation that the VC firm is sometimes misunderstood. Despite being in its 12th year and on fund four, Atomico is still considered to be the upstart compared to Accel, Index and Balderton, and amongst entrepreneurs and the press there are often a number of other misconceptions:

  • Atomico is a late-stage investor. Wrong. The majority of investments from fund four are at Series A, although the firm does invest at Series B, too, and typically follows on.
  • Atomico is mostly Zennström’s own money. Wrong. LPs in the fund do include Atomico partners, but mostly span the usual gamut of family offices and institutional investors such as pension funds, funds of funds and the EU taxpayer backed European Investment Fund.
  • Atomico only invests in consumer technology. Wrong. The firm is largely sector agnostic and places bets across B2C, B2B, software, hardware, deep tech and more.

What is perhaps better — and accurately — understood is that Atomico is one of the few European VCs to have developed a penchant for making “moonshot” investments: putting money into a number of genuinely groundbreaking companies and exploratory technology that isn’t expected to generate revenue for many years to come and will either change the world or fail spectacularly.

The best-known is probably Lilium, the Munich-based startup developing an all-electric vertical take-off and landing (VTOL) jet. It plans to use the aircraft to power a “flying taxi” service that wouldn’t be out-of-place in a Sci-Fi movie. Another is Memphis Meats, the San Francisco-based company growing meat in a lab by harvesting it from cells instead of animals. Then there is Graphcore, the Bristol, U.K.-based startup that is designing chips specifically for artificial intelligence, and which has its sights set on Nvidia. Lilium and Graphcore have raised more than $100 million each, while all three are yet to launch a product.

A few weeks prior to the interview I called various mutual contacts Zennström and I have to get a sense of what he is like as a person. Ambitious was a word that came back repeatedly. One entrepreneur who has taken investment from Zennström tried to convince me that there is no venture capitalist equal to him in Europe based on sheer ambition levels, which they said he always tries to instill in the startups he backs. I was also told that he is renowned for being an extremely tough negotiator (A partner at Atomico is rumoured to have asked one of the firm’s portfolio companies to have a pair of brass balls made as a present for Zennström in homage to a deal he recently got over the line.) Paradoxically, others said he can sometimes come across as shy or a little awkward, especially when talking publicly.

Atomico’s Niklas Zennström at TechCrunch Disrupt London 2016

I’m told Zennström isn’t short of entertaining stories, both from his time building Skype and before that through his association with the peer-to-peer file sharing application Kazaa, whose technology was licensed by Joltid, another company he co-founded. The success of Skype, which for millions of people made international calling effectively free, saw him become a major adversary to the incumbent telecommunications industry. In the early 2000s, following in the footsteps of Napster’s Shawn Fanning and Sean Parker, Zennström might well have been considered the entertainment industry’s enemy No. 1 due to the way Kazaa was used for music and film piracy, which led to multiple lawsuits.

As fun as I’m sure those anecdotes are, tales from a bygone era would have to wait for another day. With the interview restricted to just an hour and no red lines agreed upon, I had other things on my mind. Tech, it seems to anyone who tracks the industry for a vocation, is having a “moment,” and not always for the right reasons.

From the Facebook Cambridge Analytica scandal and social media’s reluctance to stem the flow of hate speech and misinformation, to bad behaviour, including sexual harassment and assault, bullying and racism, if ever the tech industry was in need of finding its moral compass, not only to remedy the problems of the past, but more so as we head into the future, it is now.

With $1.5 billion of capital under management, and its fourth fund totaling $765 million, perhaps more than most European VC firms, Atomico is well-positioned to help shape what that future looks like and play a significant role in determining how the technology industry evolves over the next 10 years and beyond.



ennström enters the room in an upbeat and relaxed mood, and we exchange a few pleasantries — no social awkwardness detected. He thanks me for making the effort to visit Atomico (I have a reputation for conducting the majority of interviews remotely, partially because of the extra time and energy traveling consumes as a wheelchair user). Not wanting to waste any time, I switch on my iPhone’s recording app and fire my opening shot: “Why did Atomico need to exist when you first founded this VC firm, and probably more to the point, why does it still need to exist today?”

People told me there is no ambition level in Europe. Niklas Zennström
Zennström laughs, having seen the second half of the question coming a mile off, and then launches into a precursor to the Atomico pitch. He says that when he was building Skype (and before that Kazaa and Joltid), he always had people tell him that you can’t build tech companies in Europe, and that if you want to build a tech company, you need to be in Silicon Valley.

“People told me there is no ambition level in Europe, there’s no development, no talent, nothing,” says Zennström. “Certainly what was true, what I learned firsthand, [was that out of] the VC firms back then in Europe, most of them were very risk-averse. They’d rather bet on a copy of something they’d seen in the U.S., deployed in a small market. And there was also much more of a mentality back then about making a quick buck and exiting early instead of building companies for the long-term.”

He says that when he pitched Skype to European VCs many said they didn’t dare invest as they hadn’t seen anything like it before and they didn’t understand why he and co-founder Janus Friis would want to take on the whole telecoms industry. Instead they asked if he could create telecoms enterprise software, which, the VCs argued, would feel a lot safer. In contrast, many VCs in Silicon Valley thought Skype was amazing and liked the sheer level of ambition, leading them to ask when the London, U.K. and Tallinn, Estonia-based company was planning to relocate. Zennström’s reply: “Well, actually, we’re not moving here.”

“The Skype exit, I think, was a big milestone for Europe. We showed and proved you could build a [European] company that had a big value,” he says. “The thesis that we developed was that if we could do it then a lot of others can do it because we’re not that special; there’s a lot of people who are a lot smarter than we are. So we had the thesis that Europe will produce a lot of great companies in the future and that the existing VCs were risk averse.

“As an entrepreneur — and of course being rejected so many times — it was clear to me [that] my next industry to disrupt needs to be European venture capital.”

This led to the realisation that the reason why many European VCs were so risk-averse and “asked weird questions” was because they had never run companies.

“You need to build a VC firm with people who have also built businesses, because you can build a better rapport with founders if you have done it yourself,” says Zennström. “And of course if you’ve been a successful founder, you probably have a competitive advantage to get access to founders because they’d rather take money and advice from someone who has done it themselves.”

Even at larger venture capital funds, he says that founders tended to only deal with one partner and perhaps one associate, who may or may not be that great. To mitigate this risk, he decided he needed to build a team at Atomico that could help with core aspects of scaling, such as entering new markets, recruitment, marketing and strategy, long before it was fashionable to do so in Europe. The result is Atomico’s “Growth Acceleration Team,” staffed by former operators at major tech companies, from Skype and Google to Uber, Spotify and Facebook.

Adds Zennström: “The mission was to prove and to help to build the tech ecosystem in Europe. And that was important because, at the end of the day, this is innovation, and if you don’t have innovation in the future technologies, you’re gonna be a stagnant region. As a European citizen and someone who wants to live in Europe, I thought it was important.”

The Atomico team

To part two of my question — why Atomico needs to exist today — Zennström says that although we are seeing an inflection point of accelerated growth in Europe, as evidenced by Spotify and Adyen going public, we are still behind the U.S., and it isn’t mission accomplished just yet. More profoundly, he says there is now a second aspect to Atomico’s mission: backing founders who are building technology “that can actually have a positive impact on society.”

“What we’ve seen over the last few years is more and more founders who are building companies to address world problems, whether that is sustainability problems, trying to fix education, trying to fix healthcare, using AI to massively improve the detection of diseases, or treating mental illness, fixing transportation, fixing the food chain that is broken. If we can support those entrepreneurs who are going after these big opportunities, bigger problems, and if some of those companies can be successful, that can be a positive impact on some pretty urgent challenges we have in this world.”

We might be destroying our planet because of tech. Niklas Zennström
Zennström says that some of those urgent problems have their genesis in our parents’ generation, who didn’t understand that certain things would become a problem because it was assumed that the world had infinite resources. “But we know very well now that was not the case,” he says.

It’s a theme that the Atomico founder returns to throughout the interview: the idea that the non-digital technology of the last century has had a lot of positive benefits, such as cars, airplanes and combustion engines, which have been instrumental in driving economic growth and productivity, “but has had a tremendous impact on our society in terms of the environment.”

“We might be destroying our planet because of tech,” he says, before reiterating his belief that digital technology and innovation can fix some of these problems. The examples he cites are electric transportation and technology that can help us become less reliant on animal farming — an indirect reference to two of the VC firm’s moonshots.

“If we are leaders and we are people with the ability to have an impact, then it’s not only an obligation, it’s obviously the right thing to do… But we also think that those companies are also the ones that can become some of the biggest companies in the next 10, 15, 20 years, because these problems are really, really big.”

At this point I’m reminded of something Zennström said onstage at TechCrunch Disrupt London in 2016: that politicians are no longer the changemakers. But what exactly did he mean?

“Well..,” he says, breaking out in laughter and rowing back temporarily in reference to Brexit. “Some politicians made change in this country, unfortunately, although it was a referendum and ultimately it was the people who voted, but I think some politicians mainly messed up.

“But what I’m saying with this is, as we’re living in a world which is very dynamic, and whether we have a better world or a worse world than before can be debated, there’s a big paradigm shift that is happening in many ways…

“Not all of them but most politicians are tactical and they seem to be more focused on optimising for the sake of winning the election rather than doing the right long-term thing for the constituency, that’s why they’re not really leaders. A real leader is also someone who goes out and says, ‘these are things we need to do, because we need to pave the way to a better future.’

“In that way, they’re not as great leaders as some of the politicians we had from time to time in history.”

Zennström believes that this is where entrepreneurs can and are taking up some of the slack through tech’s ability to drive change, coupled with a millennial mindset that is seeing consumers “actually thinking about purpose and mission and trying to do the right things.”

I push back a little and suggest there is also a climate where too many startups overstate their missions when at the end of the day they’re building for-profit businesses that will eventually come under pressure to prioritise returning value to shareholders. Recent history is full of examples of tech companies that have seemingly lost their way in pursuit of growth and I wonder if this is something the Atomico founder spends much time thinking about.

“Yeah, big time… We think about this a lot,” he says, and then goes on to offer what can only be interpreted as a diagnosis of Facebook’s recent woes, even though neither of us has mentioned the social network by name.

Compared to when Zennström was building Skype — a time when there weren’t as many feedback loops available — online companies are now incredibly data-driven, he says. And although this “has been amazing,” there are also downsides.

“If you’re a company based on advertisements, all your engineers, your rank engineers who are working on the ranking and how content should be displayed, they are trying to optimise for engagement, right? It’s like, what is our North Star, we try to get people to engage, to click more and come back more. Then they have basically black box algorithms, lots of data points, and out of that comes the content and advertising that is displayed so that people come back. And that becomes the model.

“And then it’s like, ‘well, we are just trying to optimise our business, we’re not doing anything wrong.’ That’s kind of how most engineers in some of these bigger companies are thinking. They may not necessarily think at all that they’re losing their way: ‘We’re doing really well because our algorithms are awesome.’ But then when they take a step back and look at the consequences, it’s like, ‘wow, that didn’t go so well, did it?’ ”

As companies become big, they also become “big machines,” especially if they’ve gone public and where the expectation from the stock market is to continually drive growth. “If you don’t drive growth, guess what, your share price is plummeting and people lose money relative to what they had the day before. So they all want to fuel that growth, without having really thought about some of these consequences.”

Zennström on stage with former U.S president Barack Obama at Nordic Business Forum

This is where Zennström, aged 52, sees a role for industry veterans like himself, and Atomico more broadly. He says the VC firm encourages young founders to grapple with these kinds of issues early, as well as helping them build in company mechanisms “to make sure we have the right backbone so we don’t lose our way.”

“Those are conversations we are having with founders,” he says. “What is the culture you are building, how do you think about the ethics of your business, so that when you become successful, you’re gonna be a company you can be proud of.”

When entrepreneurs and VCs in Silicon Valley talk about “changing the world” through technology, there is always implicit assumption that it is for the better. Does the Atomico founder view tech as agnostic or is tech inherently good?

“I think most people who are in tech believe that ultimately tech is positive,” replies Zennström, although he says that it is not a new debate.

“Let’s take tech from the beginning, the industrial revolution and the first pieces of technology. It’s a philosophical question: before we had the plough, the hammer, were we happier? If you read Socrates, maybe we were happier when we were hunter-gatherers, I dunno,” he says, laughing. “Now we live in a society because of technology.”

Zennström recalls how users of Kazaa sometimes shared “really bad content,” which he says was horrible to see but that tech and the internet is simply a reflection of humanity and turbocharges connections.

“Of course it’s a positive thing that people can connect with each other. Connectivity is better than isolation, I think, as a starting point. But when people connect, it can also be misused.

“We cannot just say, ‘it’s not our responsibility’ and everyone else who is involved in tech. We need to have conversations about this and say, ‘what is acceptable and what is unacceptable.’ And those conversations did not happen…”

But are they happening enough now?

“Not enough, but they’re happening… We certainly have a lot of those discussions, both internally but also with other people we know in the tech industry. I’m sure also within the big tech companies they’re happening but it’s harder for them to move because they’re so big. But I think they’re not happening enough, we need to have more of those conversations.”

A diverse decision group makes better decisions. Niklas Zennström
Zennström says that the challenge for anyone running a large tech company is that lawyers will often dictate what can and cannot be said, which stifles debate and prevents an open discussion. CEOs are advised to toe the party line “and then that party line becomes truth.”

“It’s easier if you’re not running a big tech company to have discussions about what is right or wrong,” he says.

If big tech is prone to adopting a PR “line” as internal truth, I wonder what role Zennström sees the tech press having in reinstating much-needed checks and balances, and if he were to score the press, how good or bad are we doing?

Careful not to take the bait, he says the press has a “very important” role to play in highlighting issues facing the technology industry and tech’s broader impact on society, even if he believes the discourse could benefit from going deeper.

At the same time, we both agree that in some sections of the press, the discussion has gone from an overly simple narrative of “technology is amazing” to “technology is awful,” and Zennström says in some ways we are already in the midst of a public “techlash” that is only going to get more intense.

“I think there is risk for that to become much bigger, because of the strong impact and growth of tech and the development of algorithms and AI and [the] adaptation of that,” he says.

“In many cases when you’re applying AI and machine learning to something, you have biases and then you get a biased outcome. And of course it’s a very interesting thing for the press to write about… so I’m sure you’ll have more and more of these stories. Then you add the risk of more people losing jobs because of tech. Of course there will be a bigger backlash. That’s why it’s so important to have even more discussions.”

Asked what stage AI is in its overall development — since a lot of the technology is overhyped and under-delivers — Zennström says we are still at the beginning, but that AI/machine learning is being used every day to influence what news and what content we are exposed to. “It’s deployed at a massive scale already. And it has impact. It’s not in the future, it’s here,” he says.

“The amount of engineers, computer scientists, mathematicians spending time on machine learning and AI today is just massive compared to about five years ago. There’s so much focus on innovation in AI… it’s probably going faster than many people expected.”

As a journalist who has steadfastly stuck to covering European tech (even when it was detrimental to my career), when I look at AI companies in the U.K. and the number that have already exited, I can’t help feel like they are selling out incredibly early. Zennström doesn’t entirely disagree.

“I think that maybe some have,” he says, although there are several other AI companies in the U.K. and Europe that are looking promising and that have certainly not sold out. “Just like when people told me [that] maybe we sold Skype too early… you also have to think a little bit in the context of the times. If you are early in the cycle and you don’t really see a future in how you can get funding, then maybe it is okay to sell.”

At the same time, he thinks that with more and more funding coming into AI companies, investors in the U.K. are realising that the country is building “really good AI companies” and are encouraging startups to stay independent for longer.

With our allotted time together coming to an end, I hastily turn the topic to diversity, one of tech’s liveliest and at times divisive topics. I wanted to know what diversity actually means to Zennström, and — playing a little devil’s advocate — if it is something early-stage startups should even care about.

He says the way Atomico thinks about diversity — and something that is actually stated in the VC firm’s internal principles of how the organisation should operate — is that “a diverse decision group makes better decisions,” which he says is also borne out by the available research.

“If there’s a bunch of people who are coming from an exactly identical background then each person is not going to add as much,” he says. “For us, because that’s the core thing we do, we make investment decisions, we think it’s important for us as investors. So diversity in that broader sense is people with different backgrounds.

“And of course everyone talks about gender diversity, that’s one dimension. There’s so many other diversities, there’s faith, there’s cultures, there’s age, there’s disabilities, there’s sexual orientation, there’s if you’re introvert, extrovert, if you’re a business person, if you’re an engineer, if you’re someone coming from an unprivileged geography. It’s like, there’s so many different dimensions on this.

“So we think it’s important… we think that we as an investment firm need to be much better, to be diverse, but we need to think about it in the broadest context and we’re striving to do that.”

Atomico almost certainly does better than most VC firms in Europe or elsewhere in terms of gender diversity: Counting the entire 51-person team, 53 percent are male and 47 percent are female — although it is less clear how well it does by other measures.

For startups, especially consumer companies, Zennström argues that they also should have a diverse team because that will likely better reflect their consumer base. “That’s just being a better business,” he says.

“When we are investing in a company, we are talking to them about this. These are conversations we are having, it’s like, ‘how do you think about diversity?’ If they say ‘I couldn’t care less, I just want to build a good business,’ we say ‘if you want to build a great business, you probably want to think about diversity and be active about it.’”

I think that when you have an issue, you first need insight that you have a problem. Niklas Zennström
It is noticeable that the case Zennström makes for a more diverse workforce, either in venture capital or at technology companies in general, is largely a business one, which prompts me to air a view I’ve held for a while as I’ve watched diversity move further up the tech industry agenda: In Europe we have blindly imported Silicon Valley’s version of diversity and as a result there doesn’t seems to be nearly enough emphasis on how diversity relates to European and British progressive notions of social mobility and building a more equal society.

“I feel like if tech treats diversity as the way you described it, it misses a trick,” I tell Zennström. Tech is a great enabler and therefore should also be a vehicle for social mobility. If we are creating this brave new world, with lots of money being generated or value being captured based on new technologies, and not employing a workforce of all the talents, by which I really mean class as much as gender or ethnicity, then something is going badly wrong.

Zennström says that of course tech has a role to play in promoting social mobility, although at first I’m not sure he entirely gets it, even if he undoubtedly thinks about these kinds of issues more than most VCs.

He says there are already initiatives trying to tackle this problem, such as, the London-based company builder that wants to solve “huge societal issues,” and which counts Atomico as a backer. Zinc’s latest cohort is being asked to focus on people living in places that have been hit hardest by automation and globalisation over the last 20 or 30 years as traditional industries have declined.

“What’s interesting about these things is that what drives an entrepreneur is some kind of hunger: if you’re very privileged you might not be that hungry,” says Zennström. “But if you’re underprivileged you’re probably going to be hungrier to create change. So I think there’s also an opportunity to find entrepreneurs among groups of people who might be less privileged in society.”

“And in a word, so far,” I ask, “the U.K., Europe, Silicon Valley, are terrible at doing that, aren’t they?”

“Yeah,” he replies. “I think that when you have an issue, you first need insight that you have a problem… It’s very early but I think what is good is that there’s an awareness and there’s a lot of initiatives and discussions about these things, which did not happen 18 months ago.”