The European start-up scene has experienced big changes over the past few years.
For a long time, the old continent’s tech sector was in the shadow of Silicon Valley, unable to neither challenge nor compete with it. But not any more.Today, new-generation European start-ups are booming. Breaking records and reaching impressive milestones, Europe’s tech system is now seriously challenging the Silicon Valley, as – for the first time in history – it is growing at a faster rate than the USA’s tech industry.
The global venture capital company Atomico and its State of European Tech report has revealed some interesting things. According to the report, total investment in European start-ups reached $23 billion in 2018. This year, $21.4 billion has already been invested across Q1 and Q2, and Europe is the only region showing a significant venture capital investment growth in 2019 to date.
Author of the report Tom Wehmeier, Partner and Head of Research at Atomico, said that, “This year has been an incredible year for the European tech ecosystem. We’re at risk of sounding like a broken record about breaking records – but we can’t dispute the data.”
The report also revealed that last year, 69 tech companies went public in Europe, compared to 28 in the US. In the same period, share prices of European start-ups increased by 222%, compared to a 42% rise for US companies. Atomico also reported that there were seventeen new “unicorns” in Europe last year, which is double that of the previous year. The list includes such names as Revolut, Monzo, N26, TransferWise and other new-generation European start-ups.
There is a good reason why these new-generation European start-ups are so successful, and that reason is software aimed at niche sectors. A few years ago, start-ups managed to benefit from the spread of smartphones and cheap cloud computing. But as many of those companies built global empires by simply using existing industries – think taxis, food delivery and hotels – and making them mobile, today, new emerging companies are tending to focus on new software for specific industries, such as banks, science companies and farms.
This new up-and-coming generation of start-ups is all about adopting more technology in different industries: health care, automotive, retail, banking, consumer package goods, advanced manufacturing companies, etc.
Anand Sanwal from CB Insights noted that, “The marriage of technology and data is speeding things up” and that new-generation start-ups, “are all trying to figure out how technology helps reduce costs or how technology is going to help them build their next business model.”And there’s another reason why new-generation European start-ups are so successful.
The authors of the State of European Tech report further noted that Europe has at last figured out how to effectively attract talent to its start-ups, explaining, “The tech sector is attracting more participants – whether measured by the healthy increase in professional developers or the uptick in talented executives moving into tech from other sectors. This talent comes from universities, anchor tech companies, and innovation hubs – leading in turn to increases in investment, and growth in anchor tech companies.”
Interestingly, new-generation finance start-ups are particularly strong in the old continent right now, with Revolut, Transferwise and N26 all showing extraordinary growth trajectories over the last few years, seriously challenging the US giants.Revolut is a particularly good example, having added 6 million new customers in just four years, using its mobile payment and money transfer app and debit cards.
Revolut’s founder Nikolay Storonsky thinks that US companies can definitely learn from European start-ups: “To be honest, I think we are more advanced. We are three to four years more advanced compared to US companies in terms of product, in terms of regulation, in terms of size. US companies should learn from Europe.”According to Capgemini, a global leader in technology, digital innovation and consultancy, half of all banking customers globally are now using FinTech companies, and in order to remain competitive, traditional finance institutions have had to decide their next move – either collaborate or compete with start-ups.
The most successful effort so far has been from Goldman Sachs, which launched a banking app named Marcus and signed up 25,000 customers in just eight months.
However, whilst Revolut, N26 and other new-generation finance start-ups are thriving, what everyone really wants to know is whether they’ll have the ability to catch up, and truly compete with the long-standing global giants such as Barclays.
Well, Barclays has 25 million customers and clients, compared to Revolut’s 6 million, but Simon Cook, CEO of Draper Esprit and investor in the successful start-up, says that, “The idea that N26 or Revolut could go on to be the size of Barclays, that looks believable to me.”
Nikolay Storonsky also thinks that Barclays should be concerned in the long term regarding the European competition: “We are so small compared to them, right? So I think they might be a bit worried, but they still don’t feel it. They might be starting departments and assembling big teams and building some of the products that we build. But in terms of revenue, in terms of management, they are still not really paying attention.”
What’s more, European unicorns are already outpacing US rivals, growing at a much faster pace with the overall number of new unicorns in Europe having increased by 28% in the last year, compared to just 20% in the US. “We are in a very different state than just a few years ago. We have full ecosystems with incubators, angel investors, and seed funds, as well as entrepreneurs with real desire to build big companies,” said Bernard Liautaud, the managing partner at London venture firm Balderton Capital LLC.
And it’s true. Europe is no longer shadowed by Silicon Valley, evidenced by the 21 billion-dollar start-ups that have emerged here in 2018, bringing the total number of European unicorns to 84, up from 30 in 2014. Simon Cook of Draper Esprit further noted that, “This generation like N26, UiPath, Revolut, and Transferwise are growing twice as fast as previous start-ups. They could get to $600+ million revenues in five years. This means we are building real $10 billion companies in Europe for the first time.”
The actual number is even more impressive, as Europe will soon boast its first $50 billion “tech titan”. According to new research by investment banking company GP Bullhound, Swedish music app Spotify, which is currently sitting at a $34 billion valuation, is expected to reach this impressive milestone in just a few years – by 2021. Another front-runner in this race is Dutch payment systems company Adyen, with a current valuation of $22 billion.
Tom Wehmeier noted that Spotify’s success has led other European unicorns into the spotlight, saying that, “There’s a lot of talk sometimes that European founders can’t compete on the global stage, and I think Spotify has shown that…you can still come out on top if you start from the outset thinking big.”Besides Spotify, there are a few other names that helped to start a shift in the European start-up scene – Klarna, Playerhunter, Meero, FoxIntelligence, iZettle and Mono, to name a few.
The UK remains the biggest tech hub on the continent. According to industry group Tech Nation, the UK has now created more unicorns than any other country, besides the US and China. Among other FinTech companies, it has given the world TransferWise, Funding Circle, Monzo and Revolut. “We have something like 70 unicorns and 50,000 people with product-level experience, which is a testament to how incredibly dynamic the tech sector is in the UK,” said Daniel Korski, a co-founder of Public – a venture capital firm. He also added that, “Nearly 40% of the unicorns created in Europe in the last ten years have been in the UK, and that lead is increasing.”
But other countries in Europe, such as Germany, France, Sweden and Spain, are also blooming when it comes to start-ups. Upcoming hubs, including Tallinn, Dublin, Lisbon, Copenhagen, Oslo and Barcelona, not only are growing rapidly but are also starting to attract more and more investments.Europe’s start-up scene has been eclipsed by Silicon Valley for a long time, but looking at recent years, there’s no reason why European start-ups can’t continue to match – or exceed – it. In recent years, Europe has slowly grown its start-up ecosystem, and it is in full bloom right now. It’s all right there: direct access to the world’s largest economy, funding, general positivity towards start-up entrepreneurship, less competition and less confusion.
For example, in the US, companies have to contend with each state’s banking and insurance regulators, as well as the laws that can vary widely between states. Meanwhile, a company regulated by European Union financial authorities can operate in all 28 continent countries without having to apply to individual agencies.
As over the past few years Europe has made incredible progress and is seriously rivalling the US and Asian tech, Manish Madhvani, a tech-focused adviser and Managing Partner of GP Bullhound, says that, “We have every reason to be optimistic about the strength of European tech. Access to capital has improved hugely in the past three years, and with continued ambition, a constant reinvention of the product and a willingness to embrace risk, the Spotifys, Farfetchs and Adyens of Europe will soon rival the Ubers and Facebooks of Silicon Valley. Europe’s tech ecosystem has the talent, ambition, and velocity for that.”
And when that time comes, we will have our bets on Europe.