The value of European tech companies is now worth four times what it was five years ago, totalling €618 billion in 2020.
This surge in value is a result of the leading generation of companies and founders investing back in the next wave of ambitious tech firms.
New data, produced by Dealroom for the Not Optional – Making Europe the Most Entrepreneurial Continent summit, has revealed that in 2020 alone, the value of European tech companies has risen by 46%, although the biggest leap occurred between 2015 and the start of January 2020.
As of October 2020, a third of the combined value of companies is based on the top 10 leading tech businesses in Europe: Adyen, BioNtech, Delivery Hero, Klarna, Spotify, Ocado, HelloFresh, Takeaway.com, UiPath and Zalando.
Taking a growing slice of venture capital
The research, which was carried out as part of the European Commission European Startups programme, also highlights how European tech is now taking a growing proportion of global venture capital, creating jobs at pace during a time of rising unemployment caused by the coronavirus pandemic and closing the gap on the US and China:
- 38% of global seed stage capital is now raised by European startups;
- Europe received 16% of global VC in 2019, up from 10% in 2018;
- 2 million people are employed in European tech, with startups experiencing 10% growth in job creation year-on-year;
- Europe has created 205 unicorns since 2005;
- Since 2013, there have been €223 billion of VC-backed exits in Europe.
Tech is Europe’s leading job growth engine
Despite the disruption caused by coronavirus, which has taken a heavy toll on sectors such as travel, tourism and leisure, Europe’s tech sector continues to expand and create employment opportunities.
E-commerce, healthtech, fintech and food sectors are all expected to expand and, if the current rate of growth continues, as many as 3.2 million people will be employed in European tech by as soon as 2025.
The research found that:
- 2 million employed in European tech in 2020, up by 43% on 2016 figures;
- 73% of European tech jobs are generated by 4,900+ startups;
- Startups are the leading engine of job creation in Europe, with 10% year-on-year growth;
- At this rate, European tech will employ 3.2m people by 2025;
- On average, each European startup employs 17 people.
Younger companies are creating jobs at a rate of 10% year-on-year. And despite the leading 10 European tech companies accounting for 77% of the value of the sector, they only account for 45% of the employment. Younger companies, particularly startups, are providing 73% of this increase in employment.
The new Silicon Valley — how Europe is quickly becoming a tech haven
The snowball effect
According to the research, founders and early employees from Europe’s largest firms, including Skype, Spotify, Lovefilm and Klarna are fuelling the next-generation of startups, scale-ups and unicorns. The trend for experienced founders to invest as angels in the next generation of tech companies, plus a rapidly maturing tech ecosystem, is helping drive this tech company surge.
- Eight companies are responsible for creating dozens more: Criteo, Alando, Spotify, Skype, LoveFilm, Adyen, GoCardless and Zoopla;
- Taavet Hinrikus, Skype’s former director of strategy, founded TransferWise in 2010 which had a valuation of $5billion in July 2020;
- Skype co-founder Niklas Zennström is CEO and founding partner of Atomico, the European VC firm which has raised a total of $2.2billion since 2016;
- Alex Chesterman, co-founder of LoveFilm and Zoopla, is CEO and founder of Cazoo, one of Europe’s fastest growing e-commerce businesses;
- Tom Blomfield, founder of GoCardless, launched fintech challenger bank Monzo.
Commenting on this, Peteris Zilgalvis, Head of Unit, “Digital Innovation and Blockchain”, DG CONNECT at the 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.”
Yoram Wijngaarde, founder and CEO, Dealroom, added: “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.”
In addition to building new companies, many European tech alumni are now active investors in the ecosystem. Spotify founder Daniel Ek has pledged to invest $1 billion in European startups, while former LoveFilm alumni including Saul Klein and Alex Chesterman are involved both in funding the next-generation of tech companies and in founding them.
The virtuous VC cycle
- European VCs raised €12.7 billion in 2019, almost double the €6.6 billion they raised in 2013;
- European companies on track to raise €35 billion in capital by the end of the year.
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.
European companies 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 venture capital.
Closing the gap with China and the US
There is still some way to go before the European tech sector can close the gap with China and the US.
The research found that companies looking to raise at Series B and Series C are experiencing a funding gap. At Series B, European companies take only 21% of global venture capital, falling to 14% at Series C.
Currently, 39% of total funding for European startups comes from the Rest of the World and for funding rounds above $100 million, this proportion rises to 60%.
Dealroom suggests that European startups need at least three times more capital than has been raised in recent years by local VCs. In 2019, European VCs raised €13 billion, yet €38 billion 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. This is an opportunity for European VCs and also underlines how much more capital is needed by later stage European tech companies, if they are to grow at the same rate as US ones.
Neil Rimer, co-founder of Index Ventures commented: “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.”