📚 Learnings from Atomico's 'State of European Tech' report

December 6th, 2021 - December 10th, 2021 - 5-min read

Dec 14, 2021

Good afternoon Upscalers’ followers.
Time to bring you the 10th edition of our weekly journal. Entering the double digits 🥂

Here's what we’ll talk about this week:

Learnings from Atomico's 'State of European Tech' report 💡

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Learnings from Atomico's 'State of European Tech' report 💡

If you're into Tech startups and investing, you can't miss Atomico's Annual State of European Tech report.

It is the European startup data Bible, one of the very few traditions that we have in the European Tech world.

But it's 260 pages long ... so I figured I would highlight some of our key learnings for you this week 😅

Here's what I learned (more detail below):

Europe is creating a kind of virtuous cycle where: more funding and better interconnection create a pipeline of strong exit candidates which talents will eventually recycle to build and fund new companies.

There has been unprecedented value creation within the ecosystem in 2020 (across all stages)
Europe is creating a healthy early-stage ecosystem holding promises for a bright future
Tech hubs are flourishing accross Europe
Europe has a unique opportunity to stay ahead of the curve with purpose-driven investments
Both recycled tech talent and capital continue to nurture the European ecosystem.

But there are a few challenges ahead which need to be addressed to accelerate the cycle. These are...

... building a more diverse and inclusive ecosystem
... offering better exit opportunities to create world category leaders

Those insights are all drawn from what I could find in the report. You'll find more detail on them below (including key figures).

I do not pretend to cover all information available, especially on public markets or regulation for example. So, I can only encourage you to have a look at the full report ⬇️

https://2020.stateofeuropeantech.com/

But if you want to deep dive... Here we go ⬇️

Unprecedented value creation 📈

Despite Covid threatening a decade of progress, the European Tech ecosystem went against all odds.

$41B were invested in Europe in 2020 (new all-time high), v. $74B in Asia, $141B in North America.
Europe saw 13 companies becoming unicorns (4 from the UK 🇬🇧 , 2 for France 🇫🇷 , the Netherlands 🇳🇱 and Estonia 🇪🇪 , 1 for Germany 🇩🇪 , Ireland 🇮🇪 and Portugal 🇵🇹 ).

But what's even more interesting is to see that Europe is pretty efficient at creating these highly successful companies.

According to Atomico, for 100 companies that raise a Seed round in Europe, 1.2 eventually become unicorns (which is a little higher than the US) 💪.

Industries that are the most popular for investments are Fintech and SaaS:

Fintech raised more capital in 2020 than any other industry, led by: Klarna ($850M), Revolut ($500M), Checkout.com ($150M). Congrats Mike Benchimol 👏.
More than $20B were invested in European Fintech between 2019 and 2020.
SaaS paved the way, led by: Mirakl ($300M), UiPath (225M), MessageBird (200M) and Snyk (200M).

Finally, the total enterprise value of the European tech ecosystem (for companies founded after 2000) in public and private markets has ballooned to almost $1T, up 5x from 2016... outpacing both North America and Asia.

A healthy early-stage ecosystem 🚀

The level of investment activity at the earliest stages is a great indicator to understand where an ecosystem is heading. Companies raising a few milion dollars today are the ones raising hundreds in a few years' time.

Figures are showing that we are creating the champions of tomorrow, as Europe accounts for 40% of world investments in <$5M stages.

Median seed round size has gone up from $0.7M in 2016 to $1.2M in 2020. Reasons are that...

... leading seed funds raise larger rounds,
... Serie A funds are going down the stack to look at Seed investments
... US funds are breaking into Europe through Seed.

But most of all, is shows that founders are building the firepower to compete on a global stage in a few years...

That's also why valuations are higher than ever. In early stages, median pre-money valuation came up from $3.6M to $9.1M in 2020.

The least we can say is that the trend is here to stay as 70% of first time European fund managers and emerging fund managers are likely to look at Seed investment in the future.

Multiple tech hubs flourishing accross Europe 🇪🇺

While the UK leads in terms of activity, tech hubs are growing all over Europe at a rapid rate.

The UK is leading in terms of capital invested since 2016 ($50B), followed by Germany ($23B), France ($19B), Sweden ($10B) and the Netherlands ($5B).
Among the top three, France is the only ecosystem where the total capital invested grew year-on-year in 2020 (over $5B for the first time) 🇫🇷
Spain noticed the most significant slowdown (45% less capital invested than 2019).
London is still the #01 European hub, collecting $9.5B investments in 2020. Paris is cementing its position as the #02 European hub with $3.4B collected in 2020, followed by Stockholm ($2.7B) and Berlin ($2.5B).
Those four cities account for 55% of capital invested in 2020, up from 45% in 2016.
Estonia 🇪🇪 is emerging as a potential future unicorn builder, since number of startups per capita is 4.6x European average (partly because government supports founders relocation to Estonia through a "startup visa program").
Sweden 🇸🇪 is setting itself as the most mature local tech ecosystem in terms of funding ($900 cumulative capital invested per capita since 2016).

But let's not forget that Europe is made up of many different countries that are at different stages of local tech ecosystem.

Focusing on purpose-driven investments 🌍

What I could sense from the report is that Europe has a unique opportunity to stay ahead of the curve by focusing on purpose-driven investments.

Purpose-driven investments are investments that tackle at least one UN Strategic Development Goals as a core or side business.

$6B were invested in purpose-driven European companies (which is about 17% of total capital invested) in 2020.
80% of which were invested in companies where impact is at the core of the business.
Most popular verticals are Climate Action 🌍, Affordable and Clean energy ⚡, and Good health and Wellbeing 🌿.

That's a huge opportunity lying ahead if Europe’s startups can be at the center of the fight against the world’s biggest problem: climate change.

Recycling talent and capital ♻️

Both recycled tech talent and capital continue to nurture the European ecosystem.

80% of angel investors have either worked or founded a startup before and are now focusing on investing in and supporting early stage companies. Go Upscalers 💪
51% of these angels say the first reason why they do angel investment is to support entrepreneurs. Only 24% do it for financial returns first.

Crazy fact: 40% of operating angel investors in Europe either come from Just Eat, Spotify or Skype 🤯

That is no secret, most angel investors are involved in early stage investing.

Hence, understanding their preferred sectors helps to grasp what the defining trends for tomorrow's ecosystem are 🔭
The Top 3 industries angels are most excited about are: EdTech (35%), Digital health (27%), Big data (24%).

What I also love is that close to 50% of angel investors say that their focus for investments is now European (rather than local) 🇪🇺

That kind of validates Upscalers' goal to become the n°1 community of operating angels... at European level.

Challenges ahead for the ecosystem 🤔

There are a couple of challenges ahead which need to be addressed to make the ecosystem flourish.

Building a more diverse and inclusive ecosystem 👩

We need to see a step change on diversity and inclusion in European tech... starting with gender equality:

In 2020, 90.8% of capital raised went to men-only teams... 7.5% to mixed teams, 1.7% to woman-only teams....
And we're not seeing any positive change on this since 2016.
Similarly, on the investors' side, only 23% of European angel investors are women.

At Upscalers, 60% of our investments went to teams with at least one woman as a founder... and our goal is to keep it that way 🙏

Another challenge to tackle is racial inequality:

In the UK, all white teams received 76% of venture capital funding from 2009 to 2019...
In Europe as a whole, 85% of angel investors are white....

These inequalities need to be addressed. But they are not only a question of investing and funding... tackling them starts with creating equal opportunities to create and run a startup.

And that, is still a long way to go...

Offering better exit opportunities 💰

Finally, we need to see more leading tech companies find paths to liquidity that benefit European founders and investors, and retain our world-class talents.

83% of European unicorns founded in the 2010s are still private
36% of value created by those unicorns was captured on IPOs in European Stock Markets. But, 38% went on IPO in the US.
Similarly, 14% of value was acquired by US investors, 8% by Chinese investors, and only 4% by European investors.

Value is flowing out of Europe as there is a lack of exit opportunities. This is partly due to historical behaviour on stock market (which are perceived as less accessible than in the US for example), and to the fragmentation of the market (we're not a single market...).

We need to offer better exit opportunities to our companies to create that virtuous flying-wheel of financing, and make the European Tech ecosystem truly flourish ☘️

🌍 All eyes on the EU... and elsewhere

European funding in December 🇪🇺

Lydia makes it to unicorn status... 🦄

On Wednesday, Lydia 🇫🇷 (Fintech which started as a peer to peer payment solution and is progressively moving towards banking) announced it has closed a $100M round led by US funds such as Dragoneer and Echo Street, which values the company at over $1B.

That makes it 21 French unicorns...

... and Spendesk makes it 22 😱

The next day, Les Echos (French Newspaper) reported that Spendesk was about to close a 100M€ round from Tiger Global Management... just 4 months after raising a 118M€ Series C round.

This would make it the 22nd French Unicorn.

Flink raises a $750M round 🛵

A few weeks back, I gave you my opinion about grocery delivery in Edition#04 of the newsletter.

One thing I mentioned was that grocery delivery was a "dog-eat-dog business where players with most cash would be the last ones standing".

Well today, Flink, the Berlin based startup, announced it closed a $750M round. Want to know why this is pure madness? That's a Series B they've just raised...

Cryptopunk madness 🙈

It's been a while since I last shared a crazy crypto news.
Well have you ever heard of cryptopunks?

Cryptopunks are a collection of art NFTs that are encrypted in the ETH blockchain, and which are regarded as the beginning of today’s CryptoArt movement.

Yesterday, PUNK #4156 was sold for $10.2M... smashing all previous records set for NFT purchases. Crazy.

I'll be deep diving into crypto punks next week, that gets me pretty intrigued 🤔

If you have any valuable insights on this guys, or if you have already invested in some, I'd be happy to have a quick talk next week.

Thanks again for reading guys
See you next week 👋

Tim

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