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Can Europe become the most entrepreneurial continent?

Europe’s tech sector is worth four times what it was five years ago as the leading generation of companies and founders give back to the next wave of ambitious tech firms. But there’s still work to be done to close the gap to the US and Asia.

New data from the Dealroom x Sifted European Startups project, backed by the European Commission and European Parliament, produced for Index Ventures’ Not Optional – Making Europe the Most Entrepreneurial Continent summit shows that the value of European tech companies has increased rapidly. In 2020 alone, this value has risen by 46%. Yet the biggest leap occurred between 2015 and the start of January 2020, demonstrating how the European ecosystem has matured. 

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Europe’s journey so far – ditching its old image

The European startup ecosystem has transformed in the last 15 years. While the US had a head start on building a venture-backed startup ecosystem, Europe is catching up. Increasingly ditching its old image of innovation without commercialization, Europe now attracts 15% of global VC capital (up from 4% in 2004), and is building brand name global tech companies.

European tech companies are worth 4x what they were five years ago, with a combined ecosystem value of €618bn (up from €155B). Europe’s five biggest tech companies founded since 2005 – Adyen, Spotify, Delivery Hero, Zalando and Takaway.com – are worth a collective $170B. Compared to the previous generation of digital tech companies, Europe is now within touching distance.

 

Europe’s snowball effect

Founders and early employees from Europe’s largest firms, including Skype, Spotify, Lovefilm and Klarna are fuelling the next-generation of startups, scaleups and unicorns. Success is recycling talent, expertise, networks and capital into new startups and funds. 

In 2018 Adyen, Spotify and Farfetch all IPO’d, marking a watershed in the European tech ecosystem. Europe now has a handful of global tech giants and the alumni from those teams are driving the next generation of companies across the continent, whether starting new companies or investing in them. Put together, these factors mean that Europe is now capable of building, scaling and supporting global tech companies, in a way that it never has previously.

Peteris Zilgalvis, Head of Unit, “Digital Innovation and Blockchain”, DG CONNECT, European Commission, said: “Just as a small group of alumni from PayPal went on to create a new generation of companies, Europe’s founders from companies like Spotify, Adyen and Skype have helped fuel a generation of entrepreneurship across Europe. They are continuing to create and invest in tens of new companies, helping to bring Europe to a new level of maturity. Europe has the talent, experience, funding and ambition to become one of the most entrepreneurial places on the planet.”

Startups drive employment growth

The importance of startups to our economies has never been more acute. Startups are an essential job engine in Europe. Young companies are creating jobs at a rate of +10% year on year, ahead of the construction, real estate, and information and communications sectors. 2M people are employed in European tech in 2020, up by 43% on 2016 figures, and set to hit 3.2M by 2025

The virtuous VC cycle

European VCs have raised record-breaking amounts of new funds – and across all funding stages – year-on-year since 2015. Despite Covid-19, European VCs are on course to continue this record-breaking trend in 2020 by raising a total of €13 billion by the end of the year, double the figures for 2013.

Meanwhile European startups have raised €29 billion in 2020 so far, with the sector on course to raise a total of €35bn in capital by the end of the year. A decade ago, just 20% of unicorns were backed by venture capital, but in 2019 82% were underlining how the European tech system is becoming more dependent on VC funding.

Closing the gap to the US and China 

Despite the record amounts of money being raised on the continent, European companies still depend on foreign sources of capital, particularly as they grow in size and scale. Beyond Series B, a funding gap leads startups to look to investors outside Europe. 

In 2019, European VCs raised €13bn, yet €38bn was invested in European startups; the difference coming from foreign investors. With European tech companies predicted to grow in size over the next decade, the funding gap between what startups need to raise and what is available in Europe becomes more evident.

Neil Rimer, co-founder of Index Ventures commented: “The ambition of Europe’s founders and the promise of European startups has never been greater. There is no doubt in my mind that Europeans will build some of the tech giants of the future. Founders have demonstrated incredible ingenuity, creativity and grit in achieving what only a decade ago was considered a pipe dream. But as Europeans we need to do more to harness the energy and creativity of entrepreneurs, investors and policymakers and ensure that they work together to usher in Europe’s tech-driven future. Europe will benefit from the innovation, growth and jobs that this will bring, but only if it makes supporting startups a strategic priority across the continent that is essential — not optional.” 

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