Presenting the State of European Tech 2018
Tom Wehmeier's presentation at Slush - for those who missed it or who 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 December 4, 2018. 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.
Good morning everybody. It’s great to be back at what is still – without doubt – THE coolest tech conference on the planet. Last year, I spoke for the first time about a report I produce in partnership with Slush and Orrick called the State of European Tech – it’s a comprehensive and data-driven analysis of what’s happening in our tech ecosystem today
I’m delighted to be back this year to share our analysis once again – to try to move the discussion beyond the headlines, beyond the scepticism and beyond the hype. I’m also delighted, because this gives me a chance to transcend Brexit and actually feel cheerful about Europe.
After I’ve talked through the highlights, I will be joined on stage by Roxanne Varza, the CEO of France’s Station F, Sebastian Siemiatkowski, the CEO of Klarna, and John Thornhill, innovation editor at the Financial Times, who is going to give us all a good grilling.
A broken record about breaking records
- So, here we go. What is this year’s report telling us? Well there is some good news and some bad news.
- The bad news is that I am going to sound like a broken record. The good news is that I am becoming a broken record talking about breaking records.
- 2018 was another record year for investment, a record year for exits, and a record year for the creation of billion-dollar companies in Europe.
- The fact is a $2b exit today wouldn’t even make the cut for Europe’s top five of the year. And of the 10 most valuable global public listings in tech this year, 3 of them are European.
- Looking beyond the public markets, there are plenty of companies building and staying private longer too – Sebastian’s Klarna is a great example of that.
- And at the earliest stages – both the number of rounds and the amount invested continue to march up and to the right. We’ve heard a lot of people say that tech is seeing bigger but fewer rounds…maybe elsewhere, but not here in Europe. Europe is now both harvesting the fruits of its earlier labour and at the same time sowing more promising seeds for the future than ever before.
- Look at Spotify. Spotify’s public listing earlier this year is unequivocal proof that European founders can think big and long-term, hire the best talent, raise the right capital, stave off ferocious competition, go the full distance and win on a global stage. It’s hard to think of a company anywhere that has had to fight fiercer competition from the world’s largest tech companies – and yet still come out on top. It is a defining moment for European tech. So don’t ever let anybody tell you that we can’t compete on the global stage.
- We won’t kid you that it’s easy, or that everyone will make it. But don’t believe for a minute that it’s not possible.
Tech is an engine of economic growth
- In fact, not only is it possible, but all of you, who are aiming to replicate Spotify’s success, are a critical part of Europe’s economic future. Full stop.
- Overall economic growth in Europe is flatlining. In the third quarter of 2018, Europe’s growth rate slumped to just 0.2%, the lowest rate in four years.
- Even before that sharp decline, Europe’s software industry was growing at least 5 times the rate of the rest of the economy. This gap is widening as European tech accelerates & other traditional sectors stagnate or decline.
- As a result, Europe’s tech workforce is now growing at 4%. To put that in context, the European Commission forecasts that employment in the EU as a whole will only grow 1.1% in 2018. Tech is bucking the trend of slow economic growth across Europe and represents an important bright spot for the continent
Nimble family offices are alive to tech opportunity
- As this has happened, it’s transformed the performance of European venture capital, which is now highly competitive with US VC and European Private Equity.
- So we thought it would be interesting to take a look at the sources of tech investment to understand who ultimately benefits from this growth. In other words, who funds the funders in tech? Two things stood out to us:
- First, a decade of growth has seen previously conservative European family offices turn their attention to tech investment
Over the last five years, Family Offices & private individuals have invested over $5B in European venture capital.
- So to be clear… It is not pension funds…It is not sovereign wealth funds…It’s governments, families and then corporates that have been the three key backstops to European tech funding. For now. Just imagine the upside when we finally unlock mainstream institutional capital at scale.
Pension funds are failing to democratise Europe’s tech sector boom
- Not for the first time in this series of reports, I am going to call out pension funds specifically
- Since 2013, pension funds have invested just $1.7bn in European VC in aggregate, or just $350M per year. That’s less than 0.01% of total assets under management of European pension funds of around $4 trillion.
- At the same time they have invested 45 times more in European buyout funds. That adds up to more than $75B over that five year period.
- If pension funds were to rebalance their allocations away from legacy industries towards gamechanging technology instead, they could help to bring the future forward in Europe. And workers would ultimately be the major beneficiaries if they did. There is some glimmer of hope though and it is coming from this very region. Over the last five years in Europe, of the total invested in VC, just 2.2% came from pension funds. However, here in the Nordics this number is at a much more credible 16%. As ever, you’re leading by example here in the North!
The effective mobilisation of European tech talent
- If last year was about a Battle Royale for talent, this year is about its effective mobilisation in a new generation of hubs.
Europe’s tech communities are growing fastest in places outside the historic strongholds of London, Berlin or Paris.
This is going to fundamentally change the future of talent flows in the region.
- Until now, tech workers have been 10x more likely to move country than the average citizen in Europe. This is extraordinary. But a new phase in talent mobility is on the horizon.
- If the first phase was defined by the flow of European talent moving to the US to build companies, and the second was defined by talent staying to build from Europe but choosing one of the regions major hubs. Going forward, we’re set to enter a new – and third – phase where talent simply chooses to stay where they are, emboldened by the quality of the local ecosystems arising all around them across Europe. The more this macro shift evolves, the more that 10x difference will contract.
- So you might say then, that this is not the time to put up barriers to put off talent from coming to you, as the UK is already finding out. This year, Germany has caught up the UK as the #1 destination for intra-European tech talent migrants, closing what was a significant gap.
- All of this said, a key challenge for European tech remains a shallow pool of executive level talent with experience scaling tech companies to thousands of employees, millions of users and billions of revenue.
- That means we are reliant on two things: First, attracting global talent to Europe, including luring Europeans back home from overseas. And second, recycling talent from companies that achieve big milestones and mobilising them again to help build a whole new generation of companies.
- Europe now offers compelling opportunities to join all sorts of amazing companies, but those same companies also need to be able to align compensation with global benchmarks to attract even more great talent. That will require intervention from governments to clean up the mess around stock options in Europe. Our friends from Index Ventures are helping to lead that important charge. If you care about this issue and want to sign the open letter they’ve drafted, go visit notoptional.eu
Diversity – ‘Wake the F*** up’
- It has been said that people only remember the last thing you say in any presentation. So with this in mind, we wanted to close on the most important section of our report. We all need to wake up to European tech’s diversity and inclusion problem.
- From the outset of this year’s report, we resolved to put this issue front and centre. We challenged our data partners to help us measure what is happening and we asked 5,000 of you to share your experiences. Because if we don’t understand the problem, how can we hope to fix it? So we have quantified this as best we can. It’s not nearly enough – and it makes for painful reading – but if this doesn’t wake us up, I don’t know what will.
- Europe’s diversity and inclusion challenges are bleak. While European tech’s fundamentals have never been stronger, monoculture and discrimination are rife in the ecosystem.
- The data highlights the startling fact that just 7% of VC funds go to female or mixed gender teams in Europe. And the level of funding to other underrepresented groups is even lower.
- What’s more, 46% of women who responded to our survey told us they have experienced discrimination while working in the European tech industry.
- Given these facts, it’s even more surprising that 75% of respondents claimed that the culture at their startup is inclusive. When it comes to discrimination, it always seems to be somebody else’s problem
- These results are shocking and the scale of this challenge is enormous. Diversity and inclusion needs to be Europe’s first and foremost priority. Just imagine how much talent and value has evaporated away from our tech industry because of diversity inertia.
- Only once people of all demographics, of all experiences, and all perspectives feel safe and confident to participate will we truly realise our full potential. If Europe takes the lead here, we will have a huge competitive advantage to other parts of the world that are less inclusive. This is a rallying cry. We all need to do better. And if we do, everyone will benefit. It’s a win win.
- The good news is that initiatives aimed at inspiring and empowering women and other underrepresented communities are tackling this head on- and already having a positive impact. Just look around you here at Slush. Change is coming.
Diversity VC is one such initiative and I’m pleased to announce that Atomico has joined forces with them to launch an industry-first resource: a practical and hands-on guide for technology entrepreneurs and leaders, that will help them to build companies that have diversity and inclusion at their core – by giving them the tools to take those first few daunting steps and knowing how and where to begin…
- Francesca Warner, the co-founder and CEO of Diversity VC will talk more about it tomorrow on this same stage with Atomico’s CEO, Niklas Zennström. Don’t miss that session. And in the meantime, go check out inclusionintech.com and start today!
- Europe has shown has how much it has benefited from achieving a certain type of diversity. We’re strengthened by our differences. European tech is richer for our blend of diverse cultures, languages, and heritage. We’re not like Silicon Valley – which coalesced – quite brilliantly- around a couple of universities and spin-offs within just a few square miles where everyone speaks the same language. And we’re not like China – there is no single government here that can force change and help pick the winners in a closed market with a single culture and population. But to reach our full potential, we need to harness the amazing differences in all of our people. Only then will European tech reach the heights we know it to be absolutely capable of.