Reading: State of European Tech 2020 is out – here are our key takeaways7 min
State of European Tech 2020 is out – here are our key takeaways
For the sixth year running, we teamed up with Atomico to publish the most extensive data-driven look at European tech. In a year in which nothing was normal, we found that, incredibly, the continued growth of European more or less was.
“2020 shaped up to be the ultimate test of our endurance as individuals and the resilience of the ecosystem in which we work. As we approach the end of the year, it’s becoming clear that Europe has held up staggeringly well.”
Despite the pandemic, 2020 hasn’t been a year to forget for the European tech ecosystem. On the aggregate, Europe has weathered the storm and is on track to another record-breaking year of 18 new unicorns and $41B invested.
However, veiled behind the positive headlines is also a year of incredible hardship for many. Clearly, certain industries – from travel to event tech – were turned upside down. Within these, many companies will have seen their whole revenue base vanish overnight (we at Slush are acutely aware of this). However, our survey data shows that this year has taken a toll on all of us, and that an incredible amount of founder struggle has gone into raising the headline figures. What’s more, 2020 marks yet another year in which Europe made no material strides in addressing its unacceptable state of diversity and inclusion.
Read on for six key themes in this year’s State of European Tech report produced by Atomico, in collaboration with Slush, Orrick, and Silicon Valley Bank. It’s also worth digesting the full report for what is, quite a story about quite the year.
COVID-19 has taken a toll on founders and employees alike
Clearly, this year has presented us all with a new set of challenges across our personal and professional lives. When asked to share the three that they’ve found most burdensome, founders pointed to their own mental health and maintaining that of their teams.
There’s two ways to look at this. One one hand, it’s hopeful that founders are making the wellbeing of their teams a priority. After all, our ecosystem’s track record in taking care of the individuals working for it is questionable. On the other, that same history makes this a cause for deep concern.
Access to capital by far the biggest challenge
On a company level, founders overwhelmingly pointed to securing access to capital as the primary challenge. We haven’t surveyed founders on this exact point before, but it seems like a pretty normal state of things in young ventures.
More strikingly, but along the lines of what we found in Slush’s COVID-19 report back in April, a lot of founders have struggled with customer acquisition and the need to pivot their product or business model. On a more positive note, and as a testament to the optimism with which founders have tackled the pandemic, far few have struggled with layoffs or the need to cut expenses.
Incredibly, total investment is on track to match 2019 figures
After the onset of the pandemic, there were early concerns that founders would struggle to raise capital. However, driven by record numbers of dry powder available and resilient entrepreneurs to back, the story could not have turned out more different. Adjusted for reporting lag, total investment in 2020 is on track to equal last year’s record-breaking figure. If Q4 turns out strong, European tech could even continue its decade-long string of year-on-year growth in total capital invested.
Either way, this is an incredible achievement, and is evidence of the fact that Europe’s recent rise is built on strong, durable foundations.
However, it would be naive and wrong to claim that 2020 isn’t also a story of hardship for many. Comparing year-on-year investment across industries reveals highly varied experiences. What’s more, it’s not only the intuitive suspects like travel and event tech that have been hit hard – both gaming & education have seen huge drops in the amount of capital raised.
What’s more, our survey data suggests that while founders ultimately managed to raise record numbers of capital, they found it substantially harder to get there than before. 55% of founders that we surveyed reported that it is now harder to raise venture capital in Europe than 12 months ago – a stark contrast to last year’s survey.
Clearly then, while celebrating what is an unquestionable victory for European tech in the aggregate, we have to be mindful of the fact that the story is the opposite for many of our peers.
European tech (and as a result, venture) is more appealing than ever
For a while now, North American and Asian funds have been drawn to Europe in increasing numbers. Despite travel restrictions, the trend continued in 2020 – indicating that the appeal of European tech continues to increase in relative terms, and that investors have been quick to adopt remote investment practices. Nearly a fourth of European funding rounds now include a US or Asian investor.
Equally, European venture now outperforms all asset classes it can meaningfully be compared to on a one, three, five, and 10-year horizon: US venture capital, European private equity, and the European public market. This really proves beyond any material doubt that, enabled by the current wave of great European companies, the logic of venture capital works, and works well.
Clearly then, European tech and venture capital continue to rise in appeal compared to their pertinent benchmarks.
Europe continues its abysmal record on diversity & inclusion
In an exhausting repetition of what we’ve found for the past three years, Europe continues its abysmal track record on diversity & inclusion. This year, yet again, north of 90% of capital raised in Europe went to all-male founding teams.
Equally, it remains true that those who differ from the narrow archetype of a European tech employee face a much steeper climb in our ecosystem. Across gender and ethnicity, anyone who is not white and male is significantly less likely to report that the European ecosystem provides equal opportunity for all of its members.
Amid a year of racial protests in the US and across the world, it’s particularly disappointing to see that Black people, and those of African, Caribbean, or Middle Eastern descent seem to have it the hardest.
Clearly then, the data we have on diversity and inclusion paints a bleak picture. Going forward, we have to continue to build a more nuanced understanding of the topic, and most importantly, move from talk to action in addressing the issues. Anything less would be unacceptable.
The future is purpose-driven – and European LPs increasingly agree
For the second-year running, we’ve worked together with Dealroom to recognize companies that work towards a certain United Nations (UN) Sustainable Development Goal (SDG) as a core aspect of their product. We classify those companies as purpose-driven.
In terms of purpose, 2019 marked a year of reckoning for European venture, with funding growing north of two-fold. In 2020, Europe is on track to equal last year’s record. SDGs 13 and 7, Climate action and Affordable and clean energy, respectively, continued to draw the most investor interest. Even though our current strides are far from enough to offset climate change, this is an encouraging sign.
In our whitepaper on the next decade in European tech, back in June, we wrote extensively about how a lacking mandate from LPs is the primary thing holding VCs back from funding companies that are making the world a better place. Against this backdrop, this year’s report offers much-needed signs of encouragement. 45% of LPs require their GPs to report on social and environmental impact, while 41% are considering implementing such practices. In other words, there is immediate potential for 90% of European GPs to be held accountable on the net impact of their portfolios on people and the planet.
So, there you have it, 2020 – a story of a resilient ecosystem that’s done incredibly well in the face of a crisis, underpinned by many important nuances. For the full scoop, have a look at State of European Tech 2020.
State of European Tech is produced by Atomico in close collaboration with Slush, Orrick, and Silicon Valley Bank. The report builds on an annual survey, as well as the work of a dozen data partners. Much of the data in this article is produced by Dealroom.co.