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5 European investment trends for 2023

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The business world saw explosive growth in 2021, and the technology industry reaped the rewards. Startups, growth-stage companies, and mature tech businesses rode a wave of investment, successful exits, and public IPOs throughout the year. 


As we look towards the future, there are five trends shaping the evolution of startups in Europe. A panel of experts explained that while the numbers continue to grow, we will see certain sectors and regions start to dominate. Here’s what’s top of mind for those on the hunt for unicorns in the region.

Trend 1: More unicorns across Europe

There has been impressive startup growth in Europe over the last few years. The numbers point to this being a continued upward trend both in the UK and Europe:

  • 60% of the top 20 unicorns globally were founded in the United States in 2017. Only 10% of these unicorns hailed from the United Kingdom.
  • 75 European companies reached unicorn status in 2021.
  • UK companies account for 33% of the European unicorn share.

Why has Europe seen such impressive growth in a relatively short time? 

2021 was an enormous year for venture globally, not just in the EU. While there was once a maturational disadvantage for the European venture capital industry compared to the US, that gap has closed in the past few years.

The market has matured quickly, making capital access easier for investment firms and companies. And companies that had already been around for a few years took advantage of the favorable market conditions of 2021.

Another important factor is that talent has become increasingly attracted to relocating and working in London, Paris, Berlin, and other major European technology hubs. This growing talent pool and an influx of capital has led to a steady flow of positive outcomes. 

Finally, international investors are exhibiting greater confidence in companies and regional performance. For example, 75% of investment in the UK comes from outside the UK. Foreign firms are increasingly opening offices in London and other hubs throughout the region.

“There’s been a growing confidence in Europe as a place to bring venture capital and support unicorns” - Orla Browne

Trend 2: Fintech is king on the continent

Companies in the financial technology space make up about 25% of all European unicorns. Why does fintech hold such supremacy in the European tech world?

For one thing, incumbents in the space hold immense market power. Banks, creditors, insurance providers, and other financial institutions have large market caps and influence. This makes them ripe for disruption.

Furthermore, inter-country regulations in the financial sector restrict one company from becoming the standard throughout Europe. These regulations spur copycat operations. For example, a company providing successful services in Amsterdam will likely be emulated by another in Barcelona, Rome, or Munich. The economic conditions in Europe can support many businesses that offer similar services.

There is also talent recycling in the world of fintech. As companies mature, succeed, and exit the market, talented individuals will join other companies in the fintech space. This snowball effect makes it possible for financial companies to continue to operate at a high level.

“Forward-thinking regulators paired with massive opportunities in finance makes it a leader. Healthcare is catching up because the regulators are catching up and driving more investment.” - Nick Sando

Trend 3: Particular growth in Germany and France 

 

While London—a cultural and financial powerhouse—captures deserved headlines for tech success, key European markets have increasingly developed as strongholds. Germany and France, in particular, have become beacons for technology growth. 

Between 2017 and 2021, Germany experienced 300% growth in unicorn companies; in that same period, the UK had a 230% increase. Growth was stronger for Germany for three reasons:

  • The UK was a relatively more mature market, giving Germany more room to grow.
  • Germany is multi-centered; cities from Berlin to Munich to Frankfurt had unicorns hit the market, which helped the cycle of tech innovation and investment prosper.
  • Germany is geographically closer to other European countries than the UK. Some investment firms decided to open offices in Germany to be closer to other rising markets.

France’s push in the tech sector has its own unique factors. The growth was bolstered by companies in the marketing and fashion sectors with Paris, arguably the fashion capital of the world, supporting innovations in fashion tech, marketing, entertainment, and more.

France’s success may seem simple in hindsight, but it highlights the importance of knowing each European ecosystem's regional focuses and strengths. 

"the relationship intelligence benchmark report U.S. vs europe edition—download the report" written over a dark blue background. On the right side is a mesh globe centered on the Atlantic Ocean so you can see both the U.S. and Europe

Trend 4: European decentralization continues

Europe is home to 65 cities across 23 countries that have produced at least one unicorn since 2017. This statistic illustrates a much less centralized ecosystem for tech investors and founders than North America.

Europe’s premier research institutions are geographically dispersed rather than consolidated in the continent’s capital cities. Having these education centers spread out means that they don’t feed talent into just a handful of cities as in the US. Distributed innovation networks makes it more likely that the European tech market will continue to be decentralized. 

Trend 5: US investment in Europe is increasing

American-based funds accounted for 23% of European venture capital investment in 2017. That number ballooned to 35% in 2021. Industry experts think that unique market conditions fueled this significant increase. More mature companies raised rounds in 2021, for example. These later stage rounds invite foreign participation, as local expertise and commitment are more crucial at an earlier phase. 

American investors took advantage of a ripe market in 2021 to realize more short-term gains. But Europe-based analysts are optimistic that the influx of American capital will not be short-lived. More American firms are opening branches in Europe, indicating a growing interest in earlier-stage investments and longer-term commitments.

Predictions for European tech’s future

2021 may have been a historic outlier of a year. Market conditions were ripe for investment and capitalization, leading to an unprecedented wave of minted unicorns, high-profile IPOs, and short-term returns. 2022 has been more modest. Europe’s tech scene has not felt the pullback as dramatically as America’s, but some buzz-worthy companies have had to recalibrate expectations.

For years, Europe trailed far behind the US in so-called university spinouts—tech companies born from and with the support of premier university infrastructure—but this gap seems to be steadily shrinking.

“Any city that’s in the proximity of a strong pool of talent is worth looking out for in the next few years” - Alexander Mayall

 

With Europe’s tech ecosystem already established, you can never be certain where the next hub of unicorns will be. While some suggest keeping an eye on Spain and the Nordic region, only time will tell where the next breakout area will be.

 

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