Social networking, European style

European social networking site Netlog has just received its first round of funding from European venture capital firm Index Ventures. Its success in rolling out its model across different geographies illustrates how European venture firms can help local firms become global winners, says James Taylor.

The wonders of the World Wide Web allow us to speak to people from all over the world at the click of a mouse. But it seems that most of us prefer our interactions to be a little closer to home, if the success of Netlog is anything to go by.

Netlog, a Belgian-based social networking site, this week revealed its first major funding round, a €5 million Series A investment led by Index Ventures. Various Index alumni – including the co-founders of Skype – were also amongst the backers, while virtually every major venture capitalist in the business was keen to get involved.

Netlog’s model has been built around developing online communities in Europe that are segmented by language, by geography, and even by demographic profile. From its very earliest community, in French-speaking Belgium, Netlog has operated on the premise that users will in the long term want to interact with people like themselves – who speak the same language, share the same culture and are close enough to meet in person as well as virtually.

So as the company has grown and expanded into new regions, it has focused on developing an offering that can operate in multiple languages and can be targeted to increasingly specific communities. This has enabled rapid expansion: since the launch of its pan-European network of Facebox sites in September last year, it has attracted more than 17 million registered users across Benelux, Spain, Germany, the UK and others.

But Netlog is not just an interesting technology business. It is also a good illustration of how European technology firms are almost better placed than their US rivals to expand globally. From the very beginning, it has had to deal with a very different target market. “The US is a huge, monolithic market; there are media and distribution channels that operate across the country, so it’s very easy to advertise to 300 million people,” Neil Rimer, Index managing partner, told PEO. “European businesses don’t have that same luxury: they’re in a huge, heterogeneous, complicated market, and they have to deal with that from day one.”

For Rimer, whose firm is largely European-focused, this is one of the key advantages of the businesses they back. For American online businesses, expanding into different languages and cultures is very challenging – but European firms are used to it. Nor does he think the social networking revolution has run its course; indeed, in his opinion the model “is only at the beginning of the curve” in Europe.

So what do the entrepreneurs get in return? Belgians Toon Coppens and Lorenz Bogaert, who founded Netlog in 2003, have run a profitable business from the start, earning money both from advertising revenue and from “micro-payments”, where users make small payments for credits on the site. However, Bogaert told PEO: “Since the launch of Facebox we’ve enjoyed enormous growth. The challenge is being able to respond quickly to the growth, because the biggest problem comes when you can’t do that.”

Netlog was offered investment by almost every venture firm worthy of the name, but according to Bogaert, chose Index because they were looking for expertise as well as money. “The deciding factor was that Index is very European-focused, but they’ve successfully adopted the US VC model.”

So far, the alliance seems to be working. “They’re a very active and involved investor. We have a very good relationship with them,” says Bogaert. But what next? “Our biggest opportunity is pan-European – to conquer our own markets, where we’re already best in class.” The US may follow, he added. “The US is on our radar. But first we want to focus on Europe.”

Either way, there seems no reason why Netlog shouldn’t one day be following in the footsteps of other Index successes like Betfair and Skype, to become a business that is influential on a global scale.