Notes:Founders and VC respondents only.
Want to make sense of 2022, but don't have much time? Or simply want to start with the top-line view? We've painstakingly whittled down the report to the most fundamental and useful findings of the year, so that you can peruse the highlights reel in just 10 minutes.
In last year's survey, respondents were asked to highlight the main macro risks that could lead to a slowdown in European VC activity over the next five years. Many of the macro risks that ranked highest amongst respondents - interest rates, inflation, geopolitics, and public market sentiment - have all become defining hallmarks of this year. As a consequence, 2022 has been a very different year for the European tech ecosystem.
The tale of 2022 has been one of two halves. The record-breaking level of investment activity that defined 2021 carried over into 2022. In fact, by the end of the first quarter of 2022, investment levels were tracking a staggering 52% up from 2021. Even at the end of the first half of the year in June, total capital invested still stood around 4% higher than at the same point last year.
July, however, marked the month when the investment frenzy of the past 18 months started to cool off. This slowdown really took effect through August and September and has seen monthly investment levels drop closer to levels last seen in 2018, at around $3-5B invested per month. As a consequence, total investment in Q3 2022 ended up down more than 40% compared to the same quarter in 2021.
2021 was a remarkable year for the European tech ecosystem with total investment eclipsing a landmark $100B for the first time. 2022, unsurprisingly, is on track to fall short of 2021's record-breaking levels, but only by a relatively small margin.
Given the material slowdown experienced over the summer, a conservative estimate would be just around $85B for the full year, as it accounts for actuals up to end of October and annualised on the basis of average investment amounts between the three months of August, September, and October.
It ought to be said: this is the largest amount ever invested in the European tech ecosystem, apart from last year. It does represent a year-on-year decline of 18% - but in the face of the toughest macroeconomic environment since the Global Financial Crisis, such a minimal decrease is a noteworthy outcome.
For further context, this represents a greater than twofold increase in total capital invested compared to 2020, and more than 8x the level recorded when the first edition State of European Tech report was published back in 2015.
European tech companies across both the public and private markets have seen around $400B of value erased since the start of 2022. As a result, the total ecosystem value has fallen to $2.7T from its $3.1T peak in late 2021.
Despite this setback, Europe's total tech ecosystem value has added over $2T dollars in value since 2015, increasing at a remarkable 26% compound annual growth rate (CAGR) over that period. While the growth rate may slow over the coming period, even a CAGR of 3.3% over the next decade will lead to the creation of more than $1T of incremental company value. To reach $5T of total ecosystem value over the next decade, European tech will need to see a CAGR of just 6.4%.
In the first half of 2022, there were a total of 133 rounds of $100M or more. Remarkably, this exceeded the total for the whole of 2019 and 2020 combined, while also exceeding the volume of such rounds seen in either H1 or H2 of last year.
H2 2022 is on track to fall far short of these numbers if Q4 continues in line with Q3's investment levels - with only 37 rounds of this magnitude so far.
The explosion of capital invested into later-stage rounds in Europe over the past two years has, unsurprisingly, led to a rapid rise in the number of unique investors that are actively investing in the region in larger rounds of $100M or more.
These new investors are primarily of European and US origin and have increased more than 5x in the past five years. Interestingly, while 2022 has seen the number of European investors in rounds of $100M+ grow slightly, there is a notable decline (-22%) in the number of active US investors in these rounds since 2021.
The heated market conditions that characterised 2021 saw a record number of new unicorns emerge from Europe, with 105 companies achieving the billion-dollar milestone for the first time last year. This represented a level of new unicorn creation 2.5x greater than any prior record year for the European tech ecosystem.
Unsurprisingly, this year looks very different to last, with 'only' 31 new unicorns birthed in Europe during 2022 (at the time of our publication deadline). This marks a steep decline from last year, but actually just reverts the rate of new unicorn creation back to levels typically seen in recent years. 2021 now clearly stands apart as an outlier year.
IPOs have been one of the biggest casualties of highly uncertain and volatile public markets and negative public market sentiment. The data is stark. There have only been three tech IPOs with a market cap in excess of $1B in Europe and the US this year. This compares to 86 during the bumper year for IPOs of 2021, representing a 30x reduction in volume.
This, of course, has significant knock-on effects for the overall ecosystem in terms of capital liquidity, both from the perspective of the ability to tap the public markets for capital, as well as in terms of the ability for existing shareholders to crystallise value by exiting holdings and distributing or reinvesting any capital gains elsewhere. It remains to be seen when capital market conditions may turn more favourable and enable a partial or full opening of the IPO window.
This year has brought many struggles and challenging choices for people in tech. One of the financial downturn's most visible and severe impacts on the tech sector is the wave of layoffs that started this year. Globally, more than 200,000 tech workers lost their jobs in the past year via headcount reductions at more than 1,000 companies, according to Layoffs Tracker.
Year to date, over 14,000 tech employees of European headquartered companies lost their jobs, representing 7% of all tech employee layoffs globally. These numbers only include layoffs with information on their reduction plans; a number of announcements didn't have data on how many employees were let go, so this data necessarily understates the layoffs' full scale.
The pace of global workforce reduction has accelerated rapidly in the second half of 2022, with November representing a new peak that has seen more than two times the number of layoffs as any prior month. Clearly, this is distressing for many people and has important implications for the global tech industry.
Unfortunately, through both the ups and downs of the past several years, women founders' share of investment has remained relatively stagnant. 87% of all VC funding in Europe is still raised by men-only founding teams, while the proportion of funding raised by women-only teams has dropped from 3% to 1% since 2018.
Meanwhile, the proportion of deals made by women-only teams has stayed at around 5-6%. This means there is a 2-6x gap between the number of deals going to teams of women and the actual amount invested in them, depending on the year. In short, even when women-only teams successfully raise a round, they are likely to receive less - and this pattern is trending in the wrong direction. Looking at mixed teams, these captured only 10% of all rounds raised so far this year - down from 12% last year. However, their share of total funding has slightly increased to 12%, meaning that the amount of funding per deal is improving.
Overall, when considering the record levels of funding that poured into the ecosystem in 2021, it's disappointing to see so little of this influx distributed to women founders.
Zooming in on the portion of deals captured by women, the data shows glimmers of encouraging trends - the share of deal count going to women-only teams has increased in the earlier stages compared to 2021. Yet, an opposite trend is evident for mixed gender teams, where the share of deal count captured has decreased compared to 2021 levels.
Despite the many challenges ahead, the resilience of the European tech ecosystem and its ability to 'weather the storm' is reflected in a strong continued sense of optimism in the future of European technology. 77% of all survey respondents are either more optimistic or retain the same level of optimism as they did 12 months ago.
Surprisingly, only 23% of respondents have seen their optimism lessen compared to last year. This is likely because insiders within the European tech ecosystem are able to differentiate between the short-to-mid-term impacts of a financial downturn and the longer-term prospects of the European tech industry, which is ultimately dependent on the strength of the entrepreneurial ecosystem and the tailwinds of technological innovation.
The scale and depth of the European tech ecosystem has been transformed over the years. This is illustrated by the rapid growth in the number of companies currently starting out and going on to raise initial rounds at Pre-Seed and/or Seed stage.
By the end of 2021, the volume of these rounds had grown 8x within the space of just 10 years, and more than 17x since 2010. The ecosystem is in a fundamentally different place than it was 10 years ago. The pipeline of promising early-stage companies has never been stronger, despite a likely slowdown in sub-$5m rounds in 2022 compared to last year.
Early stage funding is a leading indicator of future growth and Europe's early-stage ecosystem is on par with the US. European startups account for 31% of all capital invested globally in rounds of up to $5M, compared to 33% for the US.
One of the strongest indicators of the growing maturity of the European tech ecosystem is the rate and scale at which talent is redeployed from one generation of companies to the next. In other words, evidence of a virtuous cycle - or flywheel - whereby success breeds more success.
One way to quantify the flywheel effect is to measure the number of new founders that have 'graduated' from prior cohorts of successful companies. For example, Europe has now seen the emergence of almost 1,500 founders that went on to start their own companies after working for a European unicorn founded during the 2000s.
If we compare 'alumni' from unicorns founded in the 2000s to those founded in the 2010s, it's clear that the flywheel is picking up speed. Today, the 2010s cohort has led to almost 700 identifiable founders – almost 25x the amount from the 2000s cohort at the equivalent point in time.
Companies today lean on experience from different time periods of European tech: 55% of founders and 59% of leaders whose profiles we analysed have multi-generational experience, meaning they have gained experience at two or more tech companies belonging to different generations. Generation is defined here by the founding year cohort to which the companies belong.
22% of founders and leaders in our sample also have experience working at $1B+ companies. Among the 4% of founders with that experience, they have combined exposure to over 200 unique $1B+ companies. For leaders, the recycling is even more visible with 31% having worked for a $1B+ company, across more than 300 unique companies. This is to be expected given only a small subset of leaders go on to found their own company, instead of continuing leadership roles.
It's striking that almost 40% of founders have prior experience founding a company, and close to one in five have founded at least two companies prior to their current one. Many within the leadership pool at the top of European tech companies also have their own entrepreneurial experience, with 14% having founded at least one company in the past.
International work experience is common throughout: one-third of all the founders and 45% of all C-Level leaders in the sample have worked abroad at some point in their careers.
Facing a challenging year in tech, we wanted to explore the extent to which today's founding and leadership teams have prior experience operating during downturns. To do so, we looked at how many companies in the sample have founders or leaders with more than 15 years of work experience - and therefore experience from a previous downcycle period in tech.
In our sample, we found that 62% of all companies have at least one founder or C-Level leader with prior downcycle experience. As is to be expected, companies that have raised more capital (>$100M in total), and are therefore more mature, are also more likely (78%) to have founders or leaders with prior downcycle experience. Earlier-stage companies, which we defined in this analysis as having raised less than <$10M total, are less likely to have this downcycle experience (57%). That said, the pandemic already put many of these founders to the test, and prepared them for dealing with uncertainty.
Despite the withdrawal of some more fickle investors and the likelihood that others may also pull back their investment activity, the European tech ecosystem still benefits from a diverse set of experienced, long-term oriented, and active investors. So far during 2022, more than 3,200 unique institutions have participated in at least one investment in Europe, a number which has grown at a significant volume over recent years.
While capital market conditions have changed significantly during the second half of 2022, the ecosystem still benefits from access to large pools of investable capital that have not yet been deployed, known in industry terms as 'dry powder'.
At the end of 2021, the latest period for which comprehensive and reliable data is available, European venture and growth investors sat on dry powder totalling $84B. This is the highest ever amount of dry powder on record and represents a 2.3x increase on the level of 2017.
Since then, 2022 brought both strong fundraising activity and overall slower deployment - so in all likelihood, this number remains similar or potentially has even net increased.
It is reassuring that there will still be some level of capital liquidity within the market, even if conditions become tighter in 2023 than they have been during the second half of 2022. The pace at which that capital is deployed, however, is something to watch out for as investors recalibrate their plans to a new market reality.
Over the past five years, investment in purpose-driven tech companies has increased at a huge scale on a global basis, spiking materially in 2021 in all major regions. This growth has seen total cumulative capital invested in Europe into purpose-driven tech companies reach more than $54 billion since the start of 2018.
Interestingly, investment levels on an annualised basis in Europe look set to come very close to matching 2021's record-breaking amounts. By contrast, investment amounts in North America and Asia decreased by around 40% and 45% in 2022 compared to last year, respectively.
Much has changed since February 2022, but Ukrainians and the Ukrainian tech ecosystem have demonstrated incredible resilience - and even growth - in the face of war.
of ICT companies had restored business to the indicators of 24 February 2022, and are continuing to grow, according to the July IT Research Resilience study by the Lviv IT-cluster.
of the country's ICT companies have attracted new customers since the war began according to IT Ukraine Association data.
Despite the conditions caused by Russia’s invasion and its brutal war, the Ukrainian Internet and Communication Technology (ICT) sector showed significant growth in February 2022. The single month export figure amounted to $839M, 31% higher than in January 2022, 45% higher than the monthly average for 2021, and 75% higher compared to February 2021.
For the first eight months of 2022, ICT exports actually grew by 16% year over year, according to the monitoring service Opendatabot.
Additionally, as another slice on the data, per the National Bank of Ukraine, during the first nine months of 2022, the volume of Ukrainian computer services increased by 13% (to almost $5.5B). The overall taxes / fees paid by the ICT industry during this time totalled $1.3B. Nine months into this year, the Ukrainian national ICT industry has maintained positive growth and remains the only export industry that stably generates foreign currency income for the Ukrainian economy under current war conditions. Ukrainian companies keep working continuously, implementing projects, paying taxes, attracting investments and new customers, and actively entering the global market.
According to the latest mapping of the Ukrainian tech ecosystem by Dealroom, Ukraine is home to more than 1500 startups, while there are a further 600 Ukrainian-founded tech companies that are based outside of the country. Dealroom estimates that the combined enterprise value of Ukrainian tech companies totals almost $23B and, while this has declined in 2022 in line with the global technology market changes, their overall value has grown by more than 8x since 2017. For a local database, check out the ecosystem overview put together by Ukraine's Ministry of Digital Transformation.
Despite investment in Europe as a whole declining in 2022 compared to last year, many individual countries have seen capital investment grow year-on-year, in spite of the macro headwinds. Amongst the biggest 'risers' are Croatia and Iceland, while notable countries with large falls in investment include the Netherlands, Germany and the UK.
For both Croatia and Iceland, the step up in funding is driven by large rounds. Croatia welcome its second $B+ company, Rimac Automobili, the maker of electric supercar, following a $500M round over the summer led by Softbank. In Iceland, Kerecis, a pioneer in cellular therapy and tissue regeneration, raised a Series D of $100M ($60M of equity and $40M of debt). The round was led by the LEGO group and Icelandic pension funds and with a $620M valuation, it could very well be Iceland's first $B+ company.
Which countries are punching above their weight in terms of unicorn creation relative to capital invested? The winner here is Germany - it captured 16% of the overall capital invested into European startups between 2018 and 2022, but has managed to create 18% of the new European $B+ class created in that same time frame. Though on a smaller scale, the same can be said about Norway, Ireland, and Denmark.
Meanwhile, the UK captured 35% of all funding but has seen its share of unicorns decrease from 41% in the years prior to 2018 to 26% over the past 5 years. It is now losing ground to other countries in terms of contribution to the unicorn creation rate.
Europe has now seen unicorns emerge from 29 different countries across Europe. Bulgaria is the most recent addition to this list, with Payhawk reaching unicorn status in March 2022 after raising a $100M round. This brings the total count of European tech companies that have reached $1B+ valuation during their lifetime to 352.
Unsurprisingly, London, Paris, and Berlin all rise to the top of the list when it comes to cities with the most capital invested. Paris is even on track to grow capital invested by 21% in 2022E after a record year in 2021 (2.5x the level in 2020). Zurich, Helsinki, and Milan are all expected to grow too from 2021 to 2022E, 210%, 33%, and 94% respectively. While most cities lost some capital investing momentum from last year's boom, all are at least 1.5x higher than investment levels in 2020, with many reaching even higher multiples of growth since then.
Despite this impressive capital growth amid challenging macroeconomic conditions, the number of deals has mostly decreased across the board with a few exceptions (e.g. San Sebastián increased deals nearly 2x since 2021 and Zurich increased deals by 27% year-on-year). However, comparing 2022 to 2020's numbers still shows some impressive growth: Oslo's 2022 deal numbers, for example, increased 3x compared to 2020's figure.
But overall, deal number percent increases are not keeping pace with capital raised percent increases. Paris is a great example, where, since 2020, capital has increased by 200% but deal numbers have only increased by 25%. Another example is Helsinki, where capital invested has increased 154% since 2020 but deal numbers have decreased 3.4%. More money is going into fewer deals.
Larger ticket sizes seem to be par for the course in countries where larger amounts of funding flow - though this pattern doesn't always play out. Germany has the highest median Seed round size at $2.8M, followed by France at $2.2M. The United Kingdom, the much larger ecosystem by funding as well as many other efficiency metrics, has a median Seed round size of $2M. The UK, however, has the largest Series A median of these three countries, suggesting a higher willingness to provide funds once a company has had a chance to gain some traction.
Perhaps these growth figures help explain why, after this year of geopolitical and economic turmoil, so many European survey respondents are even more optimistic about the future of European technology than they were 12 months ago. Portugal had the highest number of respondents feeling more positive - 61%, though it was also the least 'neutral' country, with a full quarter of respondents also reporting they were less optimistic. Poland had the most pessimism - nearly 40% of Polish respondents reported feeling less optimistic than 12 months ago.