The European technology ecosystem has hit a special tipping point: for the first time we have 25-30 cities where we can see the recycling of both talent and capital.
The result is an explosion of high quality entrepreneurs across a range of sectors and geographies. Accel is entering its third decade in Europe and yet we have seen more change in the last 18 months than we did in the preceding decade. It’s questionable as to how long the frenetic pace can last but the fundamentals have never been stronger and the innovation and ambition continues.
Unicorns from here, unicorns from there, unicorns from everywhere
The geographic diversification of $1B+ companies and the development of local hubs continues to accelerate with an additional 16 cities added overall in 2021. In total, 98 different cities from across Europe have built a unicorn. From Aarhus to Karlsruhe and Riga, it is exciting to see founders all over Europe building $1B+ companies and planting the seeds for startup communities to flourish. It's also interesting to see how companies that did not raise venture capital have played a role in the diversification of cities that have given birth to unicorns. VC-backed $1B+ companies have been built from 53 different locations, whereas non-VC-backed $1B+ companies add another incremental 35 locations to the mix.
The geographic diversity of unicorns continues to increase
Taking the entire herd of European unicorns in aggregate, 64% have been founded and built from primary hubs across the region. The remainder emerge from other cities across the 28 different countries that have given rise to unicorns. Looking at the top 10 countries by count of unicorns, France is the most concentrated with 94% of its unicorns founded in Paris. Spain and Switzerland have the lowest share from primary hubs. For example Spain has built 12 unicorns from four different cities. We define a primary hub as the top city within each country according to the total capital invested over the last five years and as such these are not necessarily the capital city. It is worth noting that primary hubs can change over time. For example, Prague was the primary hub in the Czech Republic in 2020, but has been replaced by Olomouc (home city of Rohlik) this year.
When you have that level of business creation, investment, and expanding talent base in one place, it tends to create a virtuous cycle.
There is already a vibrant community of technology companies in Bristol, and it is growing every year. Over time that community will create more entrepreneurs who want to develop their ideas and build their businesses in the city. We would like to see Bristol emerge as one of the top tech hubs in Europe.
European founders have become more aggressive in defending their ownership
The average level of founder equity by funding round is closely aligned between the United States and Europe at the early stages of funding. It is interesting to note that compared to the previous year, European founders have been slightly more aggressive in defending their ownership at Series A and Series B. This is an important consideration with regards to recycling, as it ensures founders get to keep a larger share of the proceeds, which in turn has positive implications on their ability to reinvest in the ecosystem in the future, if they realise liquidity. There are countless examples of repeat founders who have been able to work on bolder ideas after benefiting from liquidity from their first venture.
European tech mafias
Together with Dealroom we have created an extensive analysis of $1B+ alumni who went on to become alumni founders. We mapped nearly 6,000 founders who had previously worked at $1B+ companies headquartered in Europe and managed to map mafias for over 80% of the more than 300 $1B+ companies. The mature $1B+ companies are parents to many new founders. The findings validate some of our 'MVP' analysis last year that showed Rocket Internet leading the way based on the number of alumni that have emerged to become founders in their own right. And it is notable how talent recycling is leading to multi-generational mafias too with Zalando, the Rocket Internet offspring, coming in third place in the ranking.
Talent recycling is more distributed than one might imagine
The top five $1B+ company mafias alone represent close to 20% of the overall alumni founders that were mapped. Their impact alone is huge. But a company's influence on an ecosystem is not measured in counts of alumni founders alone. Spotify for example may 'only' have contributed 95 alumni founders in Europe, but its impact on the startup ecosystem has been profound. Additionally, there are many companies that never reach unicorn status that have also had an outsized impact in their local ecosystem. In some ways, it's not just about quantity, but also the quality of the talent that these companies grow and nurture that matters. The entrepreneurial mindset, execution capabilities and networks these alumni are able to develop are key.
Talent recycling gets the flywheel spinning faster
Looking at our dataset of European founders, we were able to validate another early finding from last year which is that liquidity events are especially transformative for the countries they are headquartered in. We compared where founders had gained their experience working in a $1B+ company against where they went on to found their own company. Across Europe, 61% of founders stayed in the same country to establish their own company as where they gained their unicorn experience. Sweden stands out as a particularly noteworthy example of this trend, while the alumni from Belgian and Danish unicorns are relatively more likely to have established their new companies elsewhere.
We've easily saved many years of scaling pains. Our team network enables quick access to support across all areas of the business. The effects of this foundational team are profound and will be felt for a long time to come.
I'm very fortunate and grateful for the people I get to work with everyday. These include veterans and early employees from Wise, Amazon, Stripe, InVision, Mozilla, Atlassian, Vimeo and others. A meaningful consequence of this is avoiding a lot of pitfalls that come with building a high-scale company.
One of the challenges of European cities where the tech sector is new is the lack of similar know-how and experience in company, funding, team, product, culture-building and the nuances in approaches at various stages of the business. Mistakes in these areas can sometimes be costly, have multi-year effects and in some cases even be fatal for the business. I highly recommend founders who do not have prior expertise to build mentor and advisory relationships with people who do.
Founders in Italy have gained their experience abroad
We also look at 'migrant' founders or founders who decided to start their company in a different country to the one where they worked at the time of gaining experience at a unicorn. Italy has the highest share of these 'migrant' founders with 64% of founders mapped having worked for a $1B+ company outside of Italy. On the flipside, Germany and Sweden have the lowest share of 'migrant' founders, implying they are relying more heavily on homegrown founders. Some countries take extra steps to incentivise these flows. For example, the Italian Tax Authority offers incentives for workers moving to Italy.
UK appears underweight on unicorn alumni founders
We compared the count of founders that emerged from $1B+ companies and the location of the unicorn company. The highest share of alumni founders were based in the UK (24%). However, this appears underweight relative to the share of $1B+ UK companies (33%) considered in the dataset.
I’ve observed many operators and founders becoming full-time investors (VC or angel) with deep experience in starting a company, building world-class products, and scaling their business.
Being an operator and an early employee (2011) in one of Europe’s fastest-growing consumer tech companies, I’ve seen a dramatic shift and maturity in the tech ecosystem in the past decade. Apart from the substantial capital inflow into Europe, access to human capital is growing significantly. I’ve observed many operators and founders becoming full-time investors (VC or angel) with deep experience in starting a company, building world-class products, and scaling their business.
This is a critical inflection point, particularly for startups that will now benefit from more "smart money" and operational experience from investors, which is essential to further developing the ecosystem. I’m also very excited about stronger interconnected networks of angel syndicates, and VCs sharing deal flows across geographies. This means that you can now access capital in a much broader and more efficient way.
The 2000s was a vintage decade for spinning out European tech founders
We looked at the distribution of founders who worked in $1B+ companies by the founding decade cohort of these companies. The founders in our dataset are more likely to have emerged from a $1B+ company founded since 2000. In fact, nearly half of the founders have gained their unicorn experience from companies founded in the 2000s and 25% from companies started after 2010, For example, the top 5 most prolific parent companies of founders include Rocket Internet, Booking.com and Infineon Technologies, all founded in the 2000s. There are many interesting conclusions that could be drawn from this. Firstly, we are seeing an increasingly liquid market where, over time, more of the talent pool grown in the most successful European tech companies are feeling empowered and motivated to embark on the entrepreneurial journey themselves. Secondly, given more elapsed time, we should expect a significant increase in the number of alumni founders that will ultimately emerge from today's unicorn companies.
The European flywheel is spinning into action. Our unicorns are now producing a healthy flow of incredible founder talent that have learnt from the best and investors are willing to invest earlier than ever before.
That said, we still struggle with the status quo in Europe, where traditional career paths take many of our most talented individuals. As an ecosystem we need to make a concerted effort to attract talent at the beginning of their careers to startups so that they can become the founders of the future.