2023's defining trends

One of the 'north star' metrics for the European tech ecosystem is its total value, as measured by the combined equity value of all tech companies headquartered in the region, across both public and private markets.

For context, after a peak of $3T in 2021, 2022 saw a reduction of total ecosystem value equivalent to around $400B. The rallying of the public markets this year, however, has helped this number bounce back to the $3T mark.

This rebound in ecosystem value has also been supported by the continual influx of new companies starting and raising private capital for the first time, as well as the fact that, despite a large increase in the number of down rounds, the overwhelming majority of follow-on capital deployed into the ecosystem has been through flat rounds or up rounds.

Europe is a net beneficiary of talent flows, attracting new starters from across the globe. That means we’re gaining more international talent than we’re losing.

Notably, more talent is moving from the US to work in European tech than European talent is moving to join the US tech scene, illustrating the pull European companies now have. In fact, Europe is a net gainer of talent from every single region apart from Australia.

It is not just talent that is being drawn to the hardest problems - capital is flowing in the same direction too. Here, we look at investment volumes are broken out by sector. Remarkably, the Carbon & Energy sector, which encompasses climate tech, accounts for 27% of all capital invested in European tech in 2023, more than doubling its share of investment since 2021.

Carbon & Energy has soundly overtaken Finance & Insurance and Software as the single largest sector by capital raised. This not only represents a dramatic increase in the scale of capital invested behind the green transition, but also a clear slowdown in fintech investment volumes since the peak of the market.

There has been no shortage of perspectives on Europe's position in the AI race. Amidst the noise, it is easy to overlook the fact that the AI theme has actually hit a stride in Europe in recent years, with European AI companies consistently securing mega-rounds of $100M or more. In fact, this year will come close to matching the record set in 2021, despite the huge headwind of a steep drop in overall investment levels in Europe in 2023.

As of the end of Q3 2023, European AI companies had raised 11 rounds of $100M or more, compared to 37 rounds by US AI companies over the same period. So far, however, European AI companies have not yet raised the type of billion-dollar or multi-billion-dollar rounds that have become crucial sources of firepower for the most important and fastest-growing US AI companies, like OpenAI or Anthropic. The multi-$100M+ rounds, however, are certainly beginning to appear in Europe.

The story of Skype is far from unique in Europe today. In fact, the European tech ecosystem has witnessed an industry-wide surge in the number of new companies launched by individuals that have spun out of Europe's billion-dollar companies. In doing so, they benefit significantly from the established knowledge and networks they take with them.

Remarkably, nearly 9,000 companies have been initiated by alumni of European exited unicorns that were founded during the 2000s. To put this into perspective, it is nearly a staggering 50% increase compared to the unicorns founded in the 1990s.

It is not difficult to imagine how this network effect will significantly influence Europe's path in the next ten years.

Europe is seeing more new tech startups being formed than any other region, supported by the strongest ever teams working on the most challenging and urgent problems. Europe has all the essential raw ingredients to become the next tech superpower. But for Europe to be able to shape the future of tech, the ecosystem needs to take further action to embrace the opportunity - and the risk that comes with it.

Europe's ability to fund and spur innovation has evolved considerably over the past decade. Nevertheless, a noticeable disparity with the US persists in terms of access to capital.

More European tech startups are formed each year, but over time, a growing gap emerges when it comes to their likelihood to secure external investment.

After five years, US tech startups are 40% more likely to have successfully secured venture capital funding. This is in spite of the fact that once companies secure an initial round of Seed investment, the probability of scaling to a billion-dollar valuation is the same in Europe as it is in the US.

This underlines the imperative for the European tech ecosystem to ensure that funding flows to European talent, giving them the firepower to compete globally and ensuring Europe can play a meaningful role in shaping the future.