European start-up funding triples to a new record above $100 billion this year

Technology

A 3D map showing the continent of Europe.
Constantine Johnny | Moment | Getty Images

LONDON — Europe’s tech sector is on fire. 

Start-ups in the region are on track to haul in a record $121 billion in funding this year, according to a report from venture capital firm Atomico, roughly three times the $41 billion of capital raised in 2020.

It’s the first time European start-ups have raised more than $100 billion in a single year, and highlights surging interest from investors in the continent’s rapidly-growing tech industry.

“It’s been a defining year for European tech,” Tom Wehmeier, Atomico’s head of insights, told CNBC. “I think what we’ve seen in the numbers is that European tech is creating value faster than ever.”

Based on findings from data firm Dealroom, Atomico’s latest annual “State of European Tech Report” shows that total equity value of European tech companies in the public and private markets surpassed $3 trillion for the first time in 2021.

“It took us decades to get to the first trillion in equity value in technology from Europe,” Wehmeier said.

“We got to that milestone only three years ago, in December 2018. And then we went from $1 trillion to $2 trillion in 24 months, and then this year, the most recent trillion has been added in eight months.”

Europe is now home to 321 billion-dollar “unicorn” companies, 98 of which were minted this year. There are also 26 so-called “decacorns” worth $10 billion or more, including Klarna, Revolut and Checkout.com, according to Atomico.

Tech start-ups were a major beneficiary of the increased adoption of online services during the coronavirus pandemic, Wehmeier said.

Flywheel effect

Europe’s tech sector is gaining momentum in part thanks to a “recycling” of talent from prior success stories into new ventures, according to Wehmeier.

“People from one generation of companies are moving on to become the next generation, whether it’s as founders, as builders, or as investors,” he said.

This year was also a record one for “exits” such as mergers and acquisitions and initial public offerings in Europe. A combined $275 billion worth of enterprise value was produced by European tech company exits this year.

Notable deals include British fintech firm Wise’s blockbuster direct listing and Finnish food delivery company Wolt’s $8.1 billion sale to American rival DoorDash.

Another key driver of growth for Europe’s start-ups has been a rise in demand from large international investment firms like Tiger Global, Coatue and SoftBank.

The fresh competition has kept European venture capitalists on their toes. Atomico, for example, is raising around $1.2 billion to invest in European tech firms, while Balderton Capital secured nearly $1.3 billion for two new funds this year.

This is helping to create a so-called “flywheel” effect where more talent and more capital leads to a virtuous cycle of increased growth, Wehmeier said.

Challenges ahead

Not all is rosy in European tech, however.

Despite venture-backed companies raising record levels of funding in Europe, early-stage firms are being squeezed, according to Atomico.

Less than 1% of venture capital invested in the first nine months of 2021 went to companies that were founded this year, a figure that has typically ranged from 1-3% in earlier years.

Meanwhile, diversity remains a key issue. Only 1.3% of venture capital funding in Europe goes to start-ups with ethnic minority founding teams, Atomico said, citing a survey of more than 5,000 tech professionals in the region.

Another hurdle for Europe to overcome is the lack of pension fund allocation to start-up investments, Wehmeier said, with European pension funds earmarking less than 0.02% of their $3 trillion for venture capital funds.

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