2018: The Outlook for European Tech

WeWork co-working space in Spitalfields, London | © WeWork
Picture of Claire Lancaster
Tech & Entrepreneurship Editor
Updated: 5 January 2018
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A stroll around London’s Old Street roundabout proves just how far European tech has come in the last decade. The East London area once know for cheap rent and run-down office buildings has transformed into a thriving ecosystem of tech start-ups known locally as Silicon Roundabout.

According to Atomico’s State of European Tech report, some $5.4 billion in capital was invested into UK start-ups in 2017. Across Europe, 2017 tech investment was on track for a record $19bn of investment, up from $14.4bn in 2016. There were more deals worth $50m or more made in 2017 than in any other year.

In the most quantifiable terms, Europe’s tech scene is growing, and the optimism is tangible. ‘The probability that the next industry-defining company could come from Europe – and become one of the world’s most valuable companies – has never been higher,’ said Tom Wehmeier, Atomico’s head of research, who authored the report.

London’s Silicon Roundabout
© Chris Ratcliffe/Getty Images

In reality, while Europe’s tech sector growth has been strong, it continues to be outpaced by growth in China and the U.S.

Politico reports that, in the third quarter alone, American start-ups raised $19 billion, ‘or roughly what Europe’s fledgling companies will pocket for all of 2017.’ While there have been standout European successes – Estonia’s Skype, Sweden’s Spotify, Berlin’s SoundCloud– the number of European unicorns (venture-backed private companies worth $1bn or more) pales in comparison to the U.S. and China.

Europe still hasn’t produced an answer to Google, Apple, Facebook or Amazon. The companies that might have come close have been bought by Asian and American giants (U.S.-based Qualcomm is paying $47bn for Netherlands-based chipmaker NXP, Japan’s SoftBank purchased UK-based Arm Holdings for £24.3bn and Google bought London-based AI company Deep Mind for some £400m).

According to the Financial Times, the market value of the entire European tech sector amounts to just 7% of that of the U.S. In comparative terms, European tech still has a long way to go before it’s on par with its American and Asian competition.

Mindspace, a co-working space located in Berlin’s Mitte district
© Mindspace

But many aspects of the European tech scene make the comparison an apples to oranges account. The U.S. and China have much bigger single markets within which companies can scale up. In Europe, the starting market is much smaller and harder to scale beyond, and there’s no cluster that offers proximity between industries, start-ups, and venture. Europe’s financing ecosystem offers a much lower proportion of private funding. European funding rounds are smaller, for smaller companies.

Still, a case for optimism about the future of European tech remains.

Start-up accelerators are proliferating. The number of early-stage investors and private equity firms is growing. ‘Europe is on the cusp of greatness,’ says Neil Rimer, founding partner at Europe and San Francisco-based capital firm Index Ventures. ‘But risks coming short if it cannot compete for the talent it needs.’

‘Access to talent is the single most important ingredient for creating transformative tech companies,’ added Martin Mignot, Index Ventures partner. ‘We’re calling on European governments to help level the playing field for our ambitious entrepreneurs by creating the right conditions to support and incentivise employee ownership. Attracting the best talent is the biggest focus for all entrepreneurs and should be the singular focus of all governments who seek to support innovation, entrepreneurialism and job growth.’

Questions also remain about whether European entrepreneurs and VCs are willing to cast off a historically risk-averse business culture. For better or worse, the Silicon Valley slogan ‘move fast and break things’ hasn’t fully translated in Europe, where start-ups tend to mind local and EU regulation laws, and don’t often push marketing until after a product is complete.

Facebook CEO Mark Zuckerberg on stage in 2014

Ultimately, 2018 promises to see European tech continue to build on its strengths.

‘Europe is building a tech ecosystem in its own image, defined by deep tech expertise, incredible geographic diversification, and a uniquely collaborative approach with traditional industry,’ said Atomico’s Wehmeier. Slowly but surely, the year ahead will continue to see it thrive.

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