In 2001, the corporate lawyers had arranged to meet with the RIAA and MPAA—large teams of attorneys flying over from the East Coast to meet at their Beverly Hills law office on a Friday. On that Wednesday, they found an internal memo leaked from the organizations they were to meet calling them “Public Enemy No 1 operating offshore.” The memo said, “It was absolutely necessary to make an example of us,” he recalls with a slight smile.
Thanks to Atomico
“Instead of going to the meeting, we just drove around while the lawyers did their thing. Later that evening, when we went to our law firm, we changed clothes with two lawyers on their team so as not to be served. Then we moved from one shady motel to another, night after night, paying cash until we bought tickets at the airport an hour before we left, because we were sure they were tracking our credit cards.
Zennström and Friis sold Kazaa in late 2001 for a loan of €600,000 (about $600,000 at current exchange rates). In 2003, using Kazaa’s P2P backend, they founded Skype, an app that allowed users to make calls by interacting directly with each other. But the early days of Skype seemed to reveal something unexpected: that European VCs were not interested in innovation.
“We have been rejected by everyone,” he says simply. “We wanted to disrupt the global telephone network with this peer-to-peer technology, and that’s a big question. Many of them were burned by the dotcom crash. The model they preferred was to take something that worked in the US and do it in a local market. He pauses and smiles. “Of course we were also involved in a massive multi-billion dollar lawsuit…”
Nevertheless, Skype would soon become one of the first European startups to challenge the hegemony of American internet giants in the early 2000s. Zennström faced a crucial decision in 2004 when one of Sandhill Road’s big VCs offered to finance the company, but only if it moved to the US. “At that point, we had already built a world-class team in Tallinn, London and Stockholm, and I didn’t want to leave my team,” he explains. “That’s when we knew we were determined to build Skype as a globally successful technology company based outside of Europe.” He declined the offer.
A year later, Skype became a unicorn — eight years before venture capitalist Aileen Lee coined the term — after it sold to eBay for $2.6 billion. It was the world’s largest tech M&A since the dotcom crash, shrinking eBay’s $1.5 billion acquisition of PayPal in 2002.
All of this led to Zennström’s next step: disrupting venture capital with the launch of Atomico in 2006. European VCs took no risks. Founders came to him and asked for advice. VC funds invited him to their boards to make himself look good. “Meanwhile, Silicon Valley was the only place in the world with a functioning tech ecosystem – and I like to be contrarian and break monopolies, so we wanted to break the US VC tech monopoly with Atomico,” he says.
