Presenting the 2019 State of European Tech report
Tom Wehmeier's Slush presentation Slush - if you missed it or want to relive the moment!
This is a transcript of Partner Tom Wehmeier’s presentation of the highlights of the annual State of European Tech report at Slush in Helsinki on November 21, 2019. If you want to know more, explore the full report – published in partnership with Slush and Orrick. Where possible, we’ve linked to data in the report referenced in the presentation.
Hello Helsinki! Back in 2015, Slush and Atomico decided to produce a comprehensive, data-driven report to measure the State of European Tech. We’re 5 reports in now and still going strong thanks to our data partners and the support of Orrick. We made a call to not distribute print copies here at Slush this year. We’re mindful of the environment, but we’re also mindful of the report’s growing weight!
The story of what’s happening here is so much richer, so much more nuanced than when we started – so we’ve had to scale the report, just like European tech itself has scaled! So today I’ll just be offering up a brief summary of a much larger body of work.
And I encourage you to visit the site, to play with the data, and draw your own conclusions from the insights we’ve put together for you. So let’s get started.
Belief starts from within
When we kicked off this project, belief in European tech was largely limited to the European tech industry itself. Already back then, Insiders could see that Europe had experienced a breakthrough year, and they believed that those achievements would become the platform for even greater success.
This matters because belief is as vital as talent and capital when it comes to building a healthy tech ecosystem. Belief is what helps people with great ideas today, become the founders of tomorrow. It’s what makes people give up the security of a well-paid corporate job for the unpredictability of startup life. It’s what drives the narrative that moves markets and shapes capital allocation and investment.
Reasons to believe
So fast forward to today and the data is clear- the rest of the outside world now shares our homegrown belief in European tech. The message has finally landed.
In 2015, 10 billion dollars of investment into the region’s tech companies felt like a huge milestone. This year we’re projecting 35 billion. In that first report, we pointed to a lack of late-stage funding. In 2019 alone, 40 different European tech companies raised rounds of 100 million dollars or more. Back then, there were just 22 venture-backed tech companies with billion-dollar valuations or higher. Today, there are 99.
There’s no doubt we’re producing some of the fastest-growing companies on the planet right now. And the returns from investing in Europe stand up for themselves too. Let’s talk a little bit about what that means.
Well, for starters, top tier US VCs have woken up to what is happening here too. The amount of time they’re spending on the ground is clearly on the rise. And so is their investment activity. 21% of all rounds in Europe this year involved participation from a US or Asian investor. That’s doubled since our first report.
You’ll all know the standing cliche that the arrival of new players is validation of a market opportunity. While that’s true, it also fundamentally changes the nature of competition. In this case its impact is felt in fundraising timelines, valuations and terms. We’re not only seeing that rounds move faster, but valuations are moving higher too.
Thank you Pension Funds
And this newfound belief is also starting to unlock mainstream institutional capital, which has been on the outside for too long.
Last year, I stood on this stage and called out European pension funds. I said that they could help to bring the future forward in Europe by rebalancing their allocations away from legacy industries and towards gamechanging technology instead.
This year, we’ve finally seen some progress. Pension funds have committed a billion dollars to European venture and helped to push fundraising to new records again this year. It’s great that their commitments are up nearly 3-fold, but what’s really exciting is how much room for growth is left. Let’s not forget that European pension funds sit on assets of over four trillion dollars.
Shaping our own destiny
This is all great, but now is not the time for complacency. We cannot afford to lose focus. Now that the world believes in European tech it’s up to us to decide on our future.
One thing we shouldn’t be tempted to do, is fixate on the US or China.We must continue to chart our own course, building upon Europe’s unique strengths and values.
I want to pick out three areas where we can differentiate ourselves to help shape our own destiny.
European Policymakers need to get out of defence mode
Policymakers can have a big role to play in the future of European tech.But our survey shows there’s still a disconnect between them and the industry.
While European tech founders and investors have never been more optimistic about the future, policymakers were the most sceptical of all the respondent groups. It’s as if the two worlds are talking past each other.
Tech here has exploded over the past 5 years, but despite this, policymakers have focused more on US Big Tech than on championing existing European tech success stories. When we asked founders what support they want from policymakers, they told us it would be to remove the day-to-day barriers to scaling that hold them back from going even bigger and faster. Like hiring and incentivising the best talent or enabling easier and simpler operations across a still fragmented European market.
But, again, in Brussels there’s been more focus on the taxation of tech giants than on changes to stock option taxation. Are we in danger of taking our eyes off the real prize?
We have to keep building organically from the bottom up. We have to support the European tech innovation that is already flourishing so successfully. But this needs to be a two-way conversation. It’s not OK to ask Brussels to open the door, if we choose not to walk through. The industry has to engage too.
2020 marks a new decade and a new term for the European CommissionWe have a window of opportunity for closer engagement. For more discussion. It’s a chance to inform & shape the future together and to plot a course that creates the optimal condition for further European tech success.
Helsinki, we still have a problem
Last year’s report highlighted that the entire European tech industry needed a wake up call when it came to diversity and inclusion. Sadly, there’s been no progress on the headline figures. This year, 92% of funding still went to founding teams that are all men. Last year’s numbers were shocking. This year’s numbers are no different.
There are, however, some early signs that things may start to change. This year’s survey shows that awareness is increasing. People are feeling better informed and more empowered to take positive action to hire more diverse talent or simply to make diversity a priority in their company. Some VCs are also starting to make changes to how they source new investment opportunities.
But we also found that the burden is falling on women and people from underrepresented backgrounds to lead the charge. Our survey showed for instance that women VCs are disproportionately more likely to:
- attend events with participation from more diverse founders
- focus on sectors where there is greater diversity
- run open office hours or organise dedicated events to reach new groups
This approach – which can be effective – has to be shared more equally if we are to accelerate change.
One way to help push things forward faster is to be genuine allies to the more than 100 initiatives that are striving for progress on diversity in European tech. Like Inklusiiv here in Finland, set up by former Slusher Katja Toropainen. She’s a huge inspiration. Since launching just earlier this year, Inklusiiv has already had a huge impact and has put the topic of diversity, equity and inclusion in the workplace on the national agenda.
So I’m having to repeat what I said last year, diversity and inclusion needs to be a European tech priority. Not just for some, but for all. We won’t realise our full potential if we continue to let talent and value evaporate away from our tech industry because of diversity inertia.
Last month, Margrethe Vestager observed that China has all the data, the US has all the money. But in Europe, we have purpose.
And there’s some truth in that. Many of today’s European founders aren’t just aiming for commercial success – they are trying to solve some of the world’s largest problems at the same time. It makes business sense too: consumers and tech talent alike are demanding companies think about more than just the bottom line.
Purpose is a core part of the mission of a growing number of European tech companies. We identified over 500 that are tackling at least one of the UN’s Sustainable Development Goals head on.
- Like Carbo Culture, who are aiming to remove a Gigaton of carbon dioxide each year by converting waste into biocarbons.
- Or Infarm, who are creating new, environmentally impactful ways of farming, using 95% less water and 75% fewer pesticides than industrial farming
- And Northvolt, who raised a billion dollars this year to produce the world’s greenest battery with a significantly lower carbon footprint than traditional methods.
Investors have supported purpose-driven European tech companies like these and others with over four billion dollars in 2019. In just five years, this figure has grown 6x. This is so exciting. The world’s biggest challenges are also some of the biggest market opportunities. Purpose and profit aren’t mutually exclusive – they’re mutually reinforcing.
The last five years have proven that not only can we do tech, we can do it in our own, European way. We’re strengthened by our differences, not limited by them. European tech is richer for our unique blend of cultures and values.
We’ve learned the lessons from what has helped make Silicon Valley the pre-eminent place globally to build a tech company, but we’ve not blindly copied it. And by doing it our way, we’ve transformed belief that Europe has a role to play on the global technology stage. The report shows that everybody wants a piece of the action here now.
It’s now in our hands to create our own vision for the future of technology. Let’s make that vision one that allows us to continue to create enormous value, but benefit from diversity and purpose at the same time.