1. We decided to build something custom. Which means we have to respond to feature requests, keep things secure and maintain the system. In hindsight a subreddit may have been a better idea. (like http://www.reddit.com/r/EuropeStartups/ I'm not affiliated.)
2. It was a side project. I think in order to maintain an engaged community there has to be a core of very active users and submitters. We were not really. I tried for a while but the platform we had built did not really lend itself to interaction. Many people used it as a news feed for European startups and tech news rather than a place to interact. The site never gathered critical mass to have enough submitters and commenters to keep things moving.
3. It was our first community project and we were inexperienced. We made a few mistakes early on, spread ourselves too thinly and didn't come up with a good way for others to participate.
4. It fizzled out. The other guys went on to other things and while I kept running it on one of my boxes for a while nothing happened (which makes sense considering there were very few submissions and almost no participation)
Overall I would say we didn't have enough experience and time to make it a great community. We also made early mistakes that made things more difficult down the line. Sorry it just went off the air at some point without notice, by that point visits were down to a handful of people per week. Maybe r/EuropeStartups will have more success!
As a result, any geographical-based version of HN ends up either duplicating 90% of the articles on the main HN, which fragments the conversation, or it doesn't post the most interesting or useful articles so becomes irrelevant. Even a language-based subcommunity is largely pointless, since most of us speak English - it makes more sense to read knowledgable comments in broken English than amateur comments in perfect German.
In the end, HN is not Reddit. I don't see that it needs, wants, or would benefit from subcommunities.