Atomico’s State of European tech report lifts the lid on a turbulent year for the sector
In a year defined by COVID-19 and Brexit uncertainty Atomico’s State of European tech report 2020 shows that while the sector has faced challenges European tech companies are on track to set a new investment record of $41bn of capital invested in 2020.
The ecosystem itself is also increasing in strength with an increasing diversity of investors and a strong pipeline of future Initial Public Offering (IPO) candidates. The sector is also growing in maturity, there is now also a regular recycling of talent to build new generations of companies that will help sustain the ecosystem and allow it to reinvent itself over time.
However, there remain significant challenges. While growth has been good, much of this has been driven by megarounds, large investments of between €82-€206m into individual companies.
Beyond this 46% of tech company founders reported that they had found it more difficult to access capital in 2020. While almost a third (30%) of founders said sales declined this year.
Headline figures, and where does the UK fit into the European ecosystem?
As well as breaking last year’s record by raising $41bn in investment, more of this investment is also being channelled towards newer companies.
European tech companies founded in 2010 had raised a total of $2.8B by the end of their fourth year. By comparison, companies founded in 2015 had raised $14.4B at the same point. Companies founded even more recently are showing signs that they will scale faster still. This is great news showing the continued maturing of the European tech ecosystem.
However, the European sector needs to grow further to catch up with other regions. Although Europe accounts for around a quarter of global GDP, it only makes up 13% of global venture capital (VC) invested in tech.
Total capital invested in the North America, was $141bn in 2020, nearly 5x the level of investment in Europe. While European tech has had a resilient year, US tech has returned truly record-breaking figures.
The UK remains one of the crown jewels in Europe’s tech ecosystem. On a cumulative basis, the UK has raised nearly $50B of capital investment since 2016, almost 20% more than the same figures for Germany ($23B) and France ($19B) combined. In 2020 the UK is expected to raise around £12.5bn in investment, around 30% of the European wide total.
While London continues to lead as the preeminent European tech hub there is also a strong showing from key UK clusters. Birmingham, Manchester, Bristol, Cambridge, and Edinburgh (as well as London) rank among the top 20 hubs in Europe. Either for the total number of investment deals or the total amount invested.
This continued strength, even in the face of Brexit uncertainty, may be derived from the composition of the UK’s tech sector. Unlike other major EU markets such as Germany and France, the UK is less reliant on domestic and European investment, with stronger connections to global investors such as from the US and Asia. The UK also has a generally more mature tech ecosystem, while also maintaining a very high concentration of start-ups when compared with other large European economies.
Tech for a purpose:
One of the big changes in this year’s report is the highlighting of investment in tech for good/ tech for a purpose.
Total capital invested in purpose-driven tech companies looks likely to exceed $6B in 2020, over three times more than invested in these kinds firms in 2016. Investment in purpose driven tech companies also now makes up a bigger share of the portfolio of investment in European companies.
We have seen similar results in the UK, tech nation’s 2020 report highlighted that in 2019 £3bn of VC investment was directed into UK companies aligned with UN Sustainable Development Goals. 9 times more when this was first measured in 2013.
Where next and what is on the horizon:
The last five years has been a time of strong growth for European tech. The amount of private investment has increased as well as the maturity of the ecosystem.
Europe’s climate-focused start-ups have soared raising over $11B cumulatively in the last five years. While more investment is being driven into tech companies with a social or economic purpose.
Building on these successes will require smart policy making and regulation to foster further growth and the expansion of the benefits of the digital economy to other sectors.
Ambitious targets and investment plans by the European Commission and the UK Government in climate change offer an opportunity for tech founders. However, challenges remain, EU regulations on data and digital markets could reduce the attractiveness of Europe to global investors and a difficult end to the Brexit negotiations could dampen appetites for investment in the UK.
Getting these challenges right, while maximising the opportunities will be vital to ensure the tech sector can play its fullest part in the recovery from COVID-19.
You can read Atomico’s full report, the State of European tech 2020 here.