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Europe is growing faster than ever, leaving major milestones in the rear view mirror
European tech is on track to reach $100B invested in a single year, and optimism is picking up. 2021 is a year of record growth for both unicorn generation and megarounds, and new companies are raising funding faster than ever.
Insights
Crossing the $100B mark
Led by $250M+ rounds, European tech is on track to cross $100B in capital invested in a single year, for the first time.
Europe unicorn count is soaring
Technology companies in Europe grew faster than ever, with another 98 reaching unicorn status so far this year. The decacorn herd ($10B+) also doubled in size: 26 European companies now hold that status.
The total value of the European tech ecosystem crosses $3T
It took decades to reach a value of $1T in December 2018, but the next two were reached in record time. Where to next?
A shot of optimism
Following a stagnant 2019 and an understandable dip in 2020, confidence in European tech shot up in 2021. Three quarters of all respondents said they were more optimistic, a great indicator of this year's performance. VCs led the pack with 88% feeling more confident in European tech now compared to 12 months ago, speaking to the idea that success breeds success.
Crossing the $100B mark
The European technology ecosystem will reach a major milestone in 2021: $100B of capital invested in a single year. This is close to three times the level recorded in 2020. It is also 10 times the level that we celebrated as a significant achievement back when we first launched the State of European Tech report in 2015.
Capital invested ($B) adjusted for reporting lag, 2017 to 2021
- Actual amount ($B)
- Adjusted for reporting lag ($B)
- Notes
- The reporting lag is the difference between the date of a round's disclosure and the reported date of a round's occurrence, resulting in a material % of rounds being added after a long delay. This is estimated at 90% for 2020 and 85% for 2021 annualised.
The next $100B could come sooner than we think
It is especially interesting to contrast this milestone against the projections we made in our 2020 State of European Tech report. Last year, we projected that the European ecosystem could be worth $100B in annual investments by extrapolating from the top quartile performing countries. The same metric has more than tripled this year, demonstrating how quickly the space is moving. Will we cross another milestone next year?
The pace of investment is picking up
The increased velocity of investment is particularly evident when looking at the 12 month trailing amount of funding going to European companies. After a slight dip in Q2 and Q3 of 2020, the levels of investment have accelerated since the start of 2021. European tech has made up for lost time, going from strength to strength. Most notably, we saw 50% growth in Q2 of 2021 alone. And this doesn't even include adjustments for reporting lag.
5 years ago, you could fit all of the continent’s unicorns in a dining room and decry Europe's missing tech giants. Today, you’d need an auditorium with 321 seats and you'd hear a completely different story.
This report confirms what we’ve been seeing from our customers: the EU tech ecosystem is on fire. 5 years ago, you could fit all of the continent’s unicorns in a dining room and decry Europe's missing tech giants. Today, you'd need an auditorium with 321 seats and you'd hear a completely different story. And one in five European unicorns are now a fintech. PSD2, financial services passporting, and open banking are all examples of the wave of entrepreneurship that directly benefits Europeans.
Newer cohorts of companies raise funding faster
For us, European tech reaching current investment levels was never a question of "if", but "when". The current pace of investment resonates with findings in previous State of European Tech report projections. Tech is arguably going through the most meaningful paradigm shift in history globally, with perceptions of its role in the economy and society shifting. It's easy to underestimate the rate of progress this is driving. Our analysis points to this trend continuing, as the more recent cohorts of European tech companies scale faster than before.
Large rounds become the norm, driving record levels of investments
Investment growth in 2021 was largely driven by bigger rounds ($250M+), which grew by a factor of ten in the last 12 months. They now represent 40% of the total capital invested in Europe. These large rounds tend to be a lagging indicator, however, given that they typically fuel growth for later stage companies. Rounds below $5M – a proxy for early stage funding rounds – made up a relatively similar amount to last year. However, as the total amount of funding soared, they came to represent just 5% of overall funding (down from 12% in 2020). This drives the perception that there is a “seed squeeze” but as we will see, that is not necessarily the case.
In 2021, no one blinks at $100M+ funding rounds anymore
In a 2016 Slush panel discussion, we excitedly discussed the growth of $10M+ funding rounds. In the first nine months of 2021 alone, we saw more than 150 funding rounds of $100M and upwards. There were 57 rounds of $250M+, which is close to double the number achieved in the previous three years combined; a new record in European tech history. If $100M+ has felt like a frequent occurrence, it is because the first nine months of 2021 have seen a $100M+ round being announced every other day.
$100M+ rounds here, there and everywhere
European tech megarounds have become a feature all across the region. During the first nine months of 2021 alone, there have been 68 rounds of $100M+ in the UK, equating to 37% of all rounds of this magnitude in the region. But the growth of megarounds is far from a UK-only story. Germany, France, Sweden, the Netherlands and Spain have all set new records before the year even finished. Outside of the top six countries, there has also been an explosion of $100M+ rounds; the number of these rounds outside the highlighted countries has hit 35 for the year to date, up 7x over the past five years.
Number of $100M+ rounds by country, selected countries, 2017 to 2021
- United Kingdom
- Germany
- France
- Sweden
- Netherlands
- Spain
- Other
- Notes
- All Dealroom.co data excludes Israel and the following: biotech, secondary transactions, debt, lending capital, and grants. 2021 figures show data up to September 2021.
In times of crisis and uncertainty, we often see a wave of innovation - and this seems to be what has happened in European tech over the past two years.
As wider economies have been challenged, the tech sector has welcomed a wave of new talent and new ideas. The pandemic has undoubtedly boosted the online economy and entrepreneurship, and in addition we are seeing larger fundraises become the norm, as some of Europe’s more established tech giants reach truly global scale.
Europe saw it all: IPOs, Direct Listings, SPACs, M&A, PE buyouts
The top 20 largest exits of VC-backed European tech companies reached a combined value of more than $114B, representing a record-breaking year. This list includes European tech companies from six different countries and every type of exit from IPOs, direct listings and SPACs to PE buyout and good old fashioned M&A. The path to liquidity for European tech companies has become more varied.
Groundbreaking year for exits for Europe
Record exit value is now in excess of $275B in 2021. It includes $100B from M&A, $110B+ via IPOs and direct listings and another $62B via SPACs. $140B (51%) can be attributed to VC-backed companies, with the largest share across IPOs and direct listings (60%).
Total enterprise value ($B) by route to liquidity and backing status in 2021
- VC-backed
- Non-VC backed
- Notes
- All Dealroom.co data excludes Israel and the following: biotech, secondary transactions, debt, lending capital, and grants. Dealroom 2021 data is based on data up to September 2021. S&P Capital IQ Platform, as of date 29 November 2021, for illustrative purposes only.
The "growth stage" funding gap is closing
Over the past five years, we’ve seen the biggest relative leap in funding levels being made at the growth stage - which is also where there was most catching up to do. Growth stage funding has increased by 5X, while early stage funding has only increased by 2.3X in the same time. This cohort analysis looks at the founding years of European companies and uses them as a proxy for company stage. Companies started in the past five years are likely to be in their early stages as they move from idea (Pre-seed) to product market fit (Series A/B). Next, those started between five and ten years ago are most likely to be in their growth stage, where capital fuels scaling. Finally, those started over 10 years ago are likely at a more mature stage of growth. While imperfect, this methodology allows us to see the direction of travel.
Share of capital invested per year ($B) by founding year cohort of companies raising capital in year
- "Early stage" (companies founded in the past 5 years, i.e Y - 5)
- "Growth stage" (companies founded between 5 and 10 years ago, i.e <> Y - 5 & Y - 10)
- "Late stage" (companies founded 10+ years ago, i.e. Y -10+)
- Notes
- All Dealroom.co data excludes Israel and the following: biotech, secondary transactions, debt, lending capital, and grants. 2021 figures show data up to September 2021.
Is there a “seed squeeze” in Europe?
Zooming in on funding rounds of $5M or less – a proxy for pre-seed and seed level companies – the number of funding deals has stayed similar to that of 2020 and 2019. While the number of funding deals at this level has not grown as rapidly as those of much later stages, this data doesn’t point to a consistent underfunding or reduced activity level in the seed stage, or what some call the “seed squeeze”. The following data on value allocated will shed further light on this. It is possible that the opposite might be true, due to the reporting lag effect: the most recent seed investment data is systematically understated.
Number of deals by round size and by year, 2017 to 2021
- <$5M
- $5-10M
- $10-20M
- $20-50M
- $50-100M
- $100-250M
- $250M+
- Notes
- All Dealroom.co data excludes Israel and the following: biotech, secondary transactions, debt, lending capital, and grants. 2021 is annualised based on data to September 2021.
Europe has its strongest startup pipeline ever, now on par with the US
Early stage funding is a leading indicator of future growth. It is therefore worth noting that today, Europe’s early-stage ecosystem is on equal footing with the United States. European startups account for 33% of all capital invested globally in rounds of up to $5M, compared to 35% for the United States.
Europe's share of early-stage funding grows at expense of US
When we looked at each region's share of early-stage funding over time, it is clear that Europe's portion has grown at the expense of the US' - while China has seen a minor increase in share over the last five years. Europe increased its share of funding at this stage by 13%-points while the US decreased by nearly 20%-points. This shows a clear jump in investor appetite for early-stage European technology companies and speaks to the improvement in the quality and quantity of companies that Europe has to offer.
A thriving ecosystem breeds new generations of experienced entrepreneurs
The depth of the European talent pool is improving, as opportunities to work for well-funded startups and scaleups attract more talent with different skill sets and work experiences. Looking at founders and leaders working for companies that have raised funding in the past two years, 38% of them are multi-generational leaders that have worked for both established tech companies and younger startups. An additional 19% have worked for a $1B+ companies in the past, and 16% have moved countries at some point in their career. We explore this further in our Chapter: Founders & Leaders, where we analyse the profiles of 38,000 founders and leaders in European tech, and 6,000 founders who worked at $1B+ companies in the past.
I am very optimistic about the future of the EU as the global powerhouse for startups and innovation. My optimism is based on the data from 2021 as well as prospects for the future.
The data of 2021 shows a remarkable increase in VC investments in startups, more than double in comparison to previous year Q3, as well as a tripling of the amount of exits in several sectors. Actually the largest IPO of 2021 is from the EU, UiPath. European startups no longer have to envy US startups. European unicorns have also become the new normal, with the number of unicorns almost doubling in 2021.
The future looks even brighter with institutional investors starting to invest in Deep Tech startups, like the example of Northvolt. And 2021 has signalled the booming of German speaking countries in terms of exits (overpassing any other European country) and number of unicorns, as well as the emergence of CEE countries as a place for startups to thrive.
Europe has minted 98 new unicorns so far in 2021
Tech success stories spur on new entrepreneurs and better companies, leading to a virtuous cycle. This cycle has led to quantifiable outcomes, most notably in the total number of tech companies that have scaled to $1B+ in Europe. The total number of European unicorn companies has jumped from 223 at the end of 2020 to 321 at the time of publication. 98 new unicorns have been minted - 75 of which are VC backed. Europe is producing unicorns at a faster pace than ever before.
As the unicorn herd grows, talent is compounding at lightning speed
European success stories have a compounding impact on the depth and sophistication of the region's talent pool. In our survey, founders and senior leaders at tech startups demonstrated how past experiences contribute to the success of their current company. 70% of founders who had experience at companies of several different sizes (from early-stage to established companies) said execution ability was the most valuable skill they’d picked up in previous roles, compared to 53% for respondents who had only worked in early-stage companies. Leaders with previous experience were also more likely to value their ability to access deep networks, operate at scale, and hire effectively. Talent recycling and liquidity is crucial to the levelling up of operational talent, and enabling new companies to execute and scale successfully.
How has your previous work experience shaped your ability to succeed in your current role?
- Multi-generations
- Early stage only
- Traditional corporation / Government led
- Notes
- Founder, C-level executives, and department heads respondents only. Numbers do not add to 100 as respondents could choose multiple options.
Not only are there more unicorns in Europe; they are scaling faster
The depth of experience in today's talent pool can be seen in unicorn creation. The most recent cohorts of European startups are producing more unicorns, at a faster pace than ever before. In this graph, the x-axis plots the number of years since founding, while the y-axis counts the number of corresponding $1B+ companies. It took six years for the first European company - founded in 2000 - to reach unicorn status, and another four years for the next one to follow. For companies founded in 2018, however, it took only one year for the first two companies to reach this milestone, and less than one additional year to double that number.
Welcoming Latvia and Cyprus 👋
Europe has now seen unicorns emerge from 28 different countries across Europe. Latvia and Cyprus are the most recent addition to this list, with Printful reaching unicorn status in May 2021 after raising a $130 million growth round and Nexters Group passing the same benchmark earlier in the year with a $1.9B SPAC deal. The UK remains Europe’s leading home for unicorns and reached a meaningful milestone having now produced 100 unicorns in total.
Trends that we believed would take 10 years to fully materialise have happened in just two. Our continent is set up to make the most of that opportunity
The last 12 months have only increased our optimism about the future of European technology. In spite of the damage the pandemic has done to our communities - and it’ll take some time for us to fully recover - we have witnessed a dramatic acceleration in the acceptance and take-up of digital services. Powerful changes in consumer behaviour have hastened the transformation of industries like healthcare and food. Trends that we believed would take 10 years to fully materialise have happened in just two.
Our continent is set up to make the most of that opportunity. We have creative founders with growing access to capital who are ready to meet that burgeoning demand. That perfect storm will inevitably lead to an even stronger pipeline of high-growth, tech-enabled companies.
🦄 Munich, Stockholm and Cambridge lead on "unicorn density"
The competition to be recognised as Europe’s leading tech hub is a source of (mostly) friendly rivalry, with many tech hubs neck and neck when it comes to the number of unicorns produced per capita. Among cities with a population greater than 1M inhabitants, Munich stands out as having the highest overall density of unicorns. Stockholm takes first place amongst mid-sized cities with 500,000 - 1M inhabitant, with 19 $1B+ companies per million inhabitants. Cambridge, however, stands apart from all others. Though small in size, it has produced a large number of unicorns, thanks to the very high concentration of talent.
The decacorn herd doubles in size
Europe is not only producing new unicorn companies faster than before, the magnitude of its leading companies is also increasing in scale at a record pace. There are currently 26 European tech companies with so-called decacorn status, with a valuation of $10B or more. This has more than doubled from the 12 recorded at the end of 2020. The funnel of future decacorns is also promising, with 30 companies currently valued between $5-10B, and another 54 valued in the $2-5B range. Meanwhile, Adyen looks set to become the first VC-backed European tech company to reach a $100B valuation - also known as hectocorn status - having already reached $99B in the second half of 2021.
The United States leads on market cap, but Europe is closing the gap
The accelerated growth of European tech companies is felt in both private and public markets. The combined market cap of the ten biggest companies in the United States is still 10 times larger than Europe’s, but the gap is getting smaller. In fact, ASML’s value is now at the point where they would overtake Adobe to make into into the top 10 most valuable public tech companies in the US. In 2021, Europe's 10 biggest companies added $514B to their aggregate market cap, growing at 73% year over year. This compares to an increase of 55% in the US, and a decline of 17% in China.
Europe is now home to six private decacorns, up from two in 2020
In 2020, Europe had two privately owned decacorns: Klarna and UiPath, valued at $10.7B and $10.2B respectively. These have grown at unprecedented rates in the last year, reaching valuations of $46B and $35B. Five decacorns join their ranks: Revolut ($33B), Checkout.com ($15B), Northvolt ($12B), Celonis ($11B), and Talkdesk ($10B). Four of the top ten companies from 2020 have now gone public: UiPath, Wise, Arrival and Auto1 Group.
There's never been a better time to be an entrepreneur in Europe.
The continent is attracting more capital, more talent and there are more ambitious entrepreneurs than ever trying to follow in the footsteps of success stories.
Europe might seem like a more complicated market as it's fragmented with different languages and different cultures. However, there are now many success stories in consumer businesses coming from Europe: Ledger, Revolut, Sorare, Vinted etc. Culturally, European founders are more ambitious, they now think global from day one.
