One of the pillar of the State of European Tech report is community. This year, 60 of the most insightful and informed individuals on the state of European tech have lent their voices for a series of qualitative interviews. Thank you to all of them for their assistance and insights into what has been a groundbreaking year for European technology.
The data of 2021 shows a remarkable increase in VC investments in startups, more than double in comparison to previous year Q3, as well as a tripling of the amount of exits in several sectors. Actually the largest IPO of 2021 is from the EU, UiPath. European startups no longer have to envy US startups. European unicorns have also become the new normal, with the number of unicorns almost doubling in 2021.
The future looks even brighter with institutional investors starting to invest in deep tech startups, like the example of Northvolt. And 2021 has signalled the booming of German speaking countries in terms of exits (overpassing any other European country) and number of unicorns, as well as the emergence of CEE countries as a place for startups to thrive.
The continent is attracting more capital, more talent and there are more ambitious entrepreneurs than ever trying to follow in the footsteps of success stories.
Europe might seem like a more complicated market as it's fragmented with different languages and different cultures. However, there are now many success stories in consumer businesses coming from Europe: Ledger, Revolut, Sorare, Vinted etc. Culturally, European founders are more ambitious, they now think global from day one.
This report confirms what we’ve been seeing from our customers: the EU tech ecosystem is on fire. 5 years ago, you could fit all of the continent’s unicorns in a dining room and decry Europe's missing tech giants. Today, you’d need an auditorium with 321 seats and you'd hear a completely different story. And one in five European unicorns are now a fintech. PSD2, financial services passporting, and open banking are all examples of the wave of entrepreneurship that directly benefits Europeans.
The last 12 months have only increased our optimism about the future of European technology. In spite of the damage the pandemic has done to our communities - and it’ll take some time for us to fully recover - we have witnessed a dramatic acceleration in the acceptance and take-up of digital services. Powerful changes in consumer behaviour have hastened the transformation of industries like healthcare and food. Trends that we believed would take 10 years to fully materialise have happened in just two.
Our continent is set up to make the most of that opportunity. We have creative founders with growing access to capital who are ready to meet that burgeoning demand. That perfect storm will inevitably lead to an even stronger pipeline of high-growth, tech-enabled companies.
As wider economies have been challenged, the tech sector has welcomed a wave of new talent and new ideas. The pandemic has undoubtedly boosted the online economy and entrepreneurship, and in addition we are seeing larger fundraises become the norm, as some of Europe’s more established tech giants reach truly global scale.
Not only in Europe but also outside, in the US, India, Australia… More and more countries have come to recognize the risks that large tech platforms can bring to our lives, our mental health, and our democracy. We see more and more alignment on the idea that platforms have power beyond anyone else, and with that come responsibilities. That’s why the EU-US Trade and Technology Council that we launched a few weeks ago is so important.
For the first time, minds have met on key issues like how to approach AI or how to address the shortage of semiconductors. It was a very successful meeting and promising for the future. Clearly the challenges are huge, but they’re not too big for our democracies, especially if we come together.
We see the evidence in the robust and promising proposals we receive, in particular, under the EIC
Accelerator. My confidence is backed-up by the ability of these companies to attract private co-investments. The over 5,000 startups and SMEs supported during the EIC pilot phase have gone on to raise €9.6 billion in follow-on investments. And since January, the EIC Fund’s 24 publicly announced investments have leveraged an additional €395 million of co-investments by Venture Capital and other investors, 2.7 times our own investment.
We are continuously improving our EU investment landscape, working alongside VCs and other investors, listening to the evolving needs of startups, and harvesting the incredible potential of Europe’s research base for example by partnering with the European Research Council. But with the EIC’s budget of 10 billion euro over seven years we cannot achieve everything. So we need to find ways to compete with the US and China on making bigger investments in next generation technologies.
In a way, I am all for creating a viable path for social entrepreneurship but equally against totally de-risking that path because in essence, that is not entrepreneurship, that is the redirecting public goods to create social value on a micro-level of individual action (that is often not rewarded well).
Meeting social challenges - from climate change to energy efficiency to ending income inequality - is a collective effort that requires finding innovative solutions at all levels. It does however start at the macro systemic level with policy makers. Private investors can and are currently playing an important role in funding innovation to solve social problems but the onerous in doing so at scale is with policy makers and their ability to integrate social value into incentives mechanism for innovation.
Reinventing the B2B IT stack is the here-and-now opportunity: Whether it's storage, compute, software architectures - they're all going to shift! There is no economic reason for any part of the value chain not to be digitized in the long run if there is potential to streamline and automate processes. From developer tools to vertical-specific applications, we expect software to power all areas of business.
Europe is also home to some of the global leading tech universities as sourcing ground to bring up new founders! Having a first wave of successful B2B founders such as the founders of Celonis, UiPath, Personio, arculus, etc. that go back to universities and share their story with tech students to inspire the next generation of potential founders to start a company helps!
The “work from anywhere” revolution has affected us in a way that we are now accessing talent that we could not access given our former company policy and the willingness to relocate everyone to Madrid, where we are based. In terms of decentralisation, I believe that this is a big trend that will even create new Tier 2 Tech-Hubs in smaller cities, where people can work and have a higher quality of life.
While digital startups have made shopping or communication more convenient, Deep tech startups solve our deep societal problems. Deep tech startups will provide limitless, sustainable energy, as well as new materials for more efficient construction and an increase in food supplies while reducing the impact on the environment.
Deep Tech startups are based on three factors in which Europe is a world leader: a strong hardware component, non-easily replicable intellectual property coming from science, and talent with a high level of skills in engineering and science (Europe has one of the best education systems and is also attracting the best talent thanks to the startup visas that are spreading across most of Europe).
We only have a bottleneck that needs to be tackled: financial instruments adapted to the high risk and long term investments needed for deep tech startups.
These platforms are optimized to make customer acquisition expensive for startups, and the few startups that succeed in overcoming this friction to achieve breakout success are then faced with fast-follower competition as the platforms quickly release copycat products that benefit from platform positioning and data advantages .
In contrast, there are no dominant gatekeepers in most categories of enterprise software, where the markets are relatively more greenfield, and categories often have room for multiple winners. This is especially true today in Europe where cloud adoption historically lagged the U.S. but appears to have been accelerated by Covid at a faster rate than the U.S. As digital transformation, cloud migration and AI have become top enterprise priorities.
Enterprises must now face the reality that working with startups is the only way to achieve those objectives because startups attract the best talent who create the most innovative products.
On the one hand, founders have understood that it is possible to solve for the complex and often somewhat hidden needs of enterprises, rather than just the obvious consumer needs they experience on a day to day basis. On the other hand, enterprises are facing strong pressure to increase performance.
Enterprises realise that to attract strong talent as well as optimise processes , they need to adopt solutions that enable their digital transformation.
As a result, demand for innovation is soaring and the initial reservations big companies had against startups are fading. Founders are capitalising on this shift, partnering with enterprises that move fast enough to digitalise, and disrupting those that stay behind.
We found incredible founders building in ‘out of favour’ sectors like social networks (for example Organise which is building a network for people to improve their rights at work and Mirthy, a network for older adults). We also invested in the future of entertainment and gaming, including in virtual reality company SideQuest. I hope this goes beyond a trend and instead is a durable shift, given the potential that technology has to tackle the biggest challenges we face.
Metaverse, NFT, and crypto/blockchain are obviously very hyped at the moment and will continue to be so, but I’m genuinely excited about deep tech and the next-generation SaaS companies utilising e.g., product-led growth and open source distribution models. As we’ve passed the "AI hype" we’ve seen some major outcomes, especially in the US (Snowflake, Databricks, Confluent, etc.), as companies of all sizes have started to process and store increasing amounts of data. But there are many promising European SaaS startups in the making that have enormous potential to produce companies equal to the Americans. UiPath has been a great example of this, but there’s plenty more to come.
Fintech in Europe benefits from both great regulators like the FCA who are willing to foster innovation in a constructive way through things like the regulatory sandbox, and a brilliant diverse talent pool supported by proximity to traditional financial centres like London. Europe is the perfect storm of complex regulation, fragmented markets and lots of legacy technology. This is combined with demanding customers who expect more from their financial services providers.
There is also a healthy approach from consumers, businesses and regulators towards digital currency. This is an industry that’s rapidly converging with traditional fintech. I really believe that digital currency, particularly stablecoins and Central Bank Digital Currencies (CBDCs), is part of the evolution of our monetary systems. We can expect to see the continued convergence of finance and fintech with digital currency—which will unlock new business models that we’re only just beginning to imagine.
This will make crypto much more accessible to a mass audience and will drive innovation in the space. Central Eastern Europe, with the likes of Ramp Network or Tenderly coming from there, has an amazing density of Web3 talent and I am excited to back the next winners to emerge from the region.
Separately, the API-ification of infrastructure is a game changer. In our portfolio, we’ve seen this year the likes of Weavr, Primer, Appwrite and Liveblocks remove friction and complexity in building applications - both B2C and B2B.
On the gaming front, Play-To-Earn is profoundly changing the way games are designed and monetised. With Europe being home to some of the best gaming talent globally, I look forward to seeing teams from all across the continent following Sorare’s lead to build the next wave of Play-To-Earn games.
I’m particularly enthusiastic about the possibilities offered by embedded finance, the integration of financial services into non-financial customer journeys. Starling is well-placed to grab the opportunities arising from this, through our Banking as a Service, or rather Starling as a Service, offering.
Not only that, ease-of-payment can become part of the marketing push. Car companies are already working on embedded finance processes where drivers can pay for anything from fuel to parking via vehicle voice assistants. There’s no need to get out of the driving seat.
I'm also excited by Central Bank Digital Currencies (CBDCs). In fact, I sit on the Bank of England's CBDC Engagement Forum. But I don't think they will disrupt the financial ecosystem in the coming year.
As 'offline to online' has mostly finished playing out as a thesis, we believe we're now approaching an inflection point for an 'online to on-chain' migration: more and more value and data is moving onto better, more resilient, open rails that can be broadly referred to as web3.
The design space for the on-chain economy is potentially vast and still mostly unexplored. The gravitational pull on an increasingly global, distributed pool of developers and communities is hard to resist, with new coordination mechanisms and incentives applied to some of the most pivotal and interesting problems of the modern world. Wagmi.
I am a big believer in decarbonisation. The next generation of decacorns will come from this space! There is no lack of funding here however, it is the companies that are missing so far.One thing is for sure: we will not recover from the Covid crisis by rebuilding the world as we knew it before. We must build new, and better. That’s why we asked European countries to invest 20% of the recovery money they would receive from the EU into their digital transition, and 37% into their Green transition. Because investing in those two transitions is the best - if not the only - way to come out of this stronger, more resilient to future crisis and more competitive on the global market. This isn’t just good thoughts, it’s concrete actions and hard measures.
First, to build European companies that can become bigger than companies in the US or Asia, we must learn to leverage the collective European strength. Unfortunately separate Nation States with different agendas and a lack of unity, for example in the digital or labour market, are still reality for companies operating in Europe, especially those wishing to attract non-EU talent.
Second, I believe companies that go beyond just answering our needs as consumers have the perfect breeding ground in Europe. From childcare, education, to health and elderly care, or production line workers, Europe is championing one of the most progressive welfare systems globally. Yet, too big of a part of the workforce in these segments has so far been left out from the benefits of digital transformation . To realise a real European promise of progress for all and for companies to have a chance to innovate, the EU must learn to better align its regulation expertise with entrepreneurial freedoms.
At Depop we enable people to buy and sell, and to build a business if they want to, but in a bigger sense - beyond the transactional - we enable them to be part of a systemic shift in the fashion industry, and a more sustainable way to shop. We’ve seen a real appetite, from younger consumers in particular, to embrace not just our platform but what it represents - a move towards more mindful, creative, community-based consumption.
Lots of the most successful consumer-focused tech businesses in recent years - from Bulb to Olio, Babylon Health to HURR - offer a new generation of buyers access to a new way of doing things, and to a mission they want to buy into. For me, this is integral to the future of consumer tech.
Atomico has been a pioneer in helping to broaden and burnish the European tech scene by championing individual founders’ potential to create ground-breaking solutions that benefit people and the planet.
Delivering on our ambitious plans to reimagine how food is grown in cities via a modular, data-driven approach to farming has required us to find forward-thinking, visionary partners. The support we received from impact-focused VCs like Atomico and other early investors has been decisive in delivering on that vision.
In the 5 years since we built our first in-store farm, Infarm has created the world’s largest cloud-connected vertical farming network. The capex that companies like Infarm require to scale did initially limit the pool of potential investors. However, we’ve seen a remarkable change in the past three years, as more and more investors are realizing that if they want to future proof their portfolios and contribute meaningfully to combating climate change, they’ll need to broaden their time horizons, have more patience and take bigger swings.
It is amazing to see how the European startup space has evolved over time to become the vibrant ecosystem it is today. It is not all wins, though. Growth remains limited at pre-seed and seed stages, where the unicorns of tomorrow are created today. Women also continue to receive less funding than their male counterparts, and people of color fare even worse. While there’s ample proof that diverse companies perform better, network, bias, stereotypes and pattern matching still drive VC decision-making. A more diverse environment in tech will foster innovation and raise the bar for everybody. There are green shoots that provide hope for the future, but we still have a long way to go to make the European startup ecosystem diverse and inclusive.
Every company and every individual has a role to play in fighting climate change, and at Zapp we decided very early on to utilise an all-electric fleet, forge local partnerships to reduce food waste, and invest in carbon tracking and offsetting for emissions we can't yet avoid. To further embed sustainability, and with the help of our new Head of Sustainability, we'll soon be launching our sustainability champions network made up of employees right across Zapp's various business functions.
I think European consumers of technology are definitely looking for a higher purpose but both European demand and supply are aligning when it comes to electric vertical take off and landing technology. Our very first investors were European, we are building and testing our Jet in the heart of Europe, we are hiring engineers from across Europe, there are other eVTOL companies being built in Europe and National and local governments across Europe are promoting more environmentally friendly transport policies.
I see a lot of talk, but not a lot of action. Funds like Impact X & Backed VC have invested in us and a few others on the list, and of course the Google Black Founders Fund has sent huge waves through the space by showing what happens when you #FundBlackFounders ...but there's still a way to go.
Think about the talent we're missing and the breakthroughs that never happened as talented founders were blocked from raising investment because of the content of melanin their skin cells produce. The next generation will look back at the inequalities in funding in the way we look back at segregation and other such folly. Change is happening, but it needs to speed up. There are big problems to solve and we need the best talent from a full range of varied backgrounds.
No innovative European startup is the same as another. Each has their own specific needs and opportunities. This means that we should always focus on being as fast as possible and flexible to tailor our support to the specific circumstances of these companies. We have made great steps in putting this in place. For example, startups can apply to the EIC Accelerator at any time with a short questionnaire, slide deck and video pitch, and get a response in less than 4 weeks.
We’ve also put in place a unique funding offer combining non-dilutive grants with substantial equity investments, as well as a growing set of Business Acceleration services. But there is still untapped potential across Europe. We have to continue our efforts to fully exploit Europe’s diversity in terms of gender and cultural and geographical backgrounds.
2021 has been extremely good for the digital and tech companies in the Impact X portfolio. We saw our first portfolio unicorn which is the UK's 2nd Black unicorn - Marshmallow. World Remit aka Zepz was the first. Both companies announced their status in the 2nd half of 2021. That milestone amplified the June announcement that finally a 3rd country has joined the US and China in minting over 100 tech unicorns, the UK. This is another marker of progress in the European tech ecosystem. Sobering, however, is that when Marshmallow closed its $85m round at a $1.25B valuation, that amount doubled the total venture capital investment that had occurred in Black led UK companies over the previous 15 years as reported by Extend Ventures in Diversity Beyond Gender.
Over the last year, 3 more Black female founders have raised at least £1m of VC funding (R Grid, Beautonomy, Afrocenchix). They join that exclusive club with The Stack founder Sharmadean Reid. We see Passion Capital, Ada Ventures, Local Globe and very few others committed to this table. There has been a proliferation of training schemes established to incubate companies with Black and brown founders, but very little capital has flowed to the investors and funds best positioned to find and support these special entrepreneurs.
We need more Black and other underrepresented GPs with the power and purses to make investment decisions. People of colour and other underrepresented folks unable to allocate funds within generalist funds is not the answer. Generalist funds with no particular connections in underrepresented networks or experience of successfully supporting underrepresented entrepreneurs is not the answer.
88% of Black founders in the UK self-fund at least part of their venture. There’s always been entrepreneurialism in the Black community - there is no pipeline issue, actually an allocation issue. The lens is configured to white predominantly male founders, as a result the capable underrepresented founders are not being identified and catered to.
The dial has not moved in a significant way. A big issue is many of the institutions are attempting to solve the disparity without the appropriate approach. It is still very top heavy. A big part of the ecosystem still remains unstimulated due to such organisations remits being post seed. Utilising the existing tentacles and supporting existing communities like Black Valley, Black Girl Fest, Black Tech Fest, Code in Black Females and YSYS to support and build a robust ecosystem.
Also, the economy is still in the process of being digitized. This combination makes this a great time to build startups. Regarding completely new areas I am eager to learn how crypto and decarbonisation develop.
Angels have grown up in Europe. There is a rise in super angels. I see angel syndicates playing a very significant role in rounds, in some cases crowding out smaller VCs. In addition, successful angels are being backed by others, building syndicates or “deal by deal” funds. Given the abundance of capital, it is however also becoming increasingly difficult for angels with little understanding of the entrepreneurial process or of the specific industry to enter competitive rounds. Founders are turning from supplicants to requestors.
We live in an age of empowered founders - empowered to choose what investor they want to work with and empowered to control their equity better. In the past, too many founders could not be incentivised to build sustainable long-term solutions to tough problems because at some point the equity math just didn’t make sense anymore - it can be tough to still feel real ownership when the stake in your business is minuscule compared to other investors around the table.
If used sensibly, venture debt will strengthen innovative companies by significantly boosting business trajectory, protecting ownership and control of founders, as well as leaving more room to incentivise key talent, which in the current war for talent will be crucial for building lasting businesses.
Over the last decade we’ve been privileged to work with market leaders like Klarna, UiPath, Getir and Unity, and more recently at the early stage with companies like n8n, Xentral, Ledgy and Pennylane. We believe companies founded in Europe are just as likely to become global winners as their US counterparts. As such, we operate as one, integrated team across the two geographies and go all in to help our founders win on a global scale.
There is no shortage of capital in Europe at the moment but what these founders need is a patient, long-term partner, who can help them put the right foundations in place in the early days, and support them over the years it takes to realise that ambition.
With the record breaking amount of capital flowing into venture as an asset class, we believe that specialization (sector, geographic or others) is going to be hugely important for firms to effectively compete and rise above the noise.
Historically, LPs have had the mindset that we back managers specifically because we trust them to identify the promising sectors and spaces for us. But with the rise of specialist funds, LPs are implicitly making a bet on a given sector or space. That said, it’s important for GPs to be mindful of how narrowly defined your sector is. You want to be specialist enough to be differentiated in the ecosystem and provide relevant expertise, but also have enough latitude to make sure you can catch those outliers that will drive true outsized performance.
We are seeing more entrepreneurs choosing to stay in Europe to build their companies instead of moving to the US. We are seeing experienced operators from the European headquarters of big tech companies increasingly joining local start-ups and scale-ups. And we are seeing it become more of a social norm to choose a job in tech over other careers.
Still, I see gaps and opportunities. We need more experienced operators in venture in Europe. We need more diversity – of thought, of background, of experience. And we need to break down silos, in order to create a more collaborative ecosystem across Europe.
In the UK, Marshmallow became a unicorn this year. Oja, led by a Black female founder, just raised $3.4m. VC funds are becoming more intentional in identifying diverse founders and seeing the opportunity there.
We need more diverse managers and a more inclusive investment landscape. The ingredients are here to build a fairer ecosystem: Andy Davis is angel investing , Black Seed is building a seed ecosystem in Brixton, Impact X at the growth stage.
But this needs to be amplified, with greater awareness, visibility and also greater capital commitments. We need talented diverse people in finance to see VC as a route. There are some great programs already like Included VC in Europe, which is increasing the diversity within the investment pool, or Future VC and the Newton Programme, providing a more global exposure to VC.
I believe that over the last few years, the importance of geographic ecosystems (physical locations grouping together entrepreneurs, human resources, investors, service providers and clients) diminished. Existing ecosystems did not disappear, but success was proven possible starting from remote locations. In this context, Europe became the birthplace of significant successes and was recognised as an attractive location for starting and investing in future global leaders. While the relative scarcity of capital continues to be an issue in Europe, due to the paucity of large private institutional investors, the recent successes attract foreign and non-traditional investors. This is ominous as availability of capital clearly drives creation of startups and hence expands the top of the funnel for the future.
I am excited by the fact that investors are finally realising that positive impact and profit can go hand in hand. There is still work to do to educate ourselves on climate problems, and which can be solved by VC funding being more proactive in these spaces.
We need to be aware of the changes in regulations that will accelerate the growth in this space as these will open opportunities to invest in less obvious Climate Tech startups, as well as areas such as deep tech, or slightly higher Capex companies that have not traditionally been easy for VCs to invest in. The VC community also needs to work closely with universities and researchers to ensure that we are more aligned to help needed solutions get to market quickly.
But they also have a wider angle on a company than the founder does, seeing connections and patterns between business models, drivers of growth, and the parameters of company success. This places them well to engage with policymakers and explain to them what is happening at the frontier of technology – and how that maps back onto the frontier of policy. One challenge is that few investors have the time to or interest in doing this, and when they do, it tends to be in the context of firefighting a regulatory issue within their portfolio – which is understandable. Another is that policymakers don’t really see investors as accessible or potentially helpful , in most part because they simply don’t have the network. At Form we try to stitch together the innovation we see with the policy that we know officials and politicians are trying to get right.
Sustainability has grown dramatically in importance over the last decade, and the pandemic helped sharpen the focus on the different elements of environmental, social and governance standards. Building sustainable practices into any operating model is now non-negotiable. As an investor, ESG targets must be baked into every process and decision. This is not only a moral imperative, but a financially smart decision: investing in sustainable business models and diverse teams brings the greatest returns for shareholders.
When we’re making business decisions, or working with portfolio companies to help them navigate their own challenges, we believe it is crucial that voices from different genders, economic and ethnic backgrounds be represented. Diversity, equity and inclusion are not only key drivers of transformation, but they ensure companies are stronger and better run, which ultimately bring greater returns for shareholders and overall improved outcomes for society.
For example, just this year at Ada Ventures we’ve co-invested with impact investors, investors narrowly focused on specific sectors, investors providing a hybrid debt and equity model and investors targeting overlooked founders. This is a really healthy sign and I hope it will lead to less group-think and a wider range of businesses and founders getting funded.
… and I am biased being English myself! After these investments, our interest in Europe has only grown and that's a result of seeing such strong founders emerge who have gone on to build companies like Multiverse, Calm, Vinted, Zapp and Grafana. These are often 2nd or 3rd time founders who have built experienced management teams around them which only increases my optimism for Europe.
I would point at companies such as Multiverse where founders like Euan Blair are disrupting the apprenticeship market first in the UK and then in the US and they will very much become a global winner by focusing on Europe first. We have always believed in Europe's ability to create global successes which is also why you see Blockchain.com start in the UK and now be a winner across many countries.
The main investment hurdle is being a Spanish company. Spain is still a young ecosystem that has not generated yet any €10bn+ tech company, which generates some fears for investors about our capacity to create global winners in our country. We are not in one of the top tech hubs with a high concentration of VC-Growth investors, and that put us in disadvantage in the past when we were raising funds against companies that were closer to the cash.
Europe’s tech ecosystem is maturing but far from maturity. Every year, I’m continuously impressed by the rising calibre of talent. I also believe the unbundling of equity is here to stay. Companies shouldn’t use expansive equity dollars on initiatives with capped upside - Sales & Marketing spend for example. As the power shifts from a buyers (i.e. investors) to a sellers (i.e. founders) market, we’ll increasingly see companies pushing for a healthier capital structure (including equity, debt and other forms of financing), as is commonplace for public companies.
The rise of alternative financing will help fund more diverse founders, enable the growth of different types of companies and result in a broader variety of problems being solved. Building a company is challenging; making it successful is exceptional. The type of funding that fits your goals, ambitions and entrepreneurship style best is one of the most critical choices a founder must make. Every funding type carries its own opportunities, challenges and expectations. Having options will allow more companies and founders to make their ambitions a reality, resulting in a stronger ecosystem for all.
We are witnessing an increased squeezing of the VC landscape - top tier VCs are increasingly trying to play a role at seed and pre seed and companies like Hopin are skipping traditional funding stages. Valuations are also being highly inflated, and there are other signs we need to watch. In the UK, the impact of Brexit coupled with high inflation and low interest rates is quite a lot to absorb for the industry. We can’t talk about a bubble yet however. Europe is still relatively underserved - France has typically been a difficult market to break into for VCs, but funds like Singular Ventures are now raising huge amounts there. The opportunity in Germany is still huge.
In our view the VC market is right now undergoing its biggest disruption in history. New players enter with new playbooks. Capital has commoditised. Network becomes key to win deals. Look at multi-stage US VCs opening offices in Europe; new emerging single GP managers such as Harry Stebbings’ 20VC or Max Claussen’s System One; or hedge funds such as Tiger or Coatue who provide fast and “less complex” capital.
But at the same time Europe is highly decentralised and not easy to enter for international players: at Visionaries we unite successful digital entrepreneurs, family businesses & industry leaders in a micro VC to complement the world's best VCs. To be honest there has never been a better time for us to be an “entrepreneur in VC” constantly challenging ourselves to continue building the best product for founders.
We’re also seeing more-traditional US-headquartered technology companies continue to expand their presence across the region. All of which creates momentum behind venture funding, but it doesn’t influence or change my perspective per se. I focus on the founders, their teams, their vision and mission, and the ability of the product and/or service to transform a market. The fact that most of those companies are in Europe is more a function of my past and my personal and professional network--and being based in Estonia these days means I have my ear closer to the regional ground than before.
Many of this year’s European listings were priced and traded at a discount to US peers with significant dispersion in public performance. While clearly some of this was idiosyncratic, in the main it was also a reflection of the currently more limited appetite and analyst coverage of European public markets for high growth technology listings. Nonetheless, the latest volley of IPOs also attracted some of the highest interest yet from international investors.
As with any dislocation, this capital demand and supply gap is a huge opportunity for the right investor base. This should increasingly include sophisticated private investors adding crossover vehicles to go full stack given their informational advantage on the public pipeline, as we have already seen, as well as global public technology investors expanding capital allocation in Europe.
Thanks to the rapid tech acceleration catalysed by Covid-19 there’s never been a better time to build and scale a technology company. Whilst the supply of companies has grown exponentially as a result, the supply of capital, particularly into new and emerging managers hasn’t grown anything like so quickly. There’s enormous headroom for expansion; for example, there are still fewer than 50 European pre-seed funds and far fewer dedicated fund of funds or endowments investing in European Venture. I’m hopeful that in 2022 this will catch up and we will see many more new emerging and diverse funds with differentiated strategies successfully raise.
The result is an explosion of high quality entrepreneurs across a range of sectors and geographies. Accel is entering its third decade in Europe and yet we have seen more change in the last 18 months than we did in the preceding decade. It’s questionable as to how long the frenetic pace can last but the fundamentals have never been stronger and the innovation and ambition continues.
I'm very fortunate and grateful for the people I get to work with everyday. These include veterans and early employees from Wise, Amazon, Stripe, InVision, Mozilla, Atlassian, Vimeo and others. A meaningful consequence of this is avoiding a lot of pitfalls that come with building a high-scale company.
One of the challenges of European cities where the tech sector is new is the lack of similar know-how and experience in company-, funding-, team-, product-, culture-building and the nuances in approaches at various stages of the business. Mistakes in these areas can sometimes be costly, have multi-year effects and in some cases even be fatal for the business. I highly recommend founders who do not have prior expertise to build mentor and advisory relationships with people who do.
Being an operator and an early employee (2011) in one of Europe’s fastest-growing consumer tech companies, I’ve seen a dramatic shift and maturity in the tech ecosystem in the past decade. Apart from the substantial capital inflow into Europe, access to human capital is growing significantly. I’ve observed many operators and founders becoming full-time investors (VC or angel) with deep experience in starting a company, building world-class products, and scaling their business.
This is a critical inflection point, particularly for startups that will now benefit from more "smart money" and operational experience from investors, which is essential to further developing the ecosystem. I’m also very excited about stronger interconnected networks of angel syndicates, and VCs sharing deal flows across geographies. This means that you can now access capital in a much broader and more efficient way.
That said, we still struggle with the status quo in Europe, where traditional career paths take many of our most talented individuals. As an ecosystem we need to make a concerted effort to attract talent at the beginning of their careers to startups so that they can become the founders of the future.
There is already a vibrant community of technology companies in Bristol, and it is growing every year. Over time that community will create more entrepreneurs who want to develop their ideas and build their businesses in the city. We would like to see Bristol emerge as one of the top tech hubs in Europe.
Talent concentration was always an issue. For certain roles, you pretty much had to go to the Bay Area for talent with relevant experience. The sudden shift to remote-first approach helped distribute that talent and skill set across multiple places. It'll take a few more years to fully benefit from this trend though — it takes time to build new ecosystems.
Time zones remain a big issue. US talent is still very much locked in US time zones and European talent in European timezones. One thing has changed significantly — many EU-based companies are much more comfortable with hiring talent from other EU countries rather than just from their home country.
We see that remote work "works". We cannot deny that it has become impossible to attract the best talents if we don't accept remote work. However, we are still big believers of having physical hubs to foster culture. As a result, we can operate very efficiently with 30% of the workforce being completely remote and the other 70% distributed in the different hubs. There is a certain type of magic happening when people interact with each other on a regular basis in person. This way, team members who work completely remote can still feel a strong culture deviating from these hubs.
Europe has the advantage of sitting "in the middle of the world" and can cooperate with Asia and the US fairly efficiently in regards to the timezone. On top of that, the salary of developers in Europe is still 2x lower than in the US while the average quality remains the same. With that, engineering heavy products can be built much more efficiently in Europe while still having a big enough market to serve and get feedback from.
The current generation of talent expect authentic social responsibility and impact from the companies they purchase products and services from, let alone where they invest the next decade of their lives and careers. Our mission has been a critical component in our ability to attract high caliber talent early on in the journey. There is a clear dichotomy between the US and European talent when it comes to their appetite for risk in joining early stage startups. In our case, we managed to mitigate that due to our transformative mission that is changing the way people think about families while offering hope to the many that can’t afford one.
Over the past 18 months we’ve all reevaluated what it means to collaborate and be productive as a technical team. Developers can do amazing work when remote. Designers don’t need to be face-to-face to be successful. And engineers can sprint whether in the office or not. So even though a hybrid approach may be most effective--and it’s the one that I personally prefer - Covid has smashed the stigma about remote work.
Engineers from all over the world have been collaborating globally on open projects for decades; the creator of Linux is Finnish, Mysql is Swedish, the original Apache group had Indian/Italian/German/British engineers, video-player VLC is French and popular 3D-software Blender is Dutch. Traditional companies and startups have been reluctant to build global teams due to cultural inertia, access to talent and collaboration constraints. With remote work being normalised, these previously perceived immutable constraints are starting to wear away. This enables dissemination of talent, learnings and approaches across tech-ecosystems instead of concentrating them.
We take struggles with pandemic and remote work seriously, but I do not believe that it affects our talent pipeline - we are all facing the same issue! Some decentralisation is happening though, as people start to think broader and new possibilities are emerging. We take struggles with pandemic and remote work seriously, but I do not believe that it affects our talent pipeline - we are all facing the same issue! Some decentralisation is happening though, as people start to think broader and new possibilities are emerging.
Recent innovations in technology ranging from blockchain to AI to better e-commerce functionality to the Metaverse are pretty exciting. The developmental leaps combined with the investment in free educational offerings from the tech giants makes me hopeful. Now, more than ever, there are multitudes of options for young people wanting to get into tech and for more experienced people wanting a change in career. This bodes well for big tech corps and startups alike, there's more talent than ever available and this means more can be achieved.
In the last year we've been able to launch a chat bot (which I learnt to build for free during lockdown) and build an app on a tiny startup budget thanks to the new functionality that Flutter & Firebase allow. The future of tech is bright.
The ecosystem continues to grow and mature, and we’re seeing an increasing number of exceptional founding teams with global ambition. This is partly due to the success of European founders like Daniel Dines from UiPath. To see Daniel start a company in Romania and go on to define a category, is hugely inspirational for the next generation.
It is great to have a diverse set of visionary entrepreneurs such as Daniel from Spotify, Guillaume from Checkout, Taavet from Wise or the Strüngmann brothers (BioNTech / Hexal) that do not only strongly believe in the strength of our European tech ecosystem but play a very active role in amplifying it with capital as well as in-depth knowledge and conviction in contrarian ideas they thrive for that really make a dent for Europe. Strüngmann’s EUR 150m seed investment in BioNTech in 2008 during the financial crisis is a great example of such a contrarian investment – the rest is history. The challenge with European VCs is that we are sometimes too numbers and return focused too early on, don’t have large enough fund sizes to back the bold technologies and think too short term in terms of our returns.
Citizen developers are non-technical employees that use no-code and low-code platforms to create simple automations for themselves, their teams, and their departments. Citizen developers may have roles in human resources, finance, sales and marketing, legal, procurement, and other business functions. While not a substitute for the company’s IT team, they play a critical role in creating smaller automations that require a deeper understanding of individual tasks and departmental processes.
Heading into 2022, these employees will be an organisation’s secret weapon for unlocking the power of robot assistants at scale, inspiring a wave of empowerment. After all, the successful delivery of digital transformation hinges upon automation touching each and every layer of an organisation and this requires first-hand insight into day-to-day processes.
Stronger pressure from regulators and consumers who are increasingly more aware and engaged makes room for startups to establish themselves as category leaders. We've seen some interesting trends through some of our portfolio companies, like Sylvera on the infrastructure end, or Treecard, on the consumer front. Both startups have been able to attract world-class talent from day 1, as today’s employable generation is looking to join companies with stronger missions rather than financial returns. Furthermore, they have been able to assemble diverse teams from the get-go, which we deem to be crucial in building products and solutions for wider adoption.
Hiring associates is important but what about challenging the accepted criteria for hiring partners? Assembling a truly diverse senior team gives more access to deals and it’s widely proven that diverse teams are stronger and more robust in the long term.
For me, it can look like investors asking my male CTO about revenue and unit economics through kind words from well meaning investors telling me that I’ve “done well”, even though I know my male peers are not spoken to like this. It affects confidence. They might be small comments that we laugh off, but the truth is that these everyday examples chip away at that sense of self belief that is critical to being a successful founder. I’m looking forward to a day when I’m not asked this question anymore or when I mention these examples - and my kids look at me in amazement because it’s such a relic of the past!
I arrived in the UK as part of the Kindertransport in July 1939 when Europe was on the brink of collapse. It is almost unbelievable to see Europe as it stands today, a thriving hub of entrepreneurship.
I know now that our community can grow despite great hardship, proved again by the pandemic. Founders across the region stepped up and set the stage for this extraordinary year of investment. We now have much-deserved world-class recognition of our talent and skills. To continue this trajectory, we need to even the playing field for people from all walks of life.
My advice to founders today? Make the most of the world’s new interest in European technology and stick with those who inspire you. Relay your successes back to those who helped you, and pay your debt forward to those who still face extraordinary barriers.
The European venture market is definitely hitting its stride. This next phase is particularly exciting, as the successful IPOs of companies like UiPath and Transferwise have shown a new generation of European operators what hypergrowth looks like. As we’ve seen repeatedly in the US, big outcomes are good for the ecosystem as a whole. Capital gets recycled as new angel investors spring up to seed the growth of companies. Sophisticated operators know the playbook and can bring lessons learned to their new opportunities. This is exactly how a tech ecosystem matures and develops a positive feedback loop. We’re thrilled to see this pattern unfold in the European context.
We know that companies with a women only founding team have raised late stage capital that are half the round size of mixed gender founding teams and male only teams. To change that, we need more women writing the cheques, more women sitting at the table, leading decisions. That doesn't just mean having the title of Partner, that means having an active voice on ICs. If LPs were able to challenge funds on these points too, that would make a real difference too, although it is the responsibility of funds to challenge themselves on their pipeline. If your pipeline is not diverse, scrap it, and start again, diversity of founders are there if you search for it.
While the outlook is broadly positive, Europe can do more to capitalise on its current leadership position in Europe. UK & EU policy makers can do more to create and foster a favourable listing environment to ensure that European public markets attract the best homegrown businesses to list domestically, rather than on the NASDAQ. Alongside this, open more opportunities for institutional investors in Europe to invest in European innovation. Currently, these investors are missing out on the value-creation that is happening in private markets.
The significant global demand to invest in European companies will only increase as the ecosystem matures and evolves – many of the investors in these businesses are establishing an on-the-ground presence in the region to help with deal-flow.
We saw numerous tech IPOs including Auto1, About You, Mister Spex and more this year in Germany. The increasing importance of tech companies is also reflected in the new composition of Germany’s flagship DAX index. With Delivery Hero, Zalando and Hello Fresh, three Berlin-based and former VC-backed companies are now part of the 40 DAX constituents.
In addition to traditional IPOs, SPAC listings became a notable alternative path to go public in 2021 – not only in the US, but also in Europe. The business combination of Lakestar SPAC I and HomeToGo marked the first prominent example of this alternative route to capital markets in Germany.
The pipeline for further IPOs remains strong and – subject to prevailing market conditions – we’re expecting continued growth in European IPO activity also in 2022.
Romania is one of our most important talent pools and remains a key market for our developer teams, along with India and the United States. It’s become a tech hub in its own right and produces some of the world’s best tech talent. Culture is very important to me and to our leadership team at UiPath. That’s as true in our Romania offices as anywhere. Traditionally, we’ve thought of culture in terms of interaction among colleagues in the workplace, but now with office closures due to the pandemic we’ve had to broaden how we think about it. One of our goals now is to ensure the UiPath culture isn’t lost or diluted as the workforce transitions to work from home.
The main considerations in Europe for founders considering a public listing today remain: liquidity such that they can reliably access a deep long term investor base, a valuation that is not a discount to an alternative exchange, depth and quality of research coverage, a regulatory framework that provides maximum flexibility (alternative listing structures, founder control, minimum float and capitalisation requirements) vs. the US. Clearly there is some way to go yet but key European exchanges and policy makers, not least the LSE and the FCA earlier this year, have demonstrated the willingness to compete globally while continuing to provide an adequate level of investor protection. This is not a race to the regulatory bottom but instead recognises that technology is a unique long duration asset, which needs a discerning capital base and regulatory environment to support innovators over the long run.
We now have the capital and expertise to achieve our long-term ambition of building a regional electric air mobility network. At a European tech macro level all the key indicators such as investment, the growth in the number of founders and new tech companies being spun out of existing tech companies and the growing numbers of engineering students at our top universities is testament to the growing strength of European tech. Last year’s report made reference to the European tech flywheel. I suspect we have had another great year and we will see that flywheel spin even faster.
Infarm’s experience with our latest fundraisings (completed over Zoom!) demonstrates how the pandemic has, in some ways, broadened the horizons for European startups, by opening up the European tech scene to impact-focused investors from around the world.The crucible of the pandemic has shown the resilience of the European tech ecosystem, with an incredible number of milestones reached and records broken in the past year in terms of raises and valuations. We’ve seen that European startups and scaleups, some whom we’re happy to have partnered with, are able to deliver on ambitious expansion plans, despite the logistical challenges and continued uncertainty caused by macro-economic factors like Brexit, pandemic-related supply chain disruptions and lockdowns.
There are three elements that need to be present to make Europe a strong player in technology: capital, talent, and a supportive business environment. We’re making good progress on all of those, but there’s always more that can be done. In the past year, we’ve seen governments across the continent publish AI and hi-tech strategies which reflect these needs and, broadly, make the right suggestions. The challenge now is delivering on those promises.
In the case of artificial intelligence, that means developing public and private AI compute centres of excellence and supporting their work. One such initiative is SparCity – a joint project between Graphcore, Simula Research Laboratory and several European universities, exploring the emerging field of sparse AI computation.
A number of the recommendations put forward in the report of the Scale-Up Europe community aim at working towards more harmonisation in legislations and regulation across Europe. This is a key element to enable our startups to scale up outside of their home country and master that process from 1 to 100 that is crucial to compete on the global stage. This will allow us to unleash innovation brought about by EU startups and reach the indispensable goals of the future of Europe.
Innovation is the first most important driver of future growth and jobs, provides solutions for a sustainable economic model aligned with our climate, and is the cornerstone of our technological sovereignty. I have no doubt that we will collectively overcome the obstacles and seize the opportunities ahead.
There are two priorities here. The first is to show clarity and conviction of leadership at an EU level - to identify the levers that policymakers have available, including funding but also well beyond it, and to ensure they are all focused on the same objective of promoting innovation. The fact that startup policy is divided between several Commissioners is not helpful here, but isn't going to change .
The second is to recognise that key startup policies such as employment law, company law and taxation will always be largely national competencies, not EU level ones. Instead, campaigns like #notoptional are spotlighting key issues and showing member states what best in class looks like – encouraging them to reform and reap the rewards of doing so.
The banking sector is heavily regulated and rightly so. We are in charge of people’s money. This is a big responsibility. But there are firms coming into the market who are also in charge of people’s money that are not regulated to the same standards because they are not banks.
Take, e-money firms or stablecoins that might be introduced. These are not regulated to the same standards as banks currently, yet consumers are not always aware of this. A consumer may not realise, for example, that the Financial Services Compensation Scheme does not apply to these firms. Similarly, firms that extend credit should be regulated to the same standards whether their product is called a credit card or buy-now-pay-later.
Raising funds in Europe is still a different experience from raising funds in the US. European founders still fly out to the US for fundraising. Sometimes for expertise, sometimes for fair market offers. On a bright side, the general perception is shifting and building a company in Europe is now seen more as an advantage rather than a limitation.
That’s why all regulations that we proposed are there to increase the trust that users put in technology. A large part of these rules are also about limiting the power of the largest platforms specifically to give smaller players a chance to make it. That’s what we do for instance when we ask large marketplaces to share their data with the small sellers that they host. And last but not least, we’ve seen it in many other areas: what helps companies to grow is to have one clear set of “Dos and Don’ts” that lasts in time, instead of 27 different sets of rules. Because that makes it much more difficult to grow.
Like everyone, entrepreneurs have faced enormous challenges and barriers as a result of the pandemic. But they've also proven an incredible resilience and even unique growth. Startups are a key engine of economic growth for our region and a key agent of digitalisation. They are the innovators in crucial industries such as health, education and cybersecurity. The only way for governments and legislators to support startups is to take the time to understand them and for regulation to keep pace with innovation.