MILAN (AP) — Erik Lumer decided to launch his new social network, CircleMe, from Italy — a country better known for artisanal furniture and eyewear makers than technology startups — in part because initial costs were cheaper and it was his home.
A French-American entrepreneur with startup experience, Lumer secured Italian venture capital and found a core group of tech experts at wages lower than he could expect to pay in technology centers.
But as the number of users grows and the business seeks to expand, Lumer needs more capital than Italian investors may be willing to bet. In the end, he says, that could mean emigrating to the bigger stage of Silicon Valley.
Under its new technocratic government, Italy is eager to change its reputation as a tough place to start a company. It wants to cut red tape, lower business costs to create much-needed jobs in a time of financial crisis, as well as introduce measures to attract foreign investment.
But the constraints — in Italy as well as several other European countries — seem to be as much legal as cultural, particularly as economic turmoil makes investors and business people more risk-averse.
With a strong idea and solid track record, Lumer and his partner Giuseppe D'Antonio raised €2 million ($2.5 million) from Italy's main venture capital fund, Innogest Capital, to design the interface for CircleMe and launch a test phase. Lumer had previously run the Internet TV platform Babelgum, and D'Antonio worked at Google.
CircleMe seeks to create groups of users around shared interests and location, and not friendships or acquaintances — in a sort of cross between Pinterest, the online "pinboard" for collecting and sharing photos, and location-based social networks such as FourSquare. For instance, CircleMe users can use their mobile devices to mark places on maps and "plant" items like songs or pictures for others on the website to find.
In Milan, users have marked places for good American pancakes and a spot for sunbathing — creating surprises for others to find as they wander the city. And during Milan's Design Week, CircleMe is presenting virtual exhibits whose multimedia contents can be accessed at specific sites via the social network's iPhone app.
Inital reception has been good. In the first four days after its mid-March launch, CircleMe had doubled its closed 6-month Beta group of 10,000 users. Lumer hopes it will be profitable in a year.
To get there, Lumer needs to secure funding for the next phase of growth and that will likely mean moving to the United States, where he will find thriving technology ecosystems in the form of bigger investment funds, industry connections, and a broader pool of technology professionals to tap.
European governments are starting to realizing the loss of potential growth from emigrating startups and trying to create better conditions for small businesses. Britain is trying to foster a technology center in London through tax incentives, while Berlin has become home to many startups, particularly in the gaming industry.
The economic advantages are clear. In the United States, 11 percent of all private sector jobs are the result of venture capital in fields like software, semiconductors, biotechnology and telecommunications. Venture capital jobs have proven more durable during slowdowns, shedding 23 percent fewer posts from 2008-2010, according to the National Venture Capital Association.