Now is a watershed moment for the tech and venture ecosystem across Europe and around the world. Europe is attracting record levels of investment and growth, with the innovation economy positioned to take the lead in tackling today’s systemic societal challenges.
For many founders, 2021 was another year of change, with their operations, team management, corporate values and fundraising pace all under increased scrutiny by regulatory bodies. As the pandemic forced adaptation, a new hybrid talent model accelerated the decentralisation of teams across Europe. Tech companies are uniquely placed to embrace this new multicultural and multilocation-based approach.
European tech is on track to break the $100B milestone of capital invested in a single year – nearly three times the level in 2020. Rapid investment and big exits are now the norm. The total number of tech companies scaling to $1B+ in Europe has ballooned from 223 last year to 321 – up by a staggering 44%.
Fintech investment has led the charge, rising by 159%, with total investment of nearly $15B, while planet-positive investments are dominating the fast-growing purpose-driven space.
With ESG scrutiny topping stakeholder agendas, the startup community is laying the foundation for long-term value-focused metrics. Many are embracing growth with purpose and investors are pouring more money than ever into socially driven and planet-positive investments. But all tech companies and investors would do well to pay close attention to setting up good governance and understanding European disclosure requirements (see Articles 8 and 9 in the Sustainable Finance Disclosure Regulation (SFDR)).
Diversity, equity and inclusion will be a key ESG metric going forward, and the ecosystem as a whole has work to do. Despite evidence showing that mixed and diverse teams perform better, they captured only 9% of the capital raised in 2021 (source: Dealroom). Yet, there’s reason for optimism: Compared to 12 months ago, women and ethnic minorities find working for a European tech company more attractive than men or white individuals, with 73% of women and 75% of non-white individuals reporting increased satisfaction.
Competition Is Fierce
2021 was a year of record numbers both on VC funds being raised and capital available to deploy in Europe. As a result, we saw a big change in the investment landscape, greater competition for the best deals, more unicorns created than ever, and a considerable increase in valuation and the size of funding rounds. A Series A round three years ago would easily be a seed round today. And regardless of preferred stage of entry, valuation and cheque size inflation are two of the main consequences of increased competition to win deals.
Additionally, cross-border VC investment is rapidly expanding. While it is common to see U.S. investors clamouring for access to the best European deals, we are now seeing an increase in leading European funds, such as Atomico, deploying capital into the United States. With the easing of overseas investment restrictions, we expect to see more of this activity in 2022 and beyond.
Setting aside investor appetite, there will undoubtedly be a renewed emphasis on what additional resources VCs can bring to founders when competing to win deals. Given the highly competitive investment climate, venture funds will distinguish themselves by providing founders with the right talent and human capital, strategic commercial solutions and insight. Accordingly, these value-added offerings, combined with an ethos not only to deliver returns but also to create long-term value, are of paramount importance.
An Emphasis on Planet Positive
BlackRock CEO and Chairman Larry Fink recently stated: “It is my belief that the next 1,000 unicorns won’t be a search engine, won’t be a media company. They’ll be businesses developing green hydrogen, green agriculture, green steel and green cement.”
Over $31B has been invested in purpose-driven tech companies in Europe in the last five years, representing 15% of all funding and a 57% increase year-on-year. Planet-positive investments – defined as companies working to make sustainable use of the planet’s resources – captured 11% of total funding overall in 2021, with clean energy and climate tech startups capturing the lion's share of funding.
Fintech & Financial Inclusion
Nearly 1 in 3 private European tech companies are fintech companies, including 4 of the 10 tech companies in Europe with the highest valuation.
Fintech companies are levelling the playing field and increasing financial inclusion. By helping low-income customers and micro- and small enterprises, fintechs have empowered people and enterprises not only to respond to the pandemic, but also to rebound, rebuild and recover.
Innovating With a Vision
Tech companies with vision and intent garner more attention from investors and attract the best people. Just as VCs are competing for deals, tech companies are competing for talent, with employee retention a key issue for founders to address.
We’re incredibly grateful to Atomico to again invite Orrick to partner on this report, which is now recognised as the industry benchmark, and we are happy to see it continue to highlight the issues we collectively need to address.
We look forward to continued collaboration with the European tech community and helping to build a resilient ecosystem that not only thrives but also contributes to solving the many challenges this period has exposed.
Creators. Visionaries. Underdogs. The Daring.
Orrick counsels more than 3,000 high growth tech companies, as well as the most active funds, corporate venture investors and public tech companies worldwide. We help you disrupt. We help you build. We protect you. We help you win.
We are the No. 1 most active law firm in European venture capital and No. 4 globally (PitchBook), top 20 for global M&A and PE (Mergermarket) and advisors to seven of the top 15 global private equity funds. We offer destination practices in other areas that are important to tech companies’ success: privacy and cybersecurity, intellectual property, payments, and beyond.
Nothing inspires us more than helping tech companies innovate. We share that same vision, not only in our legal advice but also in the way we deliver our services. That’s why Financial Times selected us as the Most Digital Law Firm in 2020 and Most Innovative Law Firm in North America three times, and runner-up twice, in the last five years.
Partner, Technology Companies Group, Orrick