The State of European Tech
2021
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A Word From Orrick
Now is a watershed moment for the tech and venture ecosystem across Europe and around the world. Europe is attracting record levels of investment and growth, with the innovation economy positioned to take the lead in tackling today’s systemic societal challenges.
For many founders, 2021 was another year of change, with their operations, team management, corporate values and fundraising pace all under increased scrutiny by regulatory bodies. As the pandemic forced adaptation, a new hybrid talent model accelerated the decentralisation of teams across Europe. Tech companies are uniquely placed to embrace this new multicultural and multilocation-based approach.
European tech is on track to break the $100B milestone of capital invested in a single year – nearly three times the level in 2020. Rapid investment and big exits are now the norm. The total number of tech companies scaling to $1B+ in Europe has ballooned from 223 last year to 321 – up by a staggering 44%.
Fintech investment has led the charge, rising by 159%, with total investment of nearly $15B, while planet-positive investments are dominating the
fast-growing purpose-driven space.
With ESG scrutiny topping stakeholder agendas,
the startup community is laying the foundation for long-term value-focused metrics. Many are embracing growth with purpose, and investors are pouring more money than ever into socially driven and planet-positive investments. But all tech
Key Findings
A Milestone Year
1
European tech is on track to cross the $100B milestone of capital invested in a single year, close to 3 times the level in 2020.
The total number of tech companies that have scaled to $1B+ in Europe has jumped from 223 last year to 321.
2
The number of new unicorns per year is growing faster than ever; while it took 7 years for Europe to get its first 10 unicorns, the next 7 years added 50 and the following 7 years another 260. Between each of these milestones, the number of unicorns in Europe grew by 27% each year on average.
3
Large rounds ($250M+) are now the norm in Europe – these grew 10x versus last year, now representing 40% of the total capital invested in the region.
4
Europe has its strongest ever pipeline of early stage startups with the region accounting for 33% of all capital invested globally in rounds of up to $5M, now on par with the U.S. for the first time on this indicator.
5
Over $31B has been invested in purpose-driven tech companies in Europe in the last five years, representing 15%
of all funding and an increase year-on-year of 57%. Purpose-driven companies are defined as companies building a sustainable future for all by addressing one or more Sustainable Development Goals (SDGs).
6
An Emphasis on Planet Positive
Planet-positive investments – defined as companies working
to make sustainable use of the planet’s resources – captured 11% of total funding overall in 2021, with clean energy and climate tech startups capturing the lion's share of funding with 24% each of all capital invested in purpose-driven tech companies in 2017-2021 YTD.
7
In absolute terms, fintech had the most significant increase (+159%) in investments of +$14.9B, followed by enterprise software at +$6.5B (99% increase) and transportation at
+$5.1B (100% increase).
8
1 in 5 European unicorns is a fintech company (and that number rises to 1 in 3 for private unicorns). This also includes
4 of the 10 most valuable tech companies in Europe.
9
Crypto and blockchain deal count is up 5x in Europe over the past 5 years, but lags behind the US. Still, Europe already has
8 crypto unicorns.
10
Compared to 12 months ago, women and ethnic minorities find working for a European tech company more attractive
than men or white individuals with 73% of women and 75% of non-white individuals indicating an increased attractiveness of working in European tech.
11
Despite evidence showing that mixed and diverse teams perform better, they captured less than 10% of the capital raised in 2021.
12
The European startup market is putting up remarkable results across the company lifecycle spectrum. Rapid investment and big exits are now the norm for Europe. Europe’s startup scene has long been perceived as emergent, but the continent is gaining significant ground with unprecedented deal volume and valuation growth. These are extremely exciting times for the European tech and venture ecosystem, and Orrick is proud to be a key contributor.
CHRIS GREW
Partner, Orrick London
ESG has emerged as a critical focal point for European funds, principally as a result of limited partner pressure and regulatory developments, including SFDR. Guided by frameworks such as the Principles for Responsible Investment, European funds are both implementing ESG measures at the fund level and, importantly, working to advance the ESG programs of their portfolio companies.
This task is challenging and complex. Funds and portfolio companies must design and develop ESG initiatives that are appropriate for private companies, identify relevant data and metrics, and collect such data to produce actionable and meaningful reports for internal and external use. What’s more, this entire endeavor must be carried out efficiently and frequently at scale. Management teams are often receptive. After all, the eyes of the ESG universe are now turning to private companies. Standing up an ESG program can assist them in meeting extensive customer requirements, satisfying investor standards, and preparing for sale or a public offering.
Companies appearing on the public markets will often quickly be exposed to heightened investor expectations regarding ESG and will likely be assessed by ratings organizations. The companies that have spent time developing an ESG program will be better prepared to pass this ‘ESG exit exam.’
ASHLEY WALTER
Partner, ORRICK SEATTLE
The changes and adaptations tech companies were forced to grapple with in 2021 had a ripple effect on team management, construction and even mental wellness. Employee retention and burnout have become key topics as the competition has increased with bigger companies offering much-needed post- pandemic job security and competitive packages.
2021 was also a year of record numbers both on VC funds being raised and capital available to deploy in Europe. As a direct consequence, we saw a big change in the investment landscape with fierce competition for term sheet negotiations, more European unicorns than any other year, and considerable increase in valuation and funding rounds.
Our climate crisis and the demand for greater societal impact from the tech sector has born the next generation of founders and emerging leaders who are deeply committed to building companies that do more than just generate profits or create a return.
RAPH CROUAN
MANAGING DIRECTOR TECH CLIENTS, ORRICK EUROPE
The State of European Tech
2021
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What's Next for European Tech?
Orrick partners share their insights on what lies ahead for the European tech and venture ecosystem.
companies and investors would do well to pay close attention to setting up good governance and understanding European disclosure requirements (see Articles 8 and 9 in the Sustainable Finance Disclosure Regulation (SFDR)).
Diversity, equity and inclusion will be a key ESG metric going forward, and the ecosystem as a whole has work to do. Despite evidence showing that mixed and diverse teams perform better, they captured only 9% of the capital raised in 2021 (source: Dealroom). Yet, there’s reason for optimism: Compared to
12 months ago, women and ethnic minorities find working for a European tech company more attractive than men or white individuals, with 73% of women and 75% of non-white individuals reporting
increased satisfaction.
Competition Is Fierce
2021 was a year of record numbers both on VC funds being raised and capital available to deploy in Europe. As a result, we saw a big change in the investment landscape, greater competition for the best deals, more unicorns created than ever, and a considerable increase in valuation and the size of funding rounds. A Series A round three years ago would easily be a seed round today. And regardless of preferred stage of entry, valuation and cheque size inflation are two of the main consequences of increased competition to win deals.
Additionally, cross-border VC investment is rapidly expanding. While it is common to see U.S. investors clamouring for access to the best European deals, we are now seeing an increase in leading
93%
of VCs said investment opportunities have become significantly or slightly more competitive in the past
12 months compared to
just 34% in 2020
European funds, such as Atomico, deploying capital into the United States. With the easing of overseas investment restrictions, we expect to see more of this activity in 2022 and beyond.
Setting aside investor appetite, there will undoubtedly be a renewed emphasis on what additional resources VCs can bring to founders when competing to win deals. Given the highly competitive investment climate, venture funds will distinguish themselves by providing founders with the right talent and human capital, strategic commercial solutions and insight. Accordingly, these value-added offerings, combined with an ethos not only to deliver returns but also to create long-term value, are of paramount importance.
BlackRock CEO and Chairman Larry Fink recently stated: “It is my belief that the next 1,000 unicorns won’t be a search engine, won’t be a media company. They’ll be businesses developing green hydrogen, green agriculture, green steel and green cement.”
Over $31B has been invested in purpose-driven tech companies in Europe in the last five years, representing 15% of all funding and a 57% increase year-on-year. Planet-positive investments – defined as companies working to make sustainable use of the planet’s resources – captured 11% of total funding overall in 2021, with clean energy and climate tech startups capturing the lion's share of funding.
An Emphasis on Planet Positive
Nearly 1 in 3 private European tech companies are fintech companies, including 4 of the 10 tech companies in Europe with the highest valuation.
Fintech companies are levelling the playing field and increasing financial inclusion. By helping low-income customers and micro- and small enterprises, fintechs
Fintech & Financial Inclusion
+$14.9B
increase in fintech investments (+159%)
have empowered people and enterprises not only to respond to the pandemic, but also to rebound, rebuild and recover.
Tech companies with vision and intent garner more attention from investors and attract the best people. Just as VCs are competing for deals, tech companies are competing for talent, with employee retention a key issue for founders to address.
We’re incredibly grateful to Atomico to again invite Orrick to partner on this report, which is now recognised as the industry benchmark, and we are happy to see it continue to highlight the issues we collectively need to address.
We look forward to continued collaboration with the European tech community and helping to build a resilient ecosystem that not only thrives but also contributes to solving the many challenges this period has exposed.
Innovating With a Vision
Chris Grew
Partner, Technology Companies Group, Orrick
Fintech’s Stellar Growth
Inclusion
What's Next for European Tech?
Now is a watershed moment for the tech and venture ecosystem across Europe and around the world. Europe is attracting record levels of investment and growth, with the innovation economy positioned to take the lead in tackling today’s systemic societal challenges.
For many founders, 2021 was another year of change, with their operations, team management, corporate values and fundraising pace all under increased scrutiny by regulatory bodies. As the pandemic forced adaptation, a new hybrid talent model accelerated the decentralisation of teams across Europe. Tech companies are uniquely placed to embrace this new multicultural and multilocation-based approach.
European tech is on track to break the $100B milestone of capital invested in a single year – nearly three times the level in 2020. Rapid investment and big exits are now the norm. The total number of tech companies scaling to $1B+ in Europe has ballooned from 223 last year to 321 – up by a staggering 44%.
Fintech investment has led the charge, rising by 159%, with total investment of nearly $15B, while planet-positive investments are dominating the fast-growing purpose-driven space.
With ESG scrutiny topping stakeholder agendas, the startup community is laying the foundation for long-term value-focused metrics. Many are embracing growth with purpose, and investors are pouring more money than ever into socially driven and planet-positive investments. But all tech companies and investors would do well to pay close attention to setting up good governance and understanding European disclosure requirements (see Articles 8 and 9 in the Sustainable Finance Disclosure Regulation (SFDR)).
Diversity, equity and inclusion will be a key ESG metric going forward, and the ecosystem as a whole has work to do. Despite evidence showing that mixed and diverse teams perform better, they captured only 9% of the capital raised in 2021 (source: Dealroom). Yet, there’s reason for optimism: Compared to 12 months ago, women and ethnic minorities find working for a European tech company more attractive than men or white individuals, with 73% of women and 75% of non-white individuals reporting increased satisfaction.
Competition Is Fierce
2021 was a year of record numbers both on VC funds being raised and capital available to deploy in Europe. As a result, we saw a big change in the investment landscape, greater competition for the best deals, more unicorns created than ever, and a considerable increase in valuation and the size of funding rounds. A Series A round three years ago would easily be a seed round today. And regardless of preferred stage of entry, valuation and cheque size inflation are two of the main consequences of increased competition to win deals.
2021 was a year of record numbers both on VC funds being raised and capital available to deploy in Europe. As a result, we saw a big change in the investment landscape, greater competition for the best deals, more unicorns created than ever, and a considerable increase in valuation and the size of funding rounds. A Series A round three years ago would easily be a seed round today. And regardless of preferred stage of entry, valuation and cheque size inflation are two of the main consequences of increased competition to win deals.
An Emphasis on
Planet Positive
BlackRock CEO and Chairman Larry Fink recently stated: “It is my belief that the next 1,000 unicorns won’t be a search engine, won’t be a media company. They’ll be businesses developing green hydrogen, green agriculture, green steel and green cement.”
Over $31B has been invested in purpose-driven tech companies in Europe in the last five years, representing 15% of all funding and a 57% increase year-on-year. Planet-positive investments – defined as companies working to make sustainable use of the planet’s resources – captured 11% of total funding overall in 2021, with clean energy and climate tech startups capturing the lion's share of funding.
Fintech & Financial Inclusion
Nearly 1 in 3 private European tech companies are fintech companies, including 4 of the 10 tech companies in Europe with the highest valuation.
Fintech companies are levelling the playing field and increasing financial inclusion. By helping low-income customers and micro- and small enterprises, fintechs have empowered people and enterprises not only to respond to the pandemic, but also to rebound, rebuild and recover.
Nearly 1 in 3 private European tech companies are fintech companies, including 4 of the 10 tech companies in Europe with the highest valuation.
Innovating With a Vision
Tech companies with vision and intent garner more attention from investors and attract the best people. Just as VCs are competing for deals, tech companies are competing for talent, with employee retention a key issue for founders to address.
We’re incredibly grateful to Atomico to again invite Orrick to partner on this report, which is now recognised as the industry benchmark, and we are happy to see it continue to highlight the issues we collectively need to address.
We look forward to continued collaboration with the European tech community and helping to build a resilient ecosystem that not only thrives but also contributes to solving the many challenges this period has exposed.
Fintech’s Stellar Growth
Inclusion
The State of European Tech
2021
