NOThas already a crisis was so exciting. Startup valuations are falling, tech layoffs abound, and new venture capital (Capital risk) is difficult to find. But at Slush, a big annual tech party that ended in Helsinki on Dec. 1, the founders and their financiers were partying almost like it was 1999, the height of the dot-com bubble. More than 13,000 people, a record number including 5,000 entrepreneurs and 3,000 investors, spent two days in a huge show, attending presentations, panels and numerous laser beams.
Like startups around the world, those in Europe have been hit by rising interest rates, making their promise of rich future profits less appealing today. This year, they are expected to attract only $45 billion in investment, according to “State of European Tech,” an annual report published in Slush by Atomico, a Capital risk company based in London. That's down 38% from last year and 55% from a torrid 2021. The median valuation of more mature “growth stage” startups is now below the five-year average. While in 2021 Europe created 107 “unicorns” (unlisted companies worth $1 billion or more) and produced another 48 last year, so far , in 2023, it only added seven. Many others have been “decayed”, according to Atomico: 50 this year, compared to 58 in 2022.
However, looking longer term, the European startup scene as a whole is holding up surprisingly well. In a way, it is managing the crisis better than the more established American crisis. Investments in European startups have certainly fallen over the last two years, but they remain up 18% compared to 2020 (see graph 1), except in Great Britain where they have fallen by more than 2%. In the United States, they decreased by 1% over this period. And while valuations are falling overall, down rounds, in which startups accept a lower valuation when raising new capital, are less common than you might think. They accounted for only 21% of all rounds this year.
On other criteria too, European technology continues to prosper. Europe now creates more startups than America: around 14,000 between January and September, compared to 13,000 across the Atlantic. The old continent, including Britain, has more than 41,000 technology start-ups and around 3,900 more mature companies. Together they employ around 2.3 million people, around twice as many as at the start of 2019 and more than in the European real estate sector (excluding construction). The total value of private and publicly traded European technology companies is once again approaching the peak of $3 trillion reached in 2021. Last year it was $2.8 trillion.
The relative resilience of European tech can be explained by its growing maturity. Consider the number of companies founded by former employees of successful startups. More than 9,000 people who worked for today's unicorns, created in the 2000s, went on to found their own companies. That's about 50% more than the number of people who left unicorns in the 1990s to start their own business (see chart 2).
Europe is also now home to tech “mafias,” as groups of entrepreneurs who once worked for the same company are called. The largest was formed around Skype, the pioneer of Internet telephone calls. Skype has spawned more than 900 startups, which today employ more than 65,000 people. Just as importantly, successful founders now regularly invest their wealth in new businesses and even start their own. Capital risk businesses. One of the most remarkable Capital risk outfits is Plural Platform, whose partners include the founders of Skype, Wise, an online payment service, and Songkick, a concert discovery service.
As it continues to mature, the European technology industry is also developing its own characteristics. European founders are less indifferent than their American counterparts in all mattersGoogle Tag– like: from January to September, Europe saw 35 fundraising events to support developers of generative artificial intelligence, compared to 106 across the Atlantic. In contrast, climate-related startups accounted for 27% of all capital invested in European technology in 2023, a much larger share than in America. Climate technology companies have now overtaken fintech, which until recently was the most represented technology niche in Europe.
It is unlikely that European technology will ever become as important as that of the United States. Silicon Valley and its satellites in Austin, New York and elsewhere still have a head start. America's herd of unicorns (around 700 at last count) is twice as large as Europe's (356). Capital is still much easier to find in the United States, points out Tom Wehmeier of Atomico, one of the report's authors. New US businesses are 40% more likely than those in Europe to have received a capital infusion. Capital risk within five years of its creation. And when it's time to go public, European startups still feel the pull of New York, where a listing is likely to bring in far more money.
The biggest obstacle to the ambitions of European startups, however, is of local origin. THE EU has repeatedly tried to create a single digital market as fluid as the US market, but there are still many differences in taxes and regulations. Europe has shown what is possible, believes Zeynep Yavuz, who invests on the continent for General Catalyst, the American Capital risk farm. The explosion of companies in the fintech sector in recent years is a direct result of bloc-wide regulations crafted in Brussels. If EU If leaders really want to strengthen European technology, which they all claim to do, they should spend less time trying to regulate different digital markets and instead create a single, truly European one. ■
Correction (December 8, 2023): This article originally stated that more than 30,000 people attended Slush in Helsinki. This number was actually 13,000.
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