The State of European Startups and Tech Investments 2020
By: Samuel Mandillah
Tags: Tech, Europe, 2020, Startup, Investment

While many sectors in the economy have been hit hard by the turn of events this year due to the Covid-19 pandemic the tech sector seems to have benefited a great deal. This is probably attributed to the fact that most offline functionalities of the office environment saw a shift to an online mode. The need and demand for tech and new ways of doing regular things increased a great deal which in turn raised the viability of investment in tech companies to develop new inventions and upscale the existing ones to meet the ensuing demand.

Technology companies and startups have benefited from more remote working to the detriment of train operators and energy companies. In like manner, E-commerce, which is an integration of technology in the shopping experience, has seen a significant uptick since Covid. The lower cost of developing an online storefront, thanks to technological innovation from the likes of Adobe and Shopify, pave the way for smaller, more niche companies to sell luxury goods and services to a wider audience. The year has also seen more big brands increasingly selling directly to consumers as time has progressed. For example –Diageo distributing Johnnie Walker without Sainsbury’s, Unilever selling Marmite without Tesco and Nike retailing athleisure without JD Sports.

The Numbers

The European tech investment is predicted to hit record levels in 2020, despite the disruption caused by the Covid-19 pandemic. According to the venture capital firm Atomico’s State of European Tech report published last week, the total venture investment in European technology startups is predicted to reach a record high of $41 billion by this year’s end, which would be an increase on the $38.6 billion invested last year. In their report, Atomico noted that the European technology ecosystem has not only survived but actually grown, benefitting from the shift to digital prompted by the pandemic.

A deep dive into the report indicates that international investment has not dried up as some feared it might this year. On the contrary, Europe’s tech sector is actually worth four times what it was five years ago.

Statistics from the report indicate that Europe still falls far behind the US and Asian tech companies in terms of total venture capital invested through 2020. The US had a total of $141 billion that VCs funds invested into U.S. technology startups while Asia tech Companies have invested a total of $74 billion into tech companies so far this year.

Europe accounts for only 13% of all VC investments in the world which is way below the 25% that it accounts for in terms of global GDP. On the contrary, the U.S. accounts for half of all global venture investments, way above its 26% contribution to global GDP.

But in at least one respect, Europe is ahead: At the very early stages and at small funding sizes, Europe does very well. It accounts for 40% of all funding rounds globally below $5 million, according to Atomico’s analysis.

The success of 2020 has been driven by the increase in $100–250 “mega-rounds” — the top 10 largest rounds alone raised $4.1bn, equivalent to 16% of capital invested in Europe in the first nine months of 2020.

The companies which raised those mega-rounds came from all corners of the continent — Sweden’s Klarna ($650m) and Northvolt ($600m), the UK’s Revolut ($580m), Karma Kitchen ($317m), and Cazoo ($310m), Germany’s Auto1 Group ($300m), Lilium ($275m) and Tier ($250m), France’s Mirakl ($300m) and Romania’s UiPath ($225m).

Despite the pandemic, European venture firms raised a record high of more than $16.5 billion. According to Atomico’s report, in the first half of 2020, $7.8 billion was invested in VCs funds, compared with $7.5 billion in the first half of 2019, indicating an increase of $0.3 billion.

Atomico also reported that the number of US-based companies investing in European startups has grown by 36% in the last 4 years with over 550 US companies investing in Europe Startups. This is a big rise in the number of external investors in Europe.

Over the years, the valuations for European tech startups have continued to increase. The top quarter of European startups now achieve early-stage valuations of above $22 million, according to Atomico, a 38% increase from 2019.

European SaaS continues to go from strength to strength with record levels of capital invested in 2020 — $12bn. The figure takes the cumulative total investment into European SaaS companies to more than $40bn since 2016.

The total level of government funds invested into European VCs topped $2.5bn for the first time in 2019, increasing significantly from $1.1bn in 2015.

Success stories

European fintech companies would be said to be the biggest gainers of 2020. Fintech Startups raised more in 2020 than any other industry. This was driven by a number of huge rounds raised by Europe’s largest fintechs.

Klarna raised $850m across two rounds, including a huge $650m round in September. Revolut raised $500m in February, while Checkout.com raised another large round of $150m in June. More than $20bn has been invested into European fintech companies in the past two years alone.

Romanian robotic process automation company UIPath and Swedish banking company Klarna, both reached $10bn valuations in 2020 while private.

Spotify and the payments company Adyen, which are worth around $50 billion have gone public in the past two years.

Hopin, the virtual conference software startup became the first European startup to achieve “unicorn status” — a startup company worth more than $1 billion — within a year of its founding. Hopin is presently valued at $2.1 billion.

According to the Atomico report, only about 1 in 100 startups makes it to the Unicorn Status in Europe which is pretty much the same as in the US.

The most valuable 2020 tech IPO in Europe was that of Allegro, a data management firm, which achieved an $18.9 billion valuation at the close of its first day of trading. This is way below Snowflake, the eight-year-old cloud-based data warehousing company that went public in September, and achieved a valuation of $70.3 billion on its first day of trading, an amount greater than the combined value of the entire top 10 most successful European tech IPOs of 2020.

Regionals

London remains a leading Europe’s hub in terms of capital invested in 2020. The city has attracted $34bn in investment since 2016.

After France’s record year, Paris has cemented its position as Europe’s number two hub — attracting $3.4bn in 2020 and $11.7bn cumulatively since 2016.

For the first time, Berlin has not featured in the top three — instead, Stockholm takes third place, helped by two of the year’s largest rounds of investment raised by Klarna ($650m) and Northvolt ($600m).

Below is a summary chart of the top 20 European hubs by capital invested

In terms of countries, Central and Eastern European companies continue to be underserved in terms of VC investment.