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02.2

Investments by Geography & Industry

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Overall investment trends across Europe are clearly driven by the underlying degree of startup activity in the region. There are more than 140,000 startups in Europe, of which over 43,000 have raised at least one recorded round of funding. The universe of companies at each level of funding narrows significantly. While there are around 15,000 European startups that have raised between $0-2M, there are just 74 that have raised more than $250M.

Distribution of European start-ups by total amount of funding raised

Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel.

Start-up activity at the country level varies significantly in terms of density across Europe. On a population-adjusted basis, Estonia is the clear European capital of start-ups; adjusted for its population of just 1.3M, Estonia has 4.6x as many start-ups per capita as the European average. Estonia's efforts to build a start-up-friendly environment have been well documented and they appear to be delivering; Pipedrive's recent investment from Vista Equity Partners at a $1.5B valuation means that Estonia has now played a major role in the building of five European $1B+ companies.

Number of start-ups per capita by country

Legend

  • Start-ups per 1M population
  • European average
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel. Includes countries with population over 1M.

Estonia is a country that has never had much wealth, a huge internal market or any mineral resources, but we have a lot of entrepreneurial people. We are the pathfinders in the ICT and startup world today, searching for new solutions to get things done cheaper and faster. And the government supports it. In 2016, startup founders foresaw the growth of the startup sector and the additional need for talented people in the ecosystem. As a potential solution, they suggested a startup visa program, which was implemented already 11 months after the initial idea by entrepreneurs and the government working together. Today, with the program having been active for 3.5 years, more than 2,500 start-up founders and employees from outside the EU have gained the right to relocate to Estonia to be part of our start-up ecosystem.

Eve Peeterson

Startup Estonia

Head

This chart compares the density of entrepreneurial activity within a country, as measured by the ratio of start-ups per capita with the level of per capita investment. Unsurprisingly, the data follows an intuitive trendline; the denser the relative number of start-ups activity within a country, the greater the level of per capita investment. It is unsurprisingly not a perfect correlation. Sweden, for example, has seen materially higher levels of investment per capita relative to the density of startup activity. Estonia, although it ranks amongst the highest for 'per capita investment levels', is arguably underinvested relative to the density of start-up activity in the country, although the gap is not as pronounced as in nearby Lithuania. Italy also stands out as a country that has an underdeveloped private capital market.

Number of start-ups per 1M population versus capital invested ($) per capita

Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel.

Another interesting way to highlight the relative maturity of the private capital markets in different countries is to compare the relative share of venture capital investment with the geographic distribution of entrepreneurial and developer talent, as measured by the country of origin of companies that have developed leading mobile applications. This is fascinating as it once again highlights the fact that CEE countries, relative to the depth of their talent pool, are underserved from the perspective of venture investors.

Share of companies with consumer spend in apps >$1m annually versus share of cumulative capital invested (2016-2020) per country

Legend

  • Number of companies per country with >$1m annual consumer spend in apps
  • Share of capital invested, 2016-2020
Note:
Based on App Annie estimates for 2020.

The cumulative level of capital invested by country over the past five years gives a sense of the relative scale of different markets. On a cumulative basis, capital invested into UK tech companies is just short of $50B since 2016, this is more than 2x the capital invested in Germany ($23B) and France ($19B). Cumulative capital invested in Sweden exceeded $10B over this period, while the level of investment in the Netherlands, Switzerland and Spain has grown to more than $5B since 2016.

Capital invested ($M) by country, cumulative since 2016 and per year

Legend

  • 2016
  • 2017
  • 2018
  • 2019
  • 2020
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel. 2020 is annualised based on data to September 2020.

The UK is the tech powerhouse of Europe.

We want to make sure that UK tech comes out of the Covid-19 crisis stronger than ever - supporting the sector through the recovery just as tech supported all of us through the pandemic. Our forthcoming Digital Strategy will unleash the full potential of tech innovators and entrepreneurs across the country, driving a new era of growth.

The UK has long been one of the best places to start and grow a tech business and we intend to keep it that way by taking an unashamedly pro-tech approach.

Oliver Dowden

United Kingdom

Secretary of State for Digital, Culture, Media and Sport

Looking at country-by-country trends on a year-by-year basis, France is the only one of Europe's three largest markets to grow in 2020. Thanks to this uptick in investment in 2020, France is set to exceed $5B capital invested on an annualised basis for the first time. Sweden, Finland and Belgium are other notable countries to beat the slowdown and post growth in 2020. The UK has stayed broadly flat, but at impressive levels with more than $12B of capital invested in 2020. Amongst the top 10 countries by cumulative capital invested between 2016-2020, Spain has seen the most significant slowdown with projected capital invested at less than 45% of the total in 2019.

France Record Year


$5B+
capital invested for the first time

Capital invested ($M) by country and by year

Note:
Only countries with at least $1M invested since 2016 included. 2020 is annualised based on data to September 2020.

As discussed previously, capital invested in European tech is rising not only due to an increased number of rounds but also due to increases in the average size of rounds. Rounds have been getting bigger across all stages over the past five years and also across most underlying countries. Though there are still clear differences in round sizes across stages in different European countries, round size inflation is a trend that is common across countries and this chart picks out examples for six of Europe's largest markets by capital invested: the UK, Germany, France, Sweden, Spain and the Netherlands.

Median round sizes by round stage, by year and country

Legend

  • Seed
  • Series A
  • Series B
  • Series C
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel.

Turning now to look at Europe's largest tech hubs, London remains the undisputed hub in terms of capital invested in 2020 and has now attracted $34B in capital investment since 2016. Paris cements its position as Europe's number two hub in 2020 attracting $3.4B in 2020 alone and $11.7B cumulatively since 2016. Stockholm is positioned in the top three hubs in 2020, pushing out Berlin for the first time, though this has largely been driven by two of the year's largest rounds of investment raised by Klarna ($650M) and Northvolt ($600M). On a cumulative basis since 2016, however, Berlin still ranks second to London with $12.6B of investment over that period. Espoo and Helsinki both make the top 10 and, if combined, would equate to the sixth largest in Europe. A few notable absences from the top 20 cities include Copenhagen, Oslo and Madrid.

Top 20 European hubs by capital invested ($M), ranking based on 2020

Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel. 2020 is annualised based on data up to September 2020.

London, Paris and Berlin remain the top three hubs in Europe by the number of deals. There is a clear decline in the number of deals across a large share of hubs. This is attributable to both the reporting lag effect, but also a drop in deals in the earliest round stages (<$2M). Amongst the top 20 hubs by the number of rounds in 2020, only Edinburgh and Lyon have hit all-time high deal volumes in 2020.

Top 20 European hubs by number of deals, ranking based on 2020

Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel. 2020 is annualised based on data up to September 2020.

The geographic diversification of entrepreneurial activity and scaling venture investment in European tech is clear, so it is perhaps counter-intuitive that the share of deals involving Europe's top five hubs has stayed flat over time and that the share of capital invested in those hubs has even increased. The answer, at least partly, lies in the fact that while startup communities are flourishing all across Europe, the flywheel of success is spinning just as quickly, if not faster, in Europe's most mature hubs. Hubs such as London, Berlin, Paris and Stockholm have the densest network of startups, the deepest pools of experienced talent and many of the most sophisticated investors. Little wonder then they continue to power ahead, just as other more nascent hubs takes steps forward too.

Top five hubs as share of total deals (%) and share of capital invested (%), 2016 versus 2020

Legend

  • 2016
  • 2020
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel.

Earlier in 2020 at the onset of the pandemic in Europe, questions were raised around whether travel restrictions might impact the level of US investor activity in Europe. This has not proven to be the case. In fact, the level of US investor participation has continued to increase and remains at record high levels.

Share of European deals (%) per year with at least one US or Asian investor

Legend

  • United States
  • Asia
  • United States and Asia
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel. 2020 is based on data up to September 2020.

Cross-border investment flows demonstrate the internationalisation of the European tech investment landscape. Cross-border investment accounts for two-thirds of all capital invested in the European tech ecosystem. They also change in clear lock-step with the scale of capital being put to work. The earlier stage the company and the smaller the round size, the more domestic the investment pattern. On the flip side, the later the stage of the company and the larger the round, the more international the investor pool. Capital invested into rounds of less than $2M overwhelmingly comes from domestic investors; for rounds of $100M or more, the lion's share of capital comes from outside the continent and, most significantly, from the US.

Share of capital invested (%) in Europe by round size and geographic source region, 2016 to 2020

Legend

  • Domestic
  • Cross-border
  • Asia
  • North America
  • Rest of World
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel.

There are very interesting differences in the internationalisation of the private capital markets for tech companies across Europe. The UK, for example, has a strong domestic investor pool, attracts large sums of investment from the US, but a much lower level of cross-border investment from within Europe versus, say, Germany. France is even more weighted towards domestic investors, even in larger rounds. Interestingly, the flow of US capital into European tech companies has been more significant in certain countries. The share of capital from US investors is materially higher in the UK and Germany than in France.

Share of capital invested (%) in the United Kingdom, Germany and France by round size and geographic source region, 2016 to 2020

Legend

  • Domestic
  • Cross-border
  • Asia
  • North America
  • Rest of World
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel.

The German ecosystem has seen some major investments, despite the crisis. For many years it was hard for German entrepreneurs to find money, in terms of seed investments as well as in growth funding. That has changed completely. Every good idea is finding money right now. What the ecosystem needs is more business models and ideas in order to build unicorns. We have enough money; we need better ideas. One promising area is the digitalization of manufacturing, another are all aspects of business automation. We have seen quite a few quickly growing startups in these areas. A lot more could come out, if business, universities and research institutes would collaborate more closely. A close network between big corporations, small and mid-sized companies, research institutes and the startup scene is crucial for achieving success. A good example for that is the network UnternehmerTUM in Munich.

Sebastian Matthes

Handelsblatt

Deputy Editor-in-Chief

The headwinds and tailwinds that the pandemic has created for tech investment are evident when looking at the relative pace of capital invested across different industry verticals in 2020 on a month-by-month basis and in comparison to 2019 and 2018. Health tech companies, which had already been attracting significant capital, have raised record amounts in 2020. Other sectors that appeared to have been buoyed by tailwinds include enterprise software, fintech, and semiconductors. Headwinds appear to have slowed investments into real estate, transportation and jobs recruitment.

Cumulative month-by-month capital invested ($M) by industry vertical, 2018 to 2020

Legend

  • Jan
  • Feb
  • Mar
  • Apr
  • May
  • Jun
  • Jul
  • Aug
  • Sep
  • Oct
  • Nov
  • Dec
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, grants. Please also note the data excludes Israel.

While going through a major challenge like this year is not something any of us would have wanted, I think the resilience it builds in the tech community, its companies, its teams and employees is fundamentally a good thing for the longer term.

The societal impact of lockdown has driven more rapid adoption of a variety of digital services, including in areas where Europe has a particular strength. For example, in fintech, where people were more likely to switch to a service like Revolut when traditional banks still required them to go into branches to manage their accounts.

Similarly, European healthtech is really strong, and while not the driver anyone wanted, COVID led to huge investment and activity which has led to strong growth, including in areas like AI-based diagnosis and remote primary care. While going through a major challenge like this year is not something any of us would have wanted, I think the resilience it builds in the tech community, its companies, its teams and employees is fundamentally a good thing for the longer term.

Suranga Chandratillake

Balderton

General Partner

After a strong start to the year, travel companies have seen capital invested in the industry vertical slow dramatically. The travel sector is expected to see 62% less capital invested in 2020 relative to 2019, though companies such as GetYourGuide ($133M) and Omio ($100M) showed that the strongest companies could raise in spite of a collapse of demand.

Absolute change by industry vertical of capital invested ($M), 2019 versus 2020

Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, grants. Please also note the data excludes Israel. 2020 annualised based on data to September 2020.

A global pandemic presents my company with more opportunities than threats. When people are unsure about their future, there's a chance to guide them through these changes, be it financially or even psychologically. That's certainly not the case for every business. Tech companies in travel or hospitality have been hit hard. Like elsewhere on the planet, they need to reinvent the relationship with their customer to survive. The Netherlands has the social support system and government support to weather the storm, but the lowest incomes are still hit hard. I sincerely believe that tech, as an industry, does not exist. Tech is a part of every industry. We should create equal opportunities for anyone, regardless of background or income level, to contribute.

Robert Gaal

Cooper

Co-Founder

European fintech companies raised more capital in 2020 than any other industry vertical, driven by a number of huge growth rounds raised by Europe's largest fintech giants. Klarna raised $850M across two rounds, including a giant $650M round in September. Revolut raised $500M in February, while Checkout.com raised another large round of $150M in June. More than $20B has been invested into European fintech companies in the past two years alone. Enterprise software companies also continued to raise large sums of capital in 2020, led by companies such as Mirakl ($300M), UiPath ($225M), MessageBird ($200M) and Snyk ($200M). Capital invested into companies in the transportation and energy industry verticals was also strong, though at somewhat reduced levels compared to 2019. The UK's Cazoo raised a particularly noteworthy $310M Series D, just two years after founding. Sweden's Northvolt raised a further $600M and has now raised more than $1.6B in just three years.

Capital invested ($M) by industry

Legend

  • 2020
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel. 2020 is annualised based on data to September 2020.

The relative year-on-year change in capital invested across Europe by industry vertical also provides an interesting lens through which to view 2020 investment themes. Kids and sports have seen the highest overall percentage increase, albeit from smaller bases. Interestingly, only three industry verticals in total have recorded year-on-year increases in capital invested. On the other end of the spectrum, capital invested in event tech, travel and jobs recruitment companies saw the steepest decline overall.

% change by industry vertical of capital invested, 2019 versus 2020

Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel.

This is further indeed echoed by founders building companies in the HR & talent space who have found it more difficult to raise venture capital in Europe in the last 12 months than others. Perhaps also less surprising to see founders in health tech and security software ranking below the average (55%) in light of the pandemic and heightened cyberattacks/data breaches.

Share of founder respondents who agree with the statement: It is harder to raise venture capital in Europe than it was 12 months ago

Source:
Note:
Founders respondents only. Sectors with at least 50 responses only.

For Europe to create more health tech breakout success stories, one of two things is required.

I'm looking at areas that benefit from community-based healthcare. Broadly, this includes chronic diseases, long-term diseases, and under resourced areas like menstrual and mental health. These are areas where public healthcare has limited budget and resources and where private healthcare can often be prohibitively expensive. In addition, even if you do receive healthcare for it, there's a social and community component that is lacking which can be highly value add from the perspective of knowledge transfer, mental well-being and peer support. We've already made one investment in this space, Second Nature, and I'm looking for more.

For Europe to create more health tech breakout success stories, one of two things is required: pan-European plays or companies that can successfully grow their business in the US. Both have their issues. Each country in Europe has a different national healthcare system and different cultural attitudes towards healthcare, so while in aggregate it's a compelling market, scaling across Europe is very challenging. The US on the other hand has a large market with a very different, profit driven attitude towards healthcare, but the healthcare system, payment coverage and attitudes towards healthcare are quite different from the most of the world, which makes it a daunting market to conquer.

Sitar Teli

Connect Ventures

Managing Partner

European SaaS continues to go from strength to strength with record levels of capital invested in 2020. The $12B of capital invested in 2020 takes the cumulative total investment into European SaaS companies to more than $40B since 2016.

Capital invested ($B) in European SaaS companies per year

Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, grants. Please also note the data excludes Israel. 2020 annualised based on data to September 2020.

Capital invested in European companies building with deep technology at their core or in an applied way raised $8.9B in 2020, down from $10.2B in 2019. Since 2016, cumulative investment into deep tech companies in Europe has surpassed $36B. Since deep tech can be perceived as a nebulous term, it is worth spelling out the underlying methodology used to derive these numbers. In Dealroom's methodology, deep tech is used as a meta tag to encompass start-ups in 16 fields: Artificial Intelligence/ Machine Learning/ Big Data, Augmented Reality/ Virtual Reality, Drones/ Autonomous Driving, Blockchain/ Nanotech, Robotics/ Internet of Things, 3D Technology/ Computer Vision, Connected Device/ Sensors Technology, and Recognition Technology (NLP, image, video, text, speech recognition).

Capital invested ($B) in European deep tech companies

Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel. 2020 is annualised based on data to September 2020.

More broadly I think Europe needs to find a way to get its best companies to not sell too soon - especially as deep tech gets deeper and much more patient capital will be needed to meet some of the huge challenges we face as a world. People don't really talk much about technology sovereignty but if recent events have taught us anything it's that geopolitics is getting more not less volatile and as a European, I'd feel a lot more comfortable if we not only developed but owned more of the future too.

Steve O'Hear

TechCrunch

Journalist