The State of Investments in Europe Part II: A deeper dive into the core hubs of European Tech
Christian Hernandez is the Managing Partner of White Star Capital and Stephen Piron is co-founder of data-analytics firm BrightSun. The data for this post was compiled from multiple channels through the BrightSun business data tool.
As a follow up to our first post, we decided to drill down into the state of investment in Europe over the last five years and to look at the momentum across the major markets in the region.
Seven key countries (UK, France, Germany, Italy, Spain, Sweden and Finland) represented 65% of all transactions across Seed, Series A and Series B done in Europe between 2009 and 2014, but there were also some interesting insights into the rise of Eastern Europe during this period.
A number of interesting trends emerged from the data: The dominance of the UK across Seed, Series A and B, the strong position of France across these stages despite the negative rhetoric in the tech press, the accelerated growth in early-stage funding in Eastern Europe and the visible outlier in the median round sizes in Sweden relative to the rest of the region.
UK dominates but France is a surprising second
Across all deals done in Europe during the 5 year period, the UK dominates with 30% of all deals done at Seed, Series A and B. This percentage has held consistently year on year, even as the number of Seed deals increased 8-fold across Europe and doubled for Series A.
Interestingly, France was a strong number 2 across Series A and B ahead of Germany. This differs from the tech press focus on Berlin and the general press’s “France-bashing” on its loss of entrepreneurs. We reached out to Oussama Amar, co-founder of Paris-based incubator TheFamily for his take on the gap between perception and money flow.
“It’s understandable. Communication is seen as the devil in France, for whatever cultural reason. ‘Don’t communicate if you’re unsure about the outcome, we may be wrong’ is a commonly heard sentence in France. This is a big problem in a global market where everybody needs to learn to communicate. And what does that even mean to be sure about an outcome anyway? Also, and there’s a corollary to that, many French Series A/B are not global by nature, making them uninteresting on a global scale and thus unmarketable in global perception.” Oussama Amar, co-founder TheFamily
So it would seem that the French tech scene could benefit from some positive PR spin. It has an amazing educational system that churns out world-leading algorithm builders and entrepreneurs. Tariq Krim, as part of a government initiative, does a fantastic job of documenting [FR] over 100 French-born developers and entrepreneurs influencing tech worldwide including the founders of Ebay, Feedly and Eventbrite.
Rise of the East
The data showed an impressive amount of growth in deal-flow at the early stage in more recent years from Eastern Europe, especially from Bulgaria, Ukraine, Latvia, Lithuania and Romania (inspired by the BRICs, lets call them BULLRs). Bulgaria alone had close to 100 seed deals in the 2012–2014 period.
Russia also accelerated its dominance of the East in Series A and Series B deals with 63 Series A deals between 2012 and 2014 and 28 Series B deals. Time will tell whether the BULLR startups funded in recent years can scale up and raise further rounds, but the data seems to signal an interesting momentum from the region. For clarification, a company that started in Bulgaria and then moved to London or the US for subsequent rounds, is still considered Bulgarian for this analysis.
We reached out to Cem Sertoglu of EarlyBird who recently raised a $130M fund to support startups in Turkey and Eastern Europe to get his take on the acceleration of the startups scene in the region and he said:
“With a boom in local mobile usage and a growing pool of experienced entrepreneurs in the region, Eastern Europe has been well placed to benefit from capital chasing technology investments spilling over from the west. In Turkey alone, the increase in smartphones is expected to at least triple the number of consumers transacting online over the next five years, creating numerous attractive markets for local ventures.
The rising crop of serial entrepreneurs in the region is also now benefitting from ready and willing early-stage backers for whom they had generated a strong ROI the first time around. A drawback to this boom in seed and Series A rounds is a common equity gap in the $5–10m range. That’s why we felt that the need for a >$100m local VC fund
was critical.”
Cem Sertoglu, Partner, Earlybird
Sweden as an outlier
Finally, we looked at the average size of the investment by stage across the last 5 years, and as the graph below shows, Sweden was the largest outlier at every single stage. We initially thought that the data might have been skewed by a lower number of deals across stages, but Sweden actually had 67 seed stage deals during this period, 32 Series A and 17 Series B.
We turned to PJ Parson, of Northzone and Board member of Spotify for his take on the Swedish ecosystem. He started by mentioning the high-profile startups in Sweden in recent years including Spotify, Klarna, Truecaller, iZettle and KNC Miner and then said:
“I think Sweden, and Stockholm in particular, has in this period managed to reach critical mass in most parts of the ecosystem. There are some key role models in the system like Daniel Ek, Martin Lorentzon, Sebastian Semiatkowski, John Elvesjö and Jacob De Geer that embody the idea of strong entrepreneurs with big ideas, rock solid execution that also help each other and are willing to play a role in the ecosystem — and now there are a number of next gen role models emerging such as Sorosh Tavakoli, Alan from Truecaller and some others.
The Swedish market has also benefitted tremendously from having stayed healthy through the financial crisis, attracting lots of talent from abroad to move there to work in the hot startups. Also, you will find experienced and internationally well connected investors from seed stage all the way up to D-rounds which actively help the startups to reach the next level.”
PJ Parson, Partner, Northzone
Opportunities ahead
The data signals some great momentum across the European region but it also highlights some challenges. As we highlighted in our first post, the region still faces a funding gap to support early-stage businesses and this is even more acute outside of the core countries. While the educational systems of many of these countries generate amazing talent, we also face a challenge in being able to scale a large Google-level engineering team in Berlin or Stockholm or Sofia. But at the same time, we are seeing European entrepreneurs throughout the whole region start with a much more ambitious, global view rather than seeking to be a local leader.
What remains clear is that while other European sectors struggle, the tech industry continues to boom, providing an opportunity for local entrepreneurs and investors, and some much needed good news for the region.
