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07.1

Tech & Government

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Tech: Motor for Growth

In this section we are exploring employment in startups in partnership with Dealroom. Its proprietary database and software aggregate public information via machine learning and APIs. This includes Chamber of Commerce, news flow, and user-generated data verified by Dealroom. All data is verified and curated with an extensive manual process. All jobs at start-ups are counted, not just 'tech' jobs and companies with unavailable employee data, or with 1 employee (thus not offering jobs) are excluded.

Why should governments pay attention to start-ups? There are many possible answers. One important reason is that they are a motor for growth. Unsurprisingly, employment growth at European start-ups far outpaces the employment growth rate of the European economy. In recent years the gap has grown wider as Europe's tech startup communities have flourished and employment growth has accelerated, in stark contrast to the slowdown observed in the rest of the economy. 2020 may have temporarily eroded the pace of growth of start-up employment, but the gap with European employment growth remains colossal.

Start-up jobs year on year growth rate (%) across Europe

Legend

  • Startups employment YoY growth (%)
  • EU employment YoY growth (%)
Note:
Europe employment growth rate sourced from EuroStat. Start-up employment data sourced from Dealroom.

Given the difference in absolute new job contribution, it might be unfair to benchmark start-up employment growth against sectors that are made up of companies of all ages and sizes. It is still valid, however, to say that there is no other engine in the economy that can match the relative speed of employment growth of Europe's start-ups.

Jobs growth rate across Europe by sector, 2019 versus 2018

Note:
All sector growth rate from EuroStat, except for "start-ups" where Dealroom is the source.

The estimated number of people working in European tech start-ups has reached two million, an increase of 0.7M jobs in the past five years. Given the current trajectory and accelerated rate of employment growth within European start-up communities, Dealroom estimates that a further 1.2M jobs could be added over the next five years.

Number of start-up jobs estimated in Europe

The role of venture capital in supporting employment growth is demonstrated by the accelerated pace of job creation at start-ups that have raised greater levels of investment. The increased flow of capital invested into European tech start-ups, especially through larger growth rounds of financing, should continue to drive accelerated levels of employment growth from these cohorts of companies.

Trend line for European start-ups team size by age and total capital raised

Legend

  • Seed
  • Series A
  • Series B
Note:
Trend line based on 60,000+ start-ups average team size and by company age and total funding raised.

An important point to note is that start-ups' contribution to employment growth is more distributed than the contribution towards total value, as measured by their share of total combined enterprise value created. In other words, while the top 10 start-ups account for 35% of total enterprise value created, they account for only 2% of total jobs created. Similarly, the next 50 start-ups account for a further 26% of total enterprise value, but only 3% of total jobs. And while the remaining tens of thousands of start-ups only collectively account for 39% of enterprise value, they are responsible for 95% of start-up jobs. It is important that this is understood by policymakers as they think about the most appropriate measures to support start-ups of different sizes.

Distribution of value versus distribution of jobs

Legend

  • Valuation as % of total
  • Employees as % of total

Relief Funding & Innovation Programmes

There are clear benefits to closer collaboration between policymakers and the tech ecosystem. The Covid-19 pandemic, if anything, has increased the focus on this point, as technology played a crucial role in enabling economies to adapt to the realities of virtual living and working. But even before the pandemic, Europe had started building out the "infrastructure" needed to support the growth of start-ups via a number of regional and European initiatives. This article explores the role that governments have played in supporting the start-up ecosystem following the onset of the pandemic, paying particular attention to funding relief programmes, government innovation programmes and tendering processes.

Though it may have felt slow at the time, it is now apparent that governments and institutions across Europe reacted quickly and decisively to set up dedicated relief programmes in response to the impact of widespread lockdown measures on startups. In some cases, these programmes were up and running within weeks. France, for example, was fastest to respond, announcing an extensive set of measures to support local start-ups just one week after entering into a strict lockdown in March.

Governments and Institutions Relief Programs

To date, attention has rightly focused on the vital life support these loans are providing for many start-ups and scale-ups, but it will be fascinating to see how states leverage their shares in the long term, particularly as tax payers demand transparency and accountability over the investments made.

The Covid-19 response has provided an interesting prompt to review the state’s role as a direct investor in early-mid stage firms. Stopgap solutions like the UK’s Future Fund, and its equivalents in mainland Europe have given governments equity stakes either directly, or in the form of convertible loans. To date, attention has rightly focused on the vital life support these loans are providing for many start-ups and scale-ups, but it will be fascinating to see how states leverage their shares in the long term, particularly as tax payers demand transparency and accountability over the investments made.

Much has been made of Europe’s potential to create ‘entrepreneurial states’. Advocates for the idea normally focus on the state’s role in galvanising R&D and creating markets: processes that take far longer than normal political and investment timelines. But with these stakes, European governments have a petri dish to experiment with entrepreneurialism over a shorter time horizon. Will they seek profitable exits to recoup cash as soon as possible for their stuttering economies? Or will they use their stakes more strategically, perhaps crowding entrepreneurs into solving challenges in the public interest?

Leo Rees

Onward

Fellow

To get a sense of the scale of these relief programmes, we benchmarked them against the universe of unique funded companies that raised more than >$2M. As measured by the average amount of funding provided on a per start-up basis, France's programme has offered the most generous funding amounts to startups, at $3.7M. This compares to $0.6M in average support for companies in the UK and $2.2M in Germany.

Relief programme amount per start-up with funding >$2M per country

Note:
Based on 1,553 companies in France, 987 companies in Germany, 2,516 companies in the UK, 511 in Sweden and 376 in the Netherlands.

The French government was the first in the world to set up an Emergency Plan for start-ups: €4.3bn unlocked one week after lockdown started. We were the fastest, because it was a no brainer. We believe in the future of tech entrepreneurship and stand by our ecosystem, in sickness and in health (although, preferably health).

Kat Borlongan

La French Tech

Director

As we entered the pandemic, there was legitimate fear that the UK could lose a generation of start-ups if the tech ecosystem stalled. With pressure on an economy that is largely being driven by tech, intervention came from the UK Government.

As we entered the pandemic, there was legitimate fear that the UK could lose a generation of start-ups if the tech ecosystem stalled. With pressure on an economy that is largely being driven by tech, intervention came from the UK Government. In addition to measures available to the market generally, HM Treasury responded to lobbying from the venture community to introduce the Future Fund scheme, a lifeline in the form of a convertible loan package for innovators in need of sustainable financing. As a member of the task force that helped the government design and implement this scheme, we have been impressed by the process and strongly encourage continued equitable innovation-friendly policy to get through these crises.  It’s clear that is an investment not just in the future of tech, but our society at large.

Ylan Steiner

Orrick

Partner,Technology Companies Group

Beyond temporary relief programs, we also wanted to get a better understanding of the other ways governments have supported start-ups across Europe.

To this end, we have collaborated with PUBLIC to better understand the role of 'GovTech' - innovative solutions addressing public sector challenges - in tackling the pandemic.

Across Europe, governments introduced a range of programmes and initiatives to identify and adopt innovative solutions to specific challenges brought on by Covid-19, from accelerators and hackathons to competitions and funding programmes. PUBLIC has comprehensively indexed all such programmes and initiatives. The categorisation used by PUBLIC is laid out here.

Types of government innovation programmes

Source:

In total, PUBLIC has mapped out 86 different public sector initiatives launched across 26 different countries. The vast majority of these initiatives went beyond simple funding with 53 (62%) providing both funding and support on the development and procurement of innovative solutions.

List of initiatives by region and by country

Source:
Note:
The list was manually collected country by country using keyword searches, open data and PUBLIC's existing database of programmes for the UK, Nordics and Baltics.

Select partnerships between tech start-ups and Government

Video consultation and text messaging platform for primary care rolled into 1,300 GP practices

Video consultation and text messaging platform for primary care rolled into 1,300 GP practices

United Kingdom

Conversational AI platform helping authorities better inform citizens about Covid-19

Conversational AI platform helping authorities better inform citizens about Covid-19

Germany

Earth observation start-up deployed microsatellites to track the economic impact of the crisis

Earth observation start-up deployed microsatellites to track the economic impact of the crisis

Finland

Marketplace enabling healthcare workers to buy essentials in partnership with the government

Marketplace enabling healthcare workers to buy essentials in partnership with the government

France

Covid-19 Digital 'Staff' Bank created for 14 NHS trusts

Covid-19 Digital 'Staff' Bank created for 14 NHS trusts

United Kingdom

Digital therapeutics start-up built a Covid-19 tracker app for the national health system

Digital therapeutics start-up built a Covid-19 tracker app for the national health system

Iceland

Chatbot deployed to address disinformation in partnership with the government

Chatbot deployed to address disinformation in partnership with the government

Estonia

There are some interesting differences between regions. For example, Central and Eastern Europe have made a real push on initiatives, ranking first on absolute count. Governments across Europe (Estonia, Sweden, Norway, Poland, Austria, and Finland) have sponsored national hackathons - "Hack the Crisis" - designed to find urgent solutions to challenges created by Covid-19. This is interesting to note as it has largely taken place outside of the gaze of mainstream European tech attention. It is also worth noting the propensity within the UK to favour funding only support rather than a more holistic approach that also encompasses procurement and development support. NHSx sponsored TechForce19, a challenge-based programme to identify solutions across remote social care, mental health and the optimisation of staffing in the care sector. From a pool of 1600+ applicants, 18 companies were awarded £25k to deploy and scale their solutions.

PUBLIC sector initiatives by region

Source:

Legend

  • Hackathon
  • Grant Funding
  • Challenge-based Programme
  • Accelerator/Incubator
  • Platform/Marketing
  • Others

Given the unprecedented nature and scale of the Covid-19 pandemic, it won't come as a surprise that healthcare was one of the top sectors targeted by these initiatives.

Number of initiatives by sector

Source:

Tendering and public procurement

Another way government can play a role in supporting the startup ecosystem is through contracting. Public procurement, the process by which governments purchase goods, services and works from the private sector, is a vast contributor to global spending and represents a colossal 12% of global GDP ($11T), according to the World Bank. The potential share to be won by tech start-ups, 'GovTech', is estimated to be $125B (€105B) in Europe, according to PUBLIC. As healthcare is now top of mind in light of the current pandemic, and with healthtech attracting over $4B of capital invested into European tech companies in 2020, it is interesting to explore the potential for those startups to tap into healthcare-related technology spending from government institutions. To try to shine a light on this, we partnered with Vamstar, the data science powered B2B healthcare marketplace platform that tracks and enriches contracting data published by public procurement bodies and private healthcare institutions. Although it is difficult to have data on tech start-ups more specifically, SMEs responding to health technology tenders is a helpful proxy to measure the direction of travel for the former.

I hope that, looking to the future, governments will continue to harness the flexibility and resilience of start-ups that we’ve seen throughout the pandemic.

PUBLIC and Vamstar’s research clearly demonstrates the unprecedented reliance by governments on the start-up ecosystem during the Covid-19 crisis. Never before has the public sector depended so heavily on new and innovative applications, developed by Europe’s brightest tech entrepreneurs.

During this time, we have seen especially high numbers of initiatives coming out of governments, which are looking to quickly identify start-ups that can help to address their most critical challenges. These challenges, competitions and programmes have helped to drive the acceleration of technology adoption across the spectrum of public services.

Whether we look at the health care sector, which of course has been under great pressure, or to those areas of the public services landscape that are less prevalent in the public consciousness, such as social care and education, startups have been at the heart of finding new ways to deliver critical services.

Before the pandemic, the GovTech market, the start-ups and technologies driving the transformation of public services, was growing rapidly; entrepreneurs, investors and policy makers began to believe in the benefits in terms of cost, efficiency, and the positive impact on the lives of citizens.

The trends we’ve seen during COVID have validated this belief. I hope that, looking to the future, governments will continue to harness the flexibility and resilience of startups that we’ve seen throughout the pandemic. In doing so, I really believe that we’ll see a positive transformation in the way that our public services are provided, and ultimately used, by citizens globally.

Alexander de Carvalho

PUBLIC

Co-Founder and Chief Investment Officer

Overall, there has been a steady rise in public contracting across European countries and Covid-19 has further accelerated that trend due to the need to manage a large demand shock. This was particularly the case in the UK: with the government dealing with the twin forces of Covid-19 and Brexit, healthcare spending has had a massive uplift.

Total healthcare spend in public contracting by country, H1 2020

Source:
More detailed data can be found on the Vamstar websiteCombined Shape

In Europe, SMEs play an important role in public procurement. One way governments have supported smaller firms is by introducing Covid-19-specific procurement rules. Although SMEs are a much broader category than startups, they are a helpful category to look at, as increased SME spending is likely to benefit tech startups as well. The results have varied by country and when comparing estimates for H1 2019 (pre-Covid-19) and H1 2020, there are some emerging "winners" for SMEs. The biggest "losers" are also a reminder that improving access to public procurement processes will unlock further value for SMEs and startups alike.

Estimated SMEs share of the total annual contract value for public healthcare procurement by country

Source:
More detailed data can be found on the Vamstar websiteCombined Shape

Legend

  • H1 2019
  • H1 2020

Increase accessibility and visibility of upcoming tenders

We currently have to browse through a lot of pages and it would be easier to view by timeframes as we need to go through several pages only to realise the deadline has passed. Marketing upcoming tenders more effectively would also enable us to rely less on consulting firms.

Anonymous survey respondent

Finland

Drilling down on a few emerging areas of health technology, including digital health, remote patient monitoring, and patient tracing, the level of spend across these categories has significantly increased in Germany and Poland in H1 2020 versus 2019. In Germany and the UK, SMEs have not only gained market share over larger suppliers, they have significantly expanded contract value as well in absolute terms. In fact, German SMEs have expanded contract value by over 10x.

Healthcare technology spend expansion per country per type of supplier, H1 2020 vs. H1 2019

Source:
More detailed data can be found on the Vamstar websiteCombined Shape

Legend

  • Large supplier
  • SME supplier

To continue with digital transformation at pace, health systems need to find faster and clearer routes for effective innovations to be tested and adopted. Right now, there isn't a challenge spotting problems or building the technology to solve them, but knowing what to do next is where innovations stop. We need to move from a place where IT budgets are fixed, regardless of technological progress, to one where new solutions that create value across the system can be rapidly procured and adopted.

Decision making in healthcare systems is typically driven by risk rather than opportunity. In March, adopting new technology moved from being an opportunity to an imperative, as systems needed to be able to deliver care remotely and communicate more efficiently. Existing inefficiencies in the system were accentuated, and we've been fortunate to be able to help whilst accelerate our existing roadmap, rather than develop Covid-19-specific products.

We went from 50% of GP practices in England using us to 95% in the space of four weeks, and we rolled out six major new features in as many weeks. We were only able to do this because we let frontline staff pick software that works for them, set it up, and use it. This is not how software in healthcare is typically implemented, but we believe when the 'users are choosers', they'll consistently raise the bar, as the wider SaaS industry has shown.

To continue with digital transformation at pace, health systems need to find faster and clearer routes for effective innovations to be tested and adopted. Right now, there isn't a challenge spotting problems or building the technology to solve them, but knowing what to do next is where innovations stop. We need to move from a place where IT budgets are fixed, regardless of technological progress, to one where new solutions that create value across the system can be rapidly procured and adopted.

The innovations that have scaled and worked in 2020 have also been free from the AI/wearables/personalised medicine hype often seen in healthcare. That's not to say these technologies won't play a role in the future, but healthcare systems are currently decades behind. Particularly in times of crisis, staff value software that makes their day easier and just works. That's what we need a lot more of.

Jacob Haddad

accuRx

Co-Founder