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What does it take? – European Startups stepping up to global tech leadership

Today we’re excited to announce the launch of Europeanstartups.co, a two-year joint venture with Sifted.eu, supported by the European Commission and the European Parliament, aimed at facilitating informed conversation and collaboration among ecosystem stakeholders (governments and policymakers, VCs and angel investors, founders, researchers and journalists) to take Europe’s startup economy to the next level.

The open access platform will be accessible to the public by June 2020, and today we release our inaugural European Startups report “What does it take? Europe’s startup ecosystem navigating the Covid-19 crisis” revealing the first large-scale look at how the Coronavirus crisis is impacting startups in Europe. We explore the industry’s strengths, challenges, and key health indicators for resilience during the current economic downturn. With hundreds of thousands of jobs under threat across the 27 EU member states and their close neighbours, data on the state of the ecosystem will be central in navigating these unprecedented times.

 

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20 years of closing the gap

European tech has been a positive success story over the last two decades, having collectively created 190 companies valued at over $1bn, from Dublin to Warsaw, Lisbon to Helsinki. VC investment is central to unicorn creation – today 82% of unicorns are VC-backed, compared with only 20% a decade ago.

A gap still exists between US and European tech, but a new generation of startups have been making their mark. The US big five technology companies of Facebook, Alphabet, Amazon, Microsoft and Apple are collectively worth 10x their five most valuable European peers of SAP, ASML, Prosus, Siemens and Booking.com. But the top 5 more recently founded VC-backed US tech companies, Uber, Zoom, Stripe, Workday and Square are worth just 2.2x Adyen, Spotify, Supercell, Delivery Hero and Zalando – all founded in Europe.

Building pipeline and momentum

European tech is starting to attract larger shares of global venture capital. Last year 26% of all capital invested in rounds over €2m was invested in Europe, up from 18% in 2015. And the pipeline is strengthening. While only 12% of global megaround-plus capital (€250m+ rounds) went to Europe, 38% of all seed money (€1m-€4m) was invested in Europe.

European startups and scaleups employ an estimated 2m jobs, and startups are the number 1 job growth engine, growing at 10% per year. To stay relevant in tomorrow’s global economy, it is critical that European tech’s momentum isn’t lost.

Graph showing year-on-year growth rate of startup jobs in Europe at +10%, higher than any other sector

 

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Navigating the crisis

Of course the Coronavirus crisis presents challenges for companies of all kinds, including startups. VC activity in March and April were not significantly lower than previous months, or when compared year on year, but these are deals that were in the works for months, only to be completed in Q1. The full impact of the crisis on investment will only become clear in Q2 and beyond.

European VCs are sitting on record amounts of “dry powder”, with over €20bn raised by funds in 2019 and 2020 alone. But European VCs only account for 30-40% of investment in European startups. Continued investment from additional investor groups such as US and Asian VCs, Sovereign Wealth Funds, Growth and private equity, Corporates and Crowdfunding will be crucial for continued growth.

Looking at public markets, Covid-19 has caused companies to diverge into winners and losers, with areas such as telemedicine, pet food, collaboration and groceries in a net positive position, and direct to consumer food, real estate, jobs, marketing and travel most adversely affected.

graph showing sectors most affected by Coronavirus economic downturn based on share prices on public markets

These shifts will translate into huge challenges for some startups working in similar spaces, while also creating opportunities for others. Both need to be managed. Companies like Poland’s docplanner, the UK’s Farmdrop, Sketch in the Netherlands and France’s Stilla are well positioned, as digital adoption in their respective sectors accelerate.

table showing net positive, defensible, vulnerable and most affected tech sectors in Coronavirus crisis

There’s never been a better time to launch or scale a startup in Europe

While there are undoubtedly many challenges ahead, European tech’s fundamentals are robust. It has nurtured its largest and most talented generation of experienced operators through rich and diverse tech hubs across the continent, it is better capitalised than ever, and has European and national-level government support all working in the same direction. As long as entrepreneurialism and risk appetite are not lost, the ecosystem will bounce back.

The next two years in tech are going to be crucial for Europe. One of the critical success factors will be the ability for Europe’s public and private sectors to work together. That’s why the Europeanstartups.co platform and reports will showcase macro-level trends and insights across all EU member states to help direct funding decisions, drive discussion, and inform policy making around the current crisis, and the wider ecosystem.

Join us at Europeanstartups.co to access the full report, be kept up to date on the platform launch, and join the conversation.

 

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