A word from Baillie Gifford

This past year has been yet another period of unpredicted and extraordinary disruption. This, however, is the nature of exponential growth and complex adaptive systems. Whether it’s the spread of a virus, network effects, or accelerating learning curves, the speed and magnitude of change tends to be grossly underestimated. With the ubiquity and convergence of technologies today, we should, however, expect more to come. Hopefully, this will be much more beneficial for society.

This year’s State of European Tech report provides tremendous optimism that Europe will play an increasingly material and important role in shaping this positive disruption. For too long, Europe’s great companies and entrepreneurs have struggled without adequate funding and strategic support. It is now time for Europe’s tech ecosystem to show it can build world leading companies and lead the way to a more sustainable future.

Our philosophy at Baillie Gifford is to seek out, and invest in, the world’s most exceptional growth companies over long periods of time. It matters less whether a company is private or publicly listed so it’s been a real privilege to continue supporting companies like Spotify, HelloFresh and Wise, as they have made that transition. Given the benefits, it’s encouraging to see more providers of capital widen their timeframes and think about the relevance of IPO dates.

The unquoted space is wonderful though. There’s a level of ambition and understanding of how to grow at scale which is less visible in public markets. Add record levels of funding across the board and the environment for younger European tech companies to thrive becomes much more fertile. The hundred or so newly minted tech unicorns this year bear witness to this. Not long ago, it would have also been unbelievable to think that companies like Northvolt would be able to raise $2.75bn as they did in June. Its mission to build the world’s greenest batteries will help drive Europe’s energy transition, but it also shows clearly that we have the resources and broad support to help Europe’s companies make an outsized contribution to society’s most pressing need.

When it comes to public markets, Europe has been described by some as having a 19th century index. While it might be true that its composition has been slower to transform than some other markets, we are now witnessing a profound change in attitude and a much richer tech-focused opportunity set. The health of the IPO market helps, as do role models like Adyen, Zalando, and Delivery Hero. We do of course also have ASML, Europe’s most valuable tech company, and arguably one of the most important companies in the world. Since its founding in 1984 and IPO in 1995, it has been an epic story of European collaboration, innovation, and engineering excellence. Success begets success and these examples help provide inspiration to the next generation of tech entrepreneurs.

Let’s be clear though, many challenges remain. European tech still suffers from a lack of diversity, talent leakage, and unsupportive government policy. Public company boards and investors also need to contribute more thoughtfully. Far too often we hear about the pressure to demonstrate profitability too early, which fundamentally undermines companies that should, and would rather, invest in growth.
That said, we have everything we need to overcome these challenges. In doing so, we will likely witness the greatest transformation of European market leadership in decades. The future for Europe’s tech companies has never looked this good.

Stephen Paice
Head of European Equities, Baillie Gifford