Now executive chairman of Google parent company Alphabet, Mr Schmidt said there was no reason why a hundred billion pound tech start up could not be launched in Britain.
He said UK entrepreneurs tended to sell up earlier than their US counterparts.
But he said the lesson from the US was that when tech companies run, they can become "very, very big".
"If you have a strong franchise that's growing quickly, you're probably better off waiting a while [before selling]," he said.
This lesson could "easily be learned in Britain".
Speaking to BBC Radio 4's Today programme, Mr Schmidt said that "Britain is the leader in e-commerce in the world, far ahead of the United States.
"Britain has every aspect to build billion pound, ten billion pound, hundred billion pound companies.
"You have the right regulatory environment. You've got the right role within [the European] continent.  [Just] look at the e-commerce plays and service plays that are now happening in London.
"Europe is pushing on a European digital single market and in the timeframe of you building a small start-up, the Europeans will figure out a way of building a single digital market for your products."
He added there were no barriers to launching "a European-scale corporation that is larger than a US-scale corporation".
Mr Schmidt said the key to any successful start up was the product.
"The only thing that matters is the product quality," he said.
And in the age of social media, "lean distribution models are replacing big marketing and advertising budgets".
This means start ups can compete more easily with more established, big companies, he argued.
"If you have three people and a vision, you should be able to raise funds from friends and family, crowd-funding and early venture groups," he said.
The key, however, was having a "strong engineering lead". Without someone with a vested interest in the company to build the app or technology product, start-ups tend to struggle, he said.
Having someone in-house, rather than going to a third party developer, is vitally important, Mr Schmidt said.
You can hear the full interview with Mr Schmidt on the Today programme at 07.15.
The UK is the world leader in e-commerce, former Google boss Eric Schmidt has told the BBC.