by Gonz Sanchez - email@example.com
I'm going to keep this intro short and sweet: today's edition is about one thing and one thing only (or, it could be argued, about all things Europe, put together into a nice little package with a pretty bow on top): Atomico's 2021 State of European Tech Report. If you care about Europe Tech (which I'm assuming you do, because if you don't you wouldn't be here, would you?) — go read it. Atomico has outdone itself this year (yet again) — and there's nothing I can write that will do the report justice.
Let's start with the headline — Europe, despite Covid, despite Brexit even, is thriving. If you've been anywhere in the European Tech internet lately, you've probably read this already; still, it is worth reinstating and recapping. Here are the numbers: European funding tripled in size in 2021 — with projections that account for reporting lag putting that number near $120 billion, in contrast to 2020's $41 billion. That alone is cause for celebration — an indication that the European ecosystem not only managed to bounce back from Covid, but that is also healthier than ever. Or in short: there's a bright future ahead.
And there's more good news; fundraising isn't the only number that has gown up significantly in the past year. The overall value fo the ecosystem has soared too, leapfrogging from $2 trillion to $3 trillion in the past year alone. And if that isn't impressive enough, consider this fact: it took the European ecosystem decades to reach the $1 trillion mark (back in 2018), then 2 years to get to the $2 trillion mark, and less than 8 months to reach the $3 trillion mark. This, in large part, can be attributed to the groundbreaking number of unicorns minted in the first 8 months of 2021 — 98, to be precise, making it the biggest (percentage) increase since 2014, when the number jumped from 34 to 69.
Takeaway #2: Europe no longer trails behind the US, at least when it comes to VC investing and ecosystem health. Europe has made impressive gains over the last few years, particularly in the early-stage realm, raising 33% of all rounds of up to $5 million (while the US raised 35%).
The report even makes the case that 'while Europe's share of the pie has risen over the year, it's been at the expense of America. Over the past five years, Europe has increased its share of global early-stage startup funding by 13 percentage points, whereas the States’ has decreased by 20.
This is also an important leading indicator of Europe’s tech strength to come, if many of those early-stage companies raise follow-on rounds.' And there's more: if anything (and this is particularly interesting), Europe has one over Silicon Valley et al. according to Tom Wehmeier (partner at Atomico).
It turns out that, over the last few years, European VC has generated better returns for investors than US VC — ahead by about 5 points over both three-year and five-year time frames, to be precise, and three points over a decade. Which leads us to our next point...
There's been, in the report's words, an 'American invasion' into Europe — one that's reached a pinnacle in 2021. Atomico analysed the landscape and now reports back that 618 'unique US institutions have participated in at least one investment round in Europe per year', a jump from 431 in 2020.
But it isn't only the US. The pool of investors active in Europe continues to expand, both European ones (particularly in later-stage rounds, with a jump of over 200% in $100m + rounds compared to 2020), and the rest of the world. In total 2,826 unique institution participated in at least one European tech round in 2021 — a significant increase from 2019's 2,044.
London remains king of European Tech hubs by capital invested, cashing in a grand total of $18.36 billion — an almost 95% jump from 2020's $9.9 billion. This is more than double the second place geography, Berlin, which raised a total of $7.1 billion in 2021, trailed shortly behind by Paris ($6.53 billion) and Stockholm ($6.52 billion).
But here's the thing: Brexit may put a stop to London's reign — and most likely harm the European ecosystem as a whole, particularly due to its impact in talent supplies. According to the report, along with the Netherlands, in the UK founders believe the talent pool size is decreasing; out of all respondents, 36% of founders report available talent has decreased compared to 2020.
But while London is key, there are two geographies that, in my reading of the report, deserve special recognition: Netherlands & The Nordics. According to Atomico: "The Netherlands is truly one of the stars of this year's report. It has 2.6X as many startups per 1M population as the European average (ahead of the UK, Germany and France), and is the home of European big tech, taking fourth place globally by total market cap of public tech companies (ahead of South Korea and Japan)." And it makes sense: Some of Europe's biggest tech companies (ASML, Just Eat, Adyen) call the Netherlands their home; and out of the 10 largest deals raised by European tech companies in 2021, 2 were from the Netherlands, which in turn has made it fifth in Europe when it comes to the number of unicorns it hosts.
There's a reason why most of my reports come with a 'EU Regulation' section; Europe is a particularly tricky geography when it comes to regulation and policy of any kind, and more so when it comes to startups — and has historically lagged behind our American counterparts. All of that to say: one underreported takeaway of the State of European Tech Report is the climate of optimism in the ecosystem when it comes to exactly this.
Out of all founders & leaders interviewed for the report, 26% feel 'the regulatory landscape has changed for the better', with only 20% stating the opposite, and 21% believing the regulation is set to be the biggest obstacle to Europe's growth and health in 2022. Similarly (and this, to be honest, is not too much of a surprise), 48% of investors believe regulatory fragmentation in the EU (no regulatory alignment between different countries) to be the key challenge to solve for, if we expect Europe to continue growing as an ecosystem (21% of respondents believe this). The only 'obstacles' that outranked regulation in terms of importance were the obvious ones: those related to funding and talent access.