It’s been a time of unprecedented disruption, one that has upended every facet of life, work and innovating as we knew it. Companies have had to be more nimble than ever, at a moment that has ushered in “ten years’ worth of digital transformation in two months,” as Microsoft CEO Satya Nadella famously put it at the end of April.

Opportunity is often borne out of crisis and the 2020 State of European Tech Report exemplifies this. European Tech continued on its growth trajectory this year. As venture capital continued to pour into the region, the tech ecosystem has ballooned since 2000 to almost $1 trillion ($960B) in combined value – up five-fold from 2016. Remarkably, 2020 is on track for record investment of more than $40 billion – a 20% compound annual growth rate over the last five years, outpacing both North America and Asia. The unicorn pipeline continues to be robust, with 18 new unicorns in the last 12 months compared to 14 in the previous period. 

That said, the report also indicates exits – both M&A and IPO – are likely to end the year at a 5-year low. It’s likely that this is a pause driven by the perfect storm of 2020 – and that the combination of dry powder, a strong stable of unicorns and vehicles like the special purpose acquisition company that is currently driving the US market for exits will set up Europe for a strong rebound in exit activity next year.

In other words, as the world navigates a new normal that will be increasingly digital, the European tech market promises to be an engine for recovery. The Report points to three key factors the tech ecosystem must address to ensure that recovery is truly sustainable:

2020 has also sharpened the focus on corporate purpose. Tech leaders such as Apple, Microsoft, Netflix and many others have pledged billions to racial, social and environmental causes, while BlackRock announced they will no longer invest in companies that pose a high sustainability-related risk.

This trend is clearly making an impact in the European tech ecosystem. Purpose-driven companies — including in the energy tech, food tech and agtech space — have attracted record levels of investment this year. Investment in environmentally-focused technologies grew at five times the rate of traditional VC investments over the last five years. And purpose matters in attracting talent too — 81% of survey respondents indicate ethical impact plays a major role in their decision to work at a company.

Founders should take this into consideration both in business planning and telling the company’s story. It has never been more clear that business will do well by doing good.

SOET has reported for the past several years on gender and ethnic inequity as a threat to the ecosystem. In 2020, the Black Lives Matter movement has called for heightened focus and accelerated action. New data from Extend Ventures, the first-ever quantitative report on diversity beyond gender in Europe points to how dire the need is.

From 2009 to 2019, all-white teams received nearly 76% of venture capital, while all Black founders received only about 0.24% of funding and Black women founders, 0.02%. In an environment of fewer rounds of funding, where founders of all backgrounds report greater difficulty attracting investment, it will take our collective commitment to make progress in this area and ensure diverse and female founders have equitable access to funding.

The promising news, as noted above, is that investors are driving more of their investment strategy around environmental, social and corporate governance principles, and there is clear stakeholder pressure to consider the diversity of leadership teams and boards. Last month, Orrick had the honor of working with an early mover, Paypal, on its investments in Black-led VC funds in the U.S.

We encourage the tech community to work together as allies in this effort.