Thriving technology ecosystems need three key elements: an abundance of great entrepreneurs; talented teams to support them; and investors covering every stage from the earliest seed to supersonic growth. Over the past ten years, Europe has not only seen a flourishing of entrepreneurs, but also a generation of talent emerge from local-hero tech brands. These range from ARM to Zalando, via LastMinute.com, Skype, King, Klarna, Supercell, Spotify and others, many of whom have gone on to found companies of their own.
Investment has followed a similar trajectory. Forty per cent of successful entrepreneurs are angel investors or mentors to the next generation of founders, while angel investment across Europe grew to €6.1 billion (£5.5bn) in 2015, from €5.5 billion two years earlier. In 2007, Europe had just one notable startup accelerator, Seedcamp. Today, there are well over 100, as well as a proliferation of operator-led early-stage investors including Cherry Ventures, Mosaic Ventures, Lifeline Ventures, Firstminute Capital and LocalGlobe. Alongside the likes of Accel, Index Ventures and others, new entrants such as private-equity firm EQT Ventures and our own $765 million (£579m) fund – one of the largest ever raised in Europe – ensure Series A-, B- and C-stage startups have the horsepower they require.
Meanwhile, Europe’s clusters of talent and expertise grow ever denser. Led by London, Stockholm, Berlin, Paris and others, the ecosystem has developed at a frenetic frontier-town pace. While those cities remain the hubs, entrepreneurship has ignited across the continent. In Germany, for example, investors are not just converging on Berlin, but on Munich, Cologne and Bonn, too. Lisbon, Madrid and Barcelona have become VC staples, as have Zurich, Vienna and Budapest. Yet despite this, Europe has only one solitary $100 billion technology company – SAP – in modern times. In 2018, this trend will change.
In part, the reason for the virtual absence of European $100 billion tech companies lies in the funding gap between Europe and the US. According to our own research, adjusted for GDP, VCs in the US raise 5.3 times more than their European counterparts. The gap is narrowing, but it remains pronounced at the later stages, meaning fast-scaling European startups are hobbled by a lack of available finance to go global and make acquisitions. Now, a new breed of super investor is joining the party. The pre-eminent North American example is Alphabet, with GV (previously Google Ventures), Capital G (Google’s growth equity fund), and now Gradient Ventures (which backs early stage AI startups). Even they appear to be taking an almost tentative approach – given the size of their balance sheets – when compared to Japan’s SoftBank, and Chinese behemoths Tencent and Alibaba.
SoftBank’s $100 billion Vision Fund, which so far includes investments in Nauto, Nvidia, Improbable and ARM – the latter two being European companies – was conceived to make macro bets on the technologies that will be vital to human life a decade or so from now. SoftBank’s founder and CEO, Masayoshi Son – famous for his 300-year plan – takes long-term holdings. This means no IPO, nor the distractions of the stock market or complex M&A. Equally, Tencent is making large-scale investments and acquisitions. Its stake in Supercell is a prime example of this exit strategy, and recently it demonstrated its appetite for venture capitalism by leading Lilium Aviation’s $90 million Series B funding round.
SoftBank’s ownership template, in which they enable VCs and other investors to exit, leaves founders very much in the cockpit and with a sizeable – around 20 per cent – ownership stake. Now other technology players with robust balance sheets, particularly the American giants, are playing catchup, making long-term bets outside of their core business.
With the European technology ecosystem swelling, in 2018 entrepreneur-investors such as Larry Page, Pony Ma, Jack Ma and Masayoshi Son will increasingly look to the continent. These founders, like us, are looking for businesses with bold intentions led by those with the ambition to tackle the world’s biggest challenges. There are a growing number of companies in Europe who fit that bill. Founder-investors who prioritise entrepreneurs and share in their vision, offer a compelling alternative to traditional sources of capital.