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Venture capital investments in Europe are set to reach record levels this year despite the COVID-19 pandemic.
This is the conclusion of an annual survey on the state of the European technology market of Atomico, the venture capital company created by a billionaire Niklas Zennstrom, co-founder of Skype.
Total venture capital investment in European technology start-ups is on track to hit $ 41 billion by the end of the year, which would be a slight increase from the $ 38.6 billion invested last year, according to the report. But given that the total investment cycle has increased despite COVID-19, “we think this is a real demonstration of the strengths of the underlying foundations of the ecosystem,” says Tom Wehmeier, an Atomico partner who contributed to the writing of the report.
Yet that amount is far behind the $ 141 billion that venture capital funds have poured into U.S. tech startups so far this year, or the $ 74 billion that has gone to Asian tech companies.
The report notes that Europe continues to beat below its weight when it comes to its global share of venture capital investments, accounting for only 13% of all VC investments globally, even though the region represents a quarter of the world’s gross domestic product. The United States accounts for half of all global venture capital investment, well above its 26% contribution to global GDP.
But in at least one point of view, Europe is ahead: in the very early stages and with modest funding, Europe is doing very well. It accounts for 40% of all funding rounds globally under $ 5 million, according to Atomico’s analysis.
Pandemic? no problem
The coronavirus pandemic has not dented the ability of European venture capital firms to continue to raise funds. They raised new funds at a slight pace ahead of 2019, which was itself a record year with more than $ 16.5 billion invested in venture capital firms based in Europe. In the first half of 2020, $ 7.8 billion was invested in these funds, up from $ 7.5 billion in the first six months of 2019, according to the Atomico report.
And European technology remains attractive to investors from outside the region, especially those based in the U.S. The number of U.S. institutional investors participating in at least one European-based venture capital fund increased by 36% to reach more than 550 since 2016, Atomico reported. Meanwhile, nearly a quarter of European startups launching venture capital tours have at least one investor from the United States or Asia.
With increased competition, the valuations of European tech startups continued to rise. According to Atomico, the top quarter of European startups now achieve startup valuations above $ 22 million, a 38% increase from 2019. “There is still a pretty remarkable difference between valuations here compared to states. United, and this has helped American investors. “Interest in Europe,” Wehmeier says.
The fact that Europe has managed to produce more successful exits – companies that sell to a buyer or list stocks on public markets – also helps fuel this momentum, as it allows venture capitalists to justify higher valuations in previous investments. turns, he said.
The greatest players
Europe now has two tech companies that have gone public in the last two years, Spotify and the payments company Adyen, worth about $ 50 billion. It also has two private technology companies, financial technology company Klarna and robotic process automation company UiPath, which are worth more than $ 10 billion.
He also owns a company, Hopin, the virtual conferencing software startup whose fortunes soared during the pandemic. It became the first European start-up to achieve “unicorn status” – a start-up worth more than a billion dollars – less than a year after its founding. The company raised a $ 125 million second round of venture capital, or Series B, in November, which valued the startup at $ 2.1 billion.
The odds of creating a unicorn in Europe are roughly the same as in the United States, according to Atomico’s analysis: around one in 100 startups achieve this high status. The big difference between the US and Europe is actually what’s going on in terms of acquisitions.
While the rap about European founders has often been that they sell out too early, preventing the region from building tech giants to compete with those found in the United States, Wehmeier says Atomico’s analysis points to the opposite problem: European founders are more often blocked in nursing. companies that will never experience huge freelance success. American startups are 50% more likely to be acquired at almost every stage of their life, he says. “It allows for a culture of quick failure,” he says, and it means founders, employees – and capital – are freed up faster to potentially reinvest in another startup.
It also doesn’t hurt the fact that the United States continues to have much stronger government markets for technology investment. Although Europe has actually hosted more tech IPOs than the United States each year since 2016, the valuations made in these public offerings have lagged far behind those of the United States. stock exchanges in the United States over the past year were worth more than 3.6 times what the top five European technology IPOs were worth, and that number quadruples when the we’re looking at the top 10 tech IPOs, says Wehmeier.
Snowflake, the eight-year-old cloud-based data warehousing company that went public in September, achieved a valuation of $ 70.3 billion on the first day of trading, an amount higher than the combined value of the 10 most successful European IPOs of 2020. (The most valuable technology IPO 2020 in Europe was that of data management firm Allegro, which achieved a valuation of $ 18.9 billion at the close of its first day of trading.)
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