Co-Founder and CEO of the Copenhagen-based company Contractbook that is supported by Google via Gradient Ventures.
According to a recently published report by the British venture capital firm, Atomico, European tech companies raised investments totaling a projected $41 billion in 2020. That makes 2020 a record year for European tech despite the pandemic and all the economic hardship it has caused. Last year alone, the value of European tech companies rose by 46%.
2020 is a temporary culmination of years of increasing interest in the European tech market. Today, 38% of all seed-capital is raised by European startups. The number of employees in European tech has increased by 43% over the past four years, and the amount of venture-capital on the old continent is continuously rising. As Bessemer Venture Partners recently wrote: “Silicon Valley doesn’t have a monopoly on innovation and entrepreneurship is a borderless endeavor.”
Part of the success of the European tech industry is a result of the global digital transformation, which has accelerated over the past years and made tech companies more lucrative in general. Another important element is that digital technologies have enabled European companies to raise money remotely and communicate seamlessly across the Atlantic. With the rise of remote culture, tech companies are not required to have a strong presence in tech hubs, such as Silicon Valley, and can instead take advantage of all the distributed talent worldwide.
An important trend is also that American VC funds have become more open to European companies where it is easier to enter at an early stage and strike a good deal. Instead of investing in poorly performing companies with substandard unit economics, VCs have looked across the Atlantic searching for good tech companies in Europe. The result is more investments in European tech and a higher valuation for these European tech companies.
The entry of American VCs is a gift to European tech, not just because of the capital they bring, but also because of their vast experience, innovative mindset and modern yet collaborative approach to being an investor.
Another critical element in this success story is the European Union. The days of self-regulation in the tech industry are over, and thanks to The Brussels Effect, the European Union can set the regulatory standard worldwide and shape the values that the market operates. Examples of this include data privacy and GDPR, or the sustainability agenda throughout the past decades. By regulating the market in this way, the EU, in a sense, defines the rules of the game, enabling Europe to design a space where European companies can thrive. So far, the European Union seems like the only agent willing and able to set the regulatory standard, which could become a major advantage.
In general, Europe has become more of a global tech hub as European countries have invested in nurturing a more fertile environment for tech companies to thrive in. More IT graduates means more talent for European companies. A relatively stable and predictable political climate has given European companies a chance to focus on their businesses. Finally, the European Union and the member countries have had a political will to invest in public digitization and the digital infrastructure.
It seems banal, but just getting a faster and cheaper internet connection makes a difference. As European countries have digitized their public sectors, they have created a solid foundation for their tech companies by reducing paper-heavy processes and making people more comfortable with digital processes. If you are curious to see just how progressive a government can be, then just check out Estonias digital society e-Estonia as an example.
Finally, European tech companies’ success also comes down to the fact that they are performing well. American VCs would not invest in European companies if they did not produce some fantastic products and delivered impressive unit economics. Companies like Skype, Spotify and Deliveroo have shown that European companies can yield significant results and compete globally.
There is, of course, still a significant gap between the U.S. and European scene. But Europe is no longer a joke — there is momentum for European tech. I believe we must continue to invest in creating an innovative environment where European tech companies can grow. We must continue to digitize the public sector and increase public trust in digital processes. The European Union must continue to use its position to create an advantageous playing ground for European tech, while ensuring fair standards and regulations. The world is begging for a European approach to technology, one where responsibility and sustainability go hand in hand with innovation, but I believe it is up to us leaders in the tech space — and the European Union — to secure it.
If this goes well, we are about to enter a golden age for European tech.