Tech entrepreneur Niklas Zennström: ‘Let’s break the Silicon Valley monopoly’

The Swedish entrepreneur Niklas Zennström has much in common with your typical Silicon Valley tech billionaire. A life-changing fortune made at lightning speed before the age of 40? Tick. An overenthusiastic tendency to evangelise about how start-ups can put a dent in the universe? Tick. A love of bobbing up and down on an ostentatious yacht? Tick.

Yet in several other respects, the shaggy-haired, leather-jacketed, 6ft 4in Zennström, who ambles into the Roka restaurant in Fitzrovia in central London on a Friday lunchtime, is an intriguing outlier who would confuse any pattern-matching algorithm for tech bros.

A one-time fugitive from US legal process, Zennström argues that money is not the only metric for success and, as a leading European venture capital investor, says he now wants to disrupt Silicon Valley and build a more purpose-driven capitalism.

As a philanthropist who supports various human rights and environmental campaigns, he expresses pride at sharing the same nationality as Greta Thunberg, even if he does not agree with all the green activist’s views. And as a passionate sailor, who believes yachts are for racing more than showboating, he has twice won the classic Fastnet race aboard Rán, named after the Viking goddess of the sea.

I thought there was such potential in Europe for more companies like Skype to be created . . . We could build the same thing or even better

Having made his fortune building and selling the internet telecommunications company Skype Technologies in the early 2000s, the 57-year-old Zennström now runs Atomico, one of Europe’s leading venture capital funds, which has backed more than 130 start-ups and has $5bn under management. “I thought there was such potential in Europe for more companies like Skype to be created. Let’s break the [Silicon Valley] monopoly. We could build the same thing or even better in Europe,” he says in his lightly accented, monotonal English.

Zennström chooses to lunch at Roka, a Japanese robatayaki restaurant that promises to “wrap each diner in a cocoon of warmth, welcome and hospitality”, for both nostalgic and pragmatic reasons. The restaurant opened in 2004, about the same time that he launched the London office of Skype in nearby Stephen Street. He and his team would pop to the restaurant whenever they had something to celebrate. Now he’s based just round the corner again with Atomico.

After checking my likes and dislikes, Zennström takes control of the menu and briskly orders an eclectic feast of Roka’s signature dishes: yellowtail sashimi with a yuzu truffle dressing, rock shrimp tempura, black cod and crab gyoza, piri-piri maki, lamb cutlets with Korean spices and black cod in yuzu miso. He makes clear that he does not want to drink anything alcoholic, so we stick with sparkling water. 

The FT’s Nordic correspondent had told me that Zennström is regarded as something of a “mythical presence” in his native Sweden. I am intrigued how such a singular individualist could emerge from a famously collectivist society, so I ask him about his upbringing. Zennström has a reputation in London’s tech circles for taciturnity but Roka’s warming cocoon is clearly having an effect and he eagerly replies in free-flowing paragraphs. 

He describes how he was raised by two idealistic leftwing teachers who met at art school. While he was young, his family moved to Uppsala, a beautiful university town some 40 miles north of Stockholm, “the perfect place to grow up”. His parents protested against the Vietnam war and even took an American draft dodger into their home at one point. The family would spend the summer months sailing around the Swedish archipelago in a 30ft boat, instilling a love of the sea in Zennström. He says he learnt empathy and solidarity from his parents, even if he himself wanted to become more like his friends’ parents, who wore suits, made good money and worked in business. 

His father told him not to do what he had done and to pay attention at school. “Make sure you get good grades, because then you have optionality.” The young Zennström duly obeyed and graduated from Uppsala university. That was followed by an “eye-opening” year abroad at the University of Michigan, where he met students from all over the world and became increasingly fascinated by computers. Growing up, he remembers the infamous Apple commercial that played during the 1984 Super Bowl, introducing the Macintosh personal computer. “I thought, ‘Wow. This is cool. This is special. This is really a glimpse of the future.’”

As we have been talking, a stream of dishes has been arriving at our table. The yellowtail sashimi is a bit too heavy on the truffle for my taste but the rock shrimp tempura is moist and tangy (even if we call it scampi where I come from). Zennström declares it all to be very tasty as he chopsticks a gyoza into his mouth.

Graduating at a time of great excitement about technology, Zennström was, he says, naturally drawn to the industry. After failing to land a job at consultants McKinsey, he started working for the upstart telecoms company Tele2 in Copenhagen, which gave him a taste for taking on Europe’s “dinosaur” monopolies. But after a few years he was keen to break out on his own: “The whole dotcom thing was happening and I was like, ‘Shit, this is a lifetime opportunity. This is what I should do.’” He resigned from his position at Tele2 at Christmas 1999 at the peak of the dotcom mania and set up his new business in February just as the bubble burst.

He and his “genius” Danish business partner Janus Friis had been closely following Napster, the wildly popular file-sharing service that enabled users to download music for free. The big record companies eventually buried Napster under a mountain of lawsuits. But Zennström and Friis developed their own peer-to-peer sharing company called Kazaa and — somewhat naively — approached the record companies, hoping to collaborate and create a legal music-sharing business.

However, on a trip to Los Angeles, they caught wind of the fact that a music industry association had declared them “public enemy number one” and wanted to slap a writ on them for copyright infringement. Desperate to avoid being tracked down by a bailiff and trapped in the US judicial system, they switched motels every night, paying their bills in cash before slipping out of the country on a flight from LAX airport. Litigation was to hang over Zennström’s head for years, putting paid to any ideas that he might move to Silicon Valley, before finally being settled.

The restaurant is growing increasingly raucous, making it difficult to hear each other across the table. Flames periodically shoot upwards from the robata grill in the open kitchen. Zennström winces every time the bandanna-wearing cooks shout Japanese chants as they complete an order or drop a fish on the floor or do something else unfathomable (our waitress is later at a loss to explain the ritual).

Having realised that Kazaa was a dead-end, Zennström and Friis hit on the idea for Skype while travelling around Europe and discovering that mobile phone calls were crazily expensive: “Why are these monopolies ripping us off? Because they can.” Noticing that most places they visited were covered by WiFi networks, they realised they could use peer-to-peer technology to enable international calls to be placed for the cost of local ones.

“That was a Eureka moment,” Zennström says. “There was a huge opportunity to disrupt the whole global telecoms industry.” The additional advantage was that in building Skype they were not breaking any laws.

When will Europe produce its first company valued at more than $1tn? ‘I don’t know . . . I would rather have 10 $100bn companies’

In the first few weeks, Skype’s internet telephony service went “exponential” and two years later it had 52mn users and estimated revenues of $60mn. Such was the rate of growth that big US corporations started muscling in on the market, leaving Skype with some stiff strategic questions. “Do we have escape velocity? Or will we be crushed like a bug?” Zennström recalls asking himself.

The Skype team concluded that they needed the protection of a bigger partner and sold the company to eBay for $2.6bn in 2005. Zennström made even more money a few years later by participating in an investment consortium that bought Skype back from eBay and flipped it to Microsoft for $8.5bn in 2011, making him a billionaire.

With his newly acquired wealth, Zennström founded a philanthropic fund with his wife Catherine and splashed out on a “nice sailing boat”. But he was also determined to help build the European tech sector and so launched Atomico to fund some of the region’s most promising start-ups. Current investments include Klarna, the digital payments company, Lilium, an electric flying car start-up, and Corti, an AI-powered healthcare business.

Just back from the Estonian capital of Tallinn, where he celebrated the 20th anniversary of Skype’s launch, Zennström talks animatedly about the vitality of Europe’s start-up sector, even if the market is experiencing one of its sharpest downturns in decades. What most excites him is the number of second- and third-time founders who have emerged. They have often learnt from the failures of earlier ventures and are now more experienced in building stronger businesses.

In Silicon Valley, he says, they talk about the “PayPal mafia”, the founders and early employees of the payments company, including Elon Musk, Reid Hoffman and Peter Thiel, who went on to found or run other successful companies, such as Tesla, LinkedIn and Palantir. Zennström says a similarly dynamic network effect is developing in Europe, even if he does not like the word “mafia”. Former employees of Skype have founded 910 companies including 15 unicorns, or start-ups valued at more than $1bn. In total, he says, the European tech ecosystem is worth about $3tn (roughly the same as Apple’s market valuation on a good trading day).

Our empty plates have been whisked away and new delicacies arrive. The black cod in yuzu miso, both delicate and delicious, justifies its reputation as one of Roka’s signature dishes. Zennström warns me that the sauce accompanying the lamb cutlets is very hot. He is not wrong.

As a nano-entrepreneur myself and co-founder of Sifted, an FT-backed but standalone media company covering European start-ups, I am keen to hear his views on how long the current market downturn will last and whether the era of higher interest rates will wreck the VC game, as some commentators have suggested.

Unsurprisingly, he argues that the downturn is only a temporary correction and that the opportunities for entrepreneurship, and VC investment, are greater today than ever before. The breakout of generative AI represents the next big platform shift in technology, which agile start-ups can exploit.

The risk-taking mentality of VC investors has a logic of its own. I bring up the research of Tom Nicholas, a Harvard Business School academic, who points out the near-identical pattern of investment returns between the leading whaling company in north-east America in the 19th century and Sequoia Capital, one of the West Coast’s most successful VC companies today. Back in the days of Moby-Dick, ships would set sail on the seas for an average of 3.6 years in the hope of harpooning a whale. Many of them never landed one but those that did paid for the expedition several times over. In a similar way, the one or two hits that a VC company scores in a portfolio of 30 otherwise dud investments can often “return the fund”, as they say.

As we tuck into plates of seasonal fruits and mochi ice cream, Zennström accepts that VC investors must be comfortable with long voyages and frequent losses and acknowledges that Skype was a rare investment whale back in the day. But he argues that Europe has many similar businesses today. Mixing mammalian metaphors, he observes that Europe has produced 350 unicorns in 29 different countries. “Now we have a school of whales,” he smiles.

In full promotion mode, he says that Europe boasts more software engineers than the US, has four of the world’s top 10 universities and is the best place to launch a start-up focused on tackling big societal challenges, such as climate change. Last year, Europe attracted 30 per cent of all global funding for early-stage ventures compared with 36 per cent in the US. But the investment flows in Europe are heavily concentrated into what Zennström calls purpose-driven companies. Even the most storied US VC companies, such as Sequoia and Andreessen Horowitz, are paying attention and have opened offices in London. Silicon Valley is coming to Europe, rather than the other way round.

As is the case with most VC investors with less than astronomical performance to shout about, Zennström is coy about discussing Atomico’s investment returns. I probe: would his investors have been better off just sticking their money in the tech-heavy Nasdaq stock market? It depends on which fund over what period, he counters adroitly. When will Europe produce its first company valued at more than $1tn to match the Apples, Microsofts and Googles of this world? “I don’t know,” he replies, before quickly adding: “I would rather have 10 $100bn companies.” Although it needs to mobilise more growth capital from the big institutional investment funds, he thinks Europe is well on track to reaching that milestone. 

Given his love of supporting insurgent underdogs and rattling incumbent monopolies, I conclude that his career has echoed the rallying cry of Steve Jobs when running Apple: “It’s better to be a pirate than join the navy.”

“Exactly,” he replies.

John Thornhill is the FT’s innovation editor

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