THE EUROPEAN TECH INDUSTRY IN 2019
Last week, one of the largest gatherings of technology entrepreneurs globally took place in Helsinki.
Originally founded as a local student-driven movement to change attitudes toward entrepreneurship, Slush has grown into a global movement with various events, including the annual winter conference in Finland, which attracted over 25,000 people including 3,500 start-ups and 2,000 investors.
As part of the event, an annual report on the state of European tech industry is released and this year’s study demonstrates again the major changes which have occurred over the last few years across the continent and how Europe, slowly but surely, is becoming a location for new technology firms.
In terms of investment, there was nearly £27 billion of capital invested in technology companies in 2019 - an increase of 34 per cent over the previous year - with the largest hub being found in London.
The UK also accounted for a third of all the funding invested into tech firms this year (£8.7 billion) and with 29 firms, has the highest number of unicorns (venture capital backed businesses reaching a billion dollar valuation), higher than Germany (17 firms) and France (11 firms). Indeed, £29 billion has been invested into technology firms in the UK over the period 2015-19.
Sectorally, there are more billion dollar companies for fintech (20) than for any other industry with £7 billion invested in 2019 alone, with the UK accounting for 50 per cent of this. Other key industries that have raised considerable levels of investment include enterprise software, health, energy, food and security which, collectively, attracted £6.8 billion in funding this year. Indeed, the fastest growing industries in terms of percentage change year-on-year in 2019 were security (193 per cent), energy (186 per cent) and food (124 per cent).
More widely, European companies categorised as operating in the field of artificial intelligence raised £3.8 billion, demonstrating the growing importance of this technology to a range of different industries.
There are now at least 174 European tech companies that have scaled to unicorn status as compared to only thirteen at the beginning of the decade. Given the myth that venture capital is always critical for firm growth, it is worth noting that 43 per cent of these achieved this without accessing external equity investment.
Nevertheless, it would seem that venture capital investments are getting bigger with the increase in large-scale deals of more than $100 million is driving the growth of total capital invested in Europe, accounting for 36 per cent of all funding raised by European tech companies in 2019.
Founders also report that despite these record levels of investment into Europe, they believe it has become harder to raise venture capital in Europe over the past 12 months compared with those who believe it has become easier, which is the first time this has happened since this annual report was published. This is particularly the case for those entrepreneurs who have started smaller firms and for women, who have historically found it difficult to attract venture capital into their businesses.
However, there are have been 253 initial public offerings (IPOs) of European tech firms since 2015 which, surprisingly, is a higher number than for the USA over the same period although the deals done across the Atlantic are far bigger e.g. the combined value of the top ten tech American IPOs in the first nine months of this year equated to a total market cap of £119 billion against £17 billion for the ten largest European tech IPOs. This is compounded by the fact at £330 billion, the USA had four times the level of venture capital investment of Europe between 2015 and 2019.
Therefore, this report suggests that the previous hegemony of specific locations such as Silicon Valley for the creation and growth of technology businesses may no longer be the case. In fact, the growth of new centres of activity such as London that were previously not associated with tech suggests that Europe may finally be catching up with the USA although the value of deals remains an issue.
Of course, the UK’s proposed exit from the European Union next year may be a challenge for the continued growth of the tech industry across the continent, especially given the dominance of the UK in recent years.
Given this, it will be interesting to see whether investment and growth in the UK will continue or whether the longer term impact of Brexit could be a decline in the performance of both the UK and the European tech industry over the next few years.