Europe Marching To The Beat Of Its Own Drum

As a number of U.S. companies see their valuations downgraded, it’s easy to assume that European tech — with its shorter track record than the U.S., and its historic issues with scarcity of funding — will suffer from any instability in the Valley.

Mattias Ljungman is the co-founder of London VC firm Atomico

This would of course be a worrying prospect, should European investors shy away and fail to fund London’s thriving digital economy, just as we’ve graduated to the giddy heights of a world-leading technology hub.

Thankfully, we can be reassured by the data, which shows that Europe is marching to the beat of its own drum, and is less vulnerable to the impact from a U.S. tech correction than it was back in the 1990s during the last ‘ collapse.’ Here in London, and across Europe’s blossoming tech hubs — from the gaming stronghold of Helsinki to the FoodTech champions of Berlin — we have laid the foundations for a strong, and independent, investment cycle of our own.

Europe’s Largest Developer Hub

London has produced 10 tech companies with valuations of over $1 billion since 2003, such as Farfetch, Funding Circle and TransferWise — including five ‘unicorns’ in 2015 alone. Our capital city is Europe’s largest developer hub, with over 71,000 professional developers compared with just over 83,000 in San Francisco. According to data from and AngelList, we organized more than 4,000 tech meetups last year, we can boast over 2,000 active angel investors and we are able to draw by far the largest share of rounds and total capital in Europe. Our ecosystem is built on a robust pipeline of talent, mentors, angel investors, local VCs, incubators, accelerators and active communities.

London-based companies are transforming a wide range of sectors, from retail to ticketing, and we have earned ourselves a reputation as fintech pioneers in the process. So while Silicon Valley is indeed undergoing a chill, London is growing, energetically, confidently, and independently of the U.S.

A good way to measure the health of business ecosystems is by looking at Series A rounds. A steady pipeline of promising companies that are able to attract funding from an early stage is vital for the success of any technology hub.

Series A investments have only really taken off in Europe since 2014, and the number of our businesses that are thriving in this pipeline is rising each quarter. 2015 was a record year for Europe — investment in Series A rounds was up 12% from the year before and in the first few months of this year, A rounds are up 38% year-over-year (versus 19% up in the U.S.). In London, we’ve seen a significant ramp up in Series A rounds over time, from 33 deals closed in 2012 to 58 in 2015. Whereas data from CB Insights shows that the absolute number of these early funding rounds in the U.S. peaked in 2014 (2015 was down from 2014 by 4%).

Learning From U.S. Success

So in London we’re in a fortunate position to learn from the successes of American tech, while understanding, and looking to avoid, the issues that it now faces. We must focus on the stability and consistency that we see in venture capitalist funding here, and dodge the peaks and troughs experienced in U.S. markets over the last few years.

According to CB Insights, $100+ million exits — when start-ups are acquired by larger firms or IPO — started to ramp in the U.S. from 2011 onwards, reaching an eight-year high of 122 exits in 2014, but then declining again in 2015 to 83. In Europe, the ramp in $100+ million exits only really kicked in from 2014 (18 exits), and reached a new high of 26 exits in 2015.

What’s more, 2015 marked a new high in $100M+ exits in London specifically. CB Insights tracked 16 deals in 2015, compared with seven in 2014 and four in 2013. We have also seen three of these exits in Q1 2016.

Despite these contrasting pictures of health, it would be foolish to assume that the famous entrepreneurial spirit of Silicon Valley is cooling, while European start-ups have the luxury of unlimited capital.

Here in Europe, we’re still hampered by a late-stage funding gap, alongside more stringent regulations on data protection and the free flow of information. And yet, according to CB Insights, the UK has already attracted $1.3 billion of investment this year across 181 rounds, while investment pace in the Nordics is currently four times faster than just two years ago.

London’s Positive Trajectory

So instead we are seeing much-hyped U.S tech companies having their valuations slashed, and their financial woes splashed across the front covers of international news publications, alongside gloomy forecasts for the Valley. And they have the numbers to back it up. CB Insights has created a Downround Tracker on companies that have raised money or exited at valuations lower than their earlier investment rounds. This is currently populated by companies from the U.S. (83% of all companies on the list) but the trend could of course spread to Europe and to London. For now, the data shows that we are faring well, with both private and listed companies.

So as we can see above, a more informed way to look at whether or not Europe’s — and by extension London’s — thriving tech scene will suffer the same fate as the U.S.’s current downturn is to remember that Silicon Valley has been leading the way for a decade, while London has only begun to showcase its firepower over the last three years.

Our challenge now is to ensure that we are strong enough to withstand any pressure in the near future — and London’s current trajectory looks positive.

With the opportunity to learn from the U.S’s mistakes, we can continue to foster innovation and celebrate our successes here in London, without the fear of an imminent European correction.



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