Europe is “solidifying its place as a global tech power,” according to Atomico’s annual State of European Tech 2021 report, research which has become an annual fixture of the European tech scene. According to the research, Europe is now the second region globally when it comes to early-stage investment, with a total of $3.8 billion versus the U.S. at $4.1 billion. Europe now has 321 unicorns, up from 223 in 2020.
The report outlines how $3 trillion of value has been unlocked, but Europe has $23 trillion of potential value still to be unlocked. Some $100 billion in annual funding has been crossed for the first time. There is now a $100 million funding round, roughly, every other day in Europe. And 100 new unicorns were minted in 2021 (323 overall, more than China). And Europe has now achieved a $250 billion exit value.
Furthermore, European VCs are outperforming their U.S. counterparts. The Cambridge Associates index for European VC outperforms the U.S. equivalent across one, three, five, 10, 15 and 20-year horizons. Plus, Europe is about to get its first $100 billion VC-backed tech company (Adyen got to $99 billion in August).
The report outlines how early-stage investment levels are now “on par” with U.S. levels, with European unicorns on the up, faster growth than even before the pandemic, and growth that added a $1 trillion of value in the first eight months of 2021.
The report’s key trends will be discussed at a digital event on December 7 at 16:00 GMT with insights from some of Europe’s most prominent founders and investors. You can access it free here.
The report has outlined five key trends that TechCrunch is reproducing in full below, followed by further research TechCrunch requested from the report’s authors.
- Europe is solidifying as a global tech player
European tech is projected to cross the $100B milestone of capital invested in a single year, close to 3 times the level in 2020. (Source: Dealroom)
The total number of tech companies that have scaled to $1B+ in Europe has jumped from 223 last year to 321. (Source: Dealroom, Atomico)
Large rounds ($250M+) are now the norm in Europe -- these grew 10x versus last year, now representing 40% of the total capital invested in the region. (Source: Dealroom)
Europe has its strongest ever pipeline of early stage startups with the region accounting for 33% of all capital invested globally in rounds of up to $5M. This makes Europe the second region globally when it comes to early stage investment, with a total of $3.8B vs the US at $4.1B. (Source: Dealroom)
Looking at the number of unicorns per inhabitant, Cambridge emerges as the unicorn capital of Europe. (Source: Dealroom)
- Outcomes are exceeding projections in both public and private markets
Over the past 12 months, Europe has added over $750B of public tech market cap value and currently sits over $2T. (Source: CapIQ)
Europe continues to produce more tech IPOs than the US with 122 IPOs versus 89 for the US in 2021, however more needs to be done to address the impediments to large-cap IPOs taking place in Europe. (Source: CapIQ)
Blockbusters IPOs ($10B+) are becoming the norm. The largest IPO of 2021 is Romanian company UiPath, debuting at around $35.6B after opening day gains. Other large scale public listings included Auto1, Wise and Deliveroo, which all traded above $10B on their first day. (Source: Atomico)
15 European tech companies have gone public via SPACs in 2021 for a combined EV of $62B. 14 of the 15 companies are now listed on US exchanges. 13 of the 15 were VC-backed.
They cover key tech areas, such as quantum computing, electric mobility, semiconductors, fintech and digital health. 9 out of 15 companies from the UK - all of them went public in the US on US exchanges. (Source: CapitalIQ)
The aggregate value of exits of European tech companies via M&A and public listings is already well over $180B and has exceeded 2020 levels -- this is the highest it has been in the last five years. 2021 has been a record year so far for dealmaking, with a total of 47 $1B+ PE-backed exits recorded, almost 4x as much as in the whole of 2020. (Source: Dealroom)
There are currently 26 VC-backed European tech companies with decacorn status compared to 12 in 2020. Adyen is now on track to be the first European tech company founded post 2000 to hit the $100B mark, with their valuation reaching a 2021 YTD high of $99B in November 2021. (Source: Dealroom)
- European fintech is soaring; ‘Planet Positive’ startups gain traction
In absolute terms, fintech had the most significant increase (+132%) with investments growing from $9.4B in 2020 to $21.7B in the first nine months of 2021, followed by enterprise software at +$5.9B (89% increase) and transportation at +$4.9B (95% increase). (Source: Dealroom)
1 in 5 European unicorns is a fintech company (and that number rises to 1 in 3 for private unicorns). This also includes 4 of the 10 most valuable tech companies in Europe. (Source: Atomico)
Crypto and blockchain deal count is up 5x in Europe over the past 5 years, but lags behind the US. Still, Europe already has 8 crypto unicorns. (Source: Pitchbook, Atomico)
Over $34B has been invested in purpose-driven tech companies in Europe in the last five years, representing 17% of all funding. Purpose-driven companies are defined as companies building a sustainable future for all by addressing one or more SDGs. (Source: Dealroom)
Planet Positive investments -- defined as companies working to make sustainable use of the planet’s resources -- captured 11% of total funding overall in 2021, with Clean Energy and Climate tech startups capturing the lion's share of funding with 24% and 19% respectively of all capital invested in purpose-driven tech companies in 2017-2021 YTD. (Source: Dealroom)
- Access to funding and talent are key challenges for European tech founders, but a virtuous cycle of talent is well under way
This year, Atomico partnered with Dealroom and Extend Ventures to carry out the biggest ever analysis of the talent pipeline in Europe, screening over 45,000 profiles of founders and senior leaders working across close to 5,000 European tech companies. Close to 40% are multi-generational leaders having worked for both more established tech and younger companies.
Close to 1 in 5 have gained experience in a $1B+ companies, and 16% have moved countries at some point in their career. (Source: Atomico, Dealroom, Extend Ventures)
Although the talent depth continues to improve across all stages of a company's journey, it is a lot harder for founders at the seed and series A levels to hire talent. 58% of founders at seed and 64% at series A mention it is harder to acquire talent compared to 12 months ago. (Source: State of European Tech survey 2021)
Compared to 12 months ago, women and ethnic minorities find working for a European tech company more attractive than men or white individuals with 73% of women and 75% of non-white individuals indicating an increased attractiveness of working in European tech. (Source: State of European Tech survey 2021)
But if Europe wants to reach its long-term ambitions, it needs to address the structural issues that are still holding it back
- Europe needs to fund women and diverse teams
Women and ethnic minorities still find it much harder to raise capital than their male and white counterparts. Overall, 29% of respondents indicate that being from an underrepresented background negatively affected their ability to raise capital. However, this percentage rises to 49% for women and 39% for non-white founders. (Source: State of European Tech survey 2021)
Based on Extend Ventures analysis of a sample of 4,684 tech companies headquartered in Europe that have raised more than $2M of total funding since 1st of January 2020, only 0.7% of the total capital raised to date has been raised by Black women founders, 1.1% by Black men founders, 22.7% by white women founders (Source: Extend Ventures)
Despite evidence showing that mixed and diverse teams perform better -- they still only capture 9% of the capital raised in 2021. (source: Dealroom)
Although the ecosystem has matured as a whole, this is not the case everywhere
Despite having close to 30% of the European population, the CEE region has the lowest inflow of capital into its venture ecosystem amongst all the regions. (Source: Invest Europe)
- Pension funds need to step up
Pension funds ($3T in total assets) continue to disappoint in allocations to VC (less than 0.03%). Pushing that allocation to just 1% would be a seismic shift. (Source: Invest Europe)
Smart policy could be a competitive advantage on the global stage
Tech is flourishing in Europe, but it has so far been in spite of rather than thanks to policy and regulatory conditions. Yet smart policy can make the flywheel spin faster and give us a competitive advantage on the global stage.
According to investors, founders and policy experts across Europe, the focus should be on fixing the basics: Lowering the friction on talent, unlocking access to funding for both founders and investors, and harmonising rules between countries. They also think more could be done to make regulation future proof. (Source: State of European Tech survey 2021)
There is optimism for better collaboration between startups and scaleups and regulatory bodies. Across all countries analysed, a larger percentage of respondents said the European regulatory environment is getting better rather than worse with the smallest vote of confidence coming from UK based respondents and the largest from Norway. (Source: State of European Tech survey 2021)
The report, an annual deep dive into European tech industry data across 45 countries, is published in partnership with tech conference organizer Slush, and with the support of Orrick, Silicon Valley Bank, and Baillie Gifford.
TechCrunch asked the Reports authors to comment on the key challenges where European tech needs to work harder on. We are reproducing them below:
- Access to capital
• Based on Extend Ventures analysis of a sample of 4,684 tech companies headquartered in Europe that have raised more than $2M of total funding since 1st of January 2020, only 0.7% of the total capital raised to date has been raised by Black women founders, 1.1% by Black men founders, 22.7% by White women
• In all the headlines of $100B raised, the reality for most founders is it's still hard to raise money. Access to capital at an early stage is still a real challenge (bifurcating model). So even though there’s been 3X the amount of capital raised, a meaningful proportion of founders say it's got harder to raise money over the last year, not easier. The top quartile of European countries raised $496.7 per capita while the 2nd raised $152.1, 3rd $9.9 and bottom raised $1.0.
- The North-South divide is stark:
• The five largest hubs by total capital invested (London, Berlin, Stockholm, Munich and Paris) are home to companies that between them captured 54% of total investment in Europe in 2021.
• Increased levels of investment in more established, growth stage companies has widened the funding divide in favour of Europe's most developed tech ecosystems.
• While the level of per capita investment in top and second quartile countries (Northern and Western Europe) spiked materially in 2021 compared to prior years, this has not been mirrored by investment patterns into countries in the lower quartiles (Southern and Eastern Europe). The question then becomes how Europe unlocks the potential of these southern hubs?
- Pension funds need to step up in a big way (0.018% of their allocation goes to tech) (they have $3T). It’s a huge missed opportunity.
Talent - although the depth and quality is there, hiring challenges might be a limiting factor. UK startup founders were more likely to find acquisition of new talent becoming harder in the last year than in the rest of Europe.
15 European tech companies have gone public via SPACs in 2021 for a combined EV of $62B. 14 of the 15 companies are now listed on US exchanges. 13 of the 15 were VC-backed. They cover key tech areas, such as quantum computing, electric mobility, semiconductors, fintech and digital health. We need to build public markets as sophisticated as our private markets are.
A few thoughts on the UK:
To maintain its edge, UK tech needs to widen its appeal
• The UK has the largest number of $1B+ companies listed in Europe but has seen more of its largest tech companies choose to list in the US than other major European countries (14%). (Source: CapIQ)
• 9 UK companies that went public via SPACs in 2021 all of them went public in the US on US exchanges.
• The UK market continues to be extremely competitive, with UK based founders reporting a net worsening in the depth of the talent pool. While only 33% of UK based founders are indicating an improvement in the talent pool with 37% saying it has worsened, 54% of founders in France, 52% in Italy, 47% in Sweden, and 46% in Spain are indicating an improvement in the depth of the talent pool. (Source: State of European Tech survey 2021)