Reading: NGP Capital’s new AI tool analyzed over 30,000 European startups – here’s what we found out12 min
NGP Capital’s new AI tool analyzed over 30,000 European startups – here’s what we found out
“What does Q say?” had suddenly become part of our vocabulary in our deal review discussion.
Now, you may wonder who or what “Q” is. Well, at NGP Capital, our team has developed a proprietary AI solution to deal sourcing, which enables us to take a data-driven approach on managing our investment fund and sourcing the next great companies to add to our investment portfolio. Our AI-powered “Q” platform drives insight-driven investing in three focus areas: smart mobility, intelligent enterprise, and mobile technologies. Q scans and ranks more than 700,000 companies around the world in our chosen investment areas in real-time. It takes into account around 300 growth parameters for each company, with more being added all the time.
Q happens to be our first foray into automation, machine learning and AI, as applied to the work of venture capital. Before Q came along, our business was, in many ways, incredibly old-school and traditional, a typical VC business. It was based on relationships, meeting thousands of entrepreneurs and over the years, developing pattern recognition, networks, and insights. Insights that eventually have enabled us to make good financial returns for our investors. Much of that process remains. Today, Q sets our daily agenda. Q helps us to identify fast-growing companies within our focus areas regardless of location relevant to our investment strategy.
Your digital footprint in the age of data-driven VC investing
As VC’s turn to AI for parts of their deal management work, this does pose a few important questions on how this shapes the future for companies aspiring to raise money. It’s becoming increasingly important to make sure that your digital footprint is in shape to get on the radar of data-driven VC’s. As a starting point, I would advise you to always make sure your funding rounds are picked up by third party databases VC’s use, like Pitchbook, CrunchBase, Dealroom.co and others. It might sound simple, but make sure your website is up-to-date and includes links to your social media profiles.
Indeed, Q provides us with so much information, we wanted to share the latest findings. We pulled data from Q based on hundreds of online sources, in order to compare the investment and growth patterns in Finland and the Nordic region with the rest of Europe over the last 10 years. Together with Slush, we spotted some interesting patterns and trends recounted below from this group of some 30,000 companies.
On average, Finnish startups tend to raise more seed funding, but less Series A and B funding than companies in the rest of Europe or even other Nordic companies.
Over the last 10 years, the average Finnish startup raised $1.07M in seed funding, compared to an average of $.97M for companies in the rest of Europe. However, Finnish companies raised about $2M less in both Series A and Series B funds than the average European startup.
Interestingly, over the same period, while companies in the rest of the Nordic countries raised about the same amount of seed and Series A money, they tended to raise over $3M more on average in their Series B rounds.
Comparing funding trends in Finland, the Nordics, and the rest of Europe based on Slush analysis
Looking at the business characteristics of Finnish vs EU and other Nordic companies, the data showed another interesting difference; 1) Across all geographies, by a nearly 3:1 margin, B2B startups received a larger share of total funding 2) In Finland, B2B startups are getting a higher share of that VC funding (62%) than startups in either Europe (56%) or the rest of the Nordic countries (50%).
A look at data on exits showed that Finnish and Nordic startups tend to have different exit strategies from startups in the rest of Europe.
Finnish companies had a lower percentage of IPOs than companies in the rest of Europe (5% vs 11%) and a higher percentage of M&A events (89% vs 84%). Again showing a difference between Finland and the rest of the Nordics, companies in other Nordic countries were considerably more likely to exit via IPO (27%) than companies in either Finland or the rest of Europe, and were considerably less likely to exit via an M&A (68%).
Comparing exit strategies in Finland, the Nordics, and the rest of Europe
Another aspect of VC-funded businesses we examined was the share of “purpose-driven” companies. These are companies that are focused on making a positive impact through business activities that align with the “core sustainable impact” or “sustainable development goals” set by the United Nations.
First, we found that a substantially larger share of purpose-driven companies have been funded in Finland and the Nordics than in the rest of Europe over the last 10 years. 16% of Finnish and 17% of Nordic startups have been purpose-driven companies, while only 6% of European startups have been purpose-driven.
Looking at the year-to-year data it is clear that the share of purpose-driven companies has risen steadily throughout Europe. That trend is especially true in the Nordics, where purpose-driven startups have grown from a share of less than 14% in 2010 to represent almost 30% of the companies founded in 2019.
Share of “purpose-driven” startups by founding year – Purpose-driven companies identified by dealroom.co,
It seems that purpose-driven companies are “doing well by doing good” in terms of VC funding. Across all geographies, we found that purpose-driven companies are able to raise more funding on average compared to non-purpose-driven. It’s clear also from the graph below that purpose-driven companies are able to attract large rounds of funding. Now you might wonder what a purpose-driven company actually or how that is defined. That warrants a whole blog post of its own, so in the meantime, here is how dealroom.co has defined it.
Average funding raised by “purpose-driven” companies – Purpose-driven companies identified by dealroom.co, the rest of the data analyzed comes from Q.
Growth and survival
Growth patterns are also different in Finnish and Nordic startups than in companies in the rest of Europe.
Based on both average and median time between investment rounds, it takes Finnish companies longer than startups in the rest of Europe, or in the other Nordic countries for that matter, to raise their Series A after a seed round. There is less difference among geographies between Series A and Series B, but Finnish companies also take longer to raise C rounds.
We found that of startups that raised a seed round before 2017, the Nordic and Finnish startups were more likely to raise a Series A round, but less likely to raise a B round than companies in the rest of Europe.
Looking at this data by year shows the same trend. Even though companies across all geographies have steadily decreased the time between funding rounds over the last 10 years, the time between the seed and Series A rounds tends to be much shorter in the rest of Europe than in the Nordic countries.
Comparison of time between funding rounds in Finland, Nordics, and the rest of Europe
Looking at staffing growth, Nordic startups typically scale more slowly than startups outside of the Nordics. The median number of days to 10 employees in the Nordics is 1003 vs 730 for the rest of Europe. The gap in staff growth is somewhat narrower as companies scale to 20, 50, and 100 employees, but the trend remains the same.
Staffing growth in Nordic startups vs the rest of Europe (days to headcount)
Interestingly, it seems that slow and steady may actually win the race. The Finnish ecosystem is very active at the seed-stage, especially on the B2B side and the ones who make it all the way to an exit tend to exit more through M&A than IPO’s (unsurprisingly). This last year has been dominated by what can be called mega-rounds for the Finnish scene, including Wolt, HMD Global, IQM, Aiven, Iceye and Supermetrics. Witnessing the great progress over the last 10 years, we are convinced there will be an increasing rate of new $B companies emerging from the Finnish ecosystem. As an international growth-stage investor, we will keep following the maturing Helsinki ecosystem with great interest.
Analysis based on Q, NGP Capital’s AI platform for company and market discovery. Q data originates from a wide range of sources. The data is cleaned, combined, categorized, evaluated and processed in Q. No data points or aggregates shown are based on a single external data source unless specifically mentioned.
Data analyzed in collaboration with Slush.