The State of European Tech
What Did 2020 Bring for the European Tech Ecosystem – and What’s Next?
With a record $40+ billion in investment, a robust unicorn pipeline and enhanced government support, the European tech market has remained incredibly resilient this year. The 2020 State of European Tech Report uncovers how Europe has built a thriving tech ecosystem, what’s next for the market, and how the industry can play a pivotal role in the economic recovery.
Published by Atomico in partnership with Orrick and Slush and with support from Silicon Valley Bank, this year’s Report analyzes input from more 3,000 founders, investors and visionaries. It also highlights the factors that will shape the future of European tech: the evolving funding and exit landscapes and the imperative to develop a more diverse, equitable and purpose-driven ecosystem.
Here’s where the European tech market is headed next.
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A Word from Orrick
Over the past nine months, we’ve navigated intersecting crises – a global pandemic, economic uncertainty, racial injustice and climate change – all in an increasingly polarized political environment globally.
It’s been a time of unprecedented disruption, one that has upended every facet of life, work and innovating as we knew it. Companies have had to
be more nimble than ever, at a moment that has ushered in “ten years’ worth of digital transformation in two months,” as Microsoft CEO Satya Nadella famously put it at the end of April.
Opportunity is often borne out of crisis and the 2020 State of European Tech Report exemplifies this. European tech continued on its growth trajectory this year. As venture capital continued to pour into the region, the tech ecosystem has ballooned since 2000 to almost $1 trillion ($960 billion) in combined value – up five-fold from 2016. Remarkably, 2020
is on track for record investment of more than
$40 billion – a 20% compound annual growth rate over the last five years, outpacing both North America and Asia. The unicorn pipeline continues to be robust, with 18 new unicorns in the last 12 months compared to 14 in the previous period.
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Orrick and the 2020 State of European Tech partners Atomico, Silicon Valley Bank, and Slush discussed the biggest themes uncovered by this year’s report. They took a deeper dive into some of the report findings – the evolving funding and exit landscapes, market dynamics and the imperative to develop a more diverse, equitable, and purpose-driven ecosystem.
Watch the panel highlights.
Key Findings
Venture Financing
1
Even in the midst of the COVID-19 pandemic, 2020 is on track to set a new record of $40+ billion invested into European tech.
40% of all capital invested globally in rounds of less than
$5 million is taking place in Europe, a reflection of Europe’s success in building a healthy early-stage ecosystem with great growth potential.
2
Founders found it twice as hard to raise venture capital funding in 2020 than in the previous year, despite record-level investments in the market.
3
The level of US investor participation in European deals continues to increase year over year, growing by 3% in 2020.
4
2020 saw 18 European tech companies reach the $1+ billion valuation milestone, bringing the total European unicorn
count to 208 – a geographically diverse group representing
24 different countries.
5
Investment in purpose-driven tech soared to $6 billion in 2020, with $20 billion invested over the past five years.
6
Exits
Europe’s VC, PE and public markets are more connected than ever, creating M&A opportunities and a strong pipeline of IPO candidates.
7
94.4% of public European tech companies have chosen to list on European exchanges, accounting for a combined 87% of the total public European tech market cap.
8
Europe has produced more tech IPOs than the US every year since 2016, including an average of three $1+ billion tech IPOs per year.
9
The aggregate value of European tech exits via M&A exceeded $90 billion by the end of September 2020, on track for the strongest year since 2016.
10
Exits via M&A that are valued at $100 million or lower, including those that involve undisclosed exit valuations, account for more than 90% of total exits per year.
11
Private equity buyout firms are playing a growing role in the broader European tech ecosystem by driving liquidity into capital markets through their M&A rollout strategies.
12
The tech ecosystem has held up remarkably well in this year of multiple crises – and will no doubt drive Europe’s recovery as markets adapt to the great accelerations of 2020. This year also has made clear that the tech ecosystem can play a critical leadership role in society by fully embracing ESG principles – and this, too, needs to be an area of acceleration.
CHRIS GREW
Partner, Orrick London
Whilst Europe has originated more than a third of the world’s startups, it accounts for a disproportionally smaller count of unicorns globally. This gap is in many ways attributable to a previously limited supply of large, late-stage risk capital pools. Fortunately, this is changing rapidly. Driven by the growth in recent years of European funds writing bigger checks at larger valuations and an influx of US and Asia-based funds looking for quality and value – the stable of European unicorns is growing – from 14 in 2019 to 18 in 2020. A sizable portfolio of European startup giants now stand ready to capture the IPO landscape and meet pent-up demand.
Additionally, the SPAC or Special Purpose Acquisition Company, an exit of choice right now in the US, is beginning to find its way across the Atlantic. These are not novel structures, but the latest batch is backed by top-rate financial institutions and serial investors seeking highly sought-after targets. Orrick has helped navigate companies through a string of these deals and we expect to see SPACs become a driver of European exit planning. As a result, we’re optimistic that next year’s IPO metrics will tell a quite different story.
ED LUKINS
Partner, Orrick London
As we entered the pandemic, there was legitimate fear that the UK could lose a generation of startups if the tech ecosystem stalled. With pressure on an economy that is largely being driven by tech, intervention came from the UK Government. In addition to measures available to the market generally, HM Treasury responded to lobbying from the venture community to introduce the Future Fund scheme, a lifeline in the form of a convertible loan package for innovators in need of sustainable financing. As a member of the task force that helped the government design and implement this scheme, we have been impressed by the process and strongly encourage continued equitable innovation-friendly policy to get through these crises. It’s clear that is an investment not just in the future of tech, but our society at large.
Ylan Steiner
Partner, Orrick London
The State of European Tech
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