Europe’s Booming Startup Ecosystems

Europe’s startup ecosystem has thrived during a turbulent 18 months. Globally there are 79 ecosystems generating over $4 billion in value: more than double the number identified in 2017. A majority are in Europe.

Covid-19 crystallized European nations’ state support of and belief in startup ecosystems as the lifeblood of our economies. Take the Future Fund, created by the government in the United Kingdom to propel companies through the pandemic. It is estimated to have supported 11% of U.K. equity deals announced last year, with roughly $1.4 billion. Such increases in state-backed funding have been widespread across the continent, contributing to Europe’s success on the global scene. The average value created by European startup ecosystems in this year’s GSER period is $6.3 billion, second only to North America.

Other factors are affecting Europe’s startup ecosystem: among them sector tailwinds, Brexit, United States-China tensions, the emergence of new hotspots, and the prioritization of countries across Europe when scaling and seeking talent.

With the 26th UN Climate Change Conference around the corner and increased attention to individual governments’ net-zero targets, Climatetech represents a significant investment opportunity. The EU Commission’s partnership with Bill Gates to spend $1 billion building large-scale Cleantech demonstration projects and the U.K. government’s $233 million pledge to Greentech are among the challenges likely to attract startups. This sector’s momentum will only continue over the next decade.

It’s great to see Europe taking three of the Top 5 spots for Connectedness. London, Berlin, and Amsterdam are thriving on their international relationships, cross-border funding, and exchange of ideas. But we don’t yet know what impact the increased friction across Europe created by Brexit will have on the startup ecosystem. Some people argue that friction is a good thing, leading to better moats and bigger margins.

Global political forces may also affect Europe’s tech ecosystems. As friction between China and the United States grows, will Europe become increasingly attractive not only to U.S. venture capital (as indicated by Sequoia’s and Tiger Global’s European presence here), but also to Chinese investment? Asian investment in Europe reached a record high earlier this year in terms of numbers of deals, according to data from GP Bullhound. Each country’s receptivity to this extra-continental funding will shape the future of Europe’s ecosystems.

Expansion priorities, too, are shifting. Once upon a time, if you established your company in the United Kingdom, France, and Germany, then 70% of your work was done. The emergence of new, top-performing hotspots across Europe has changed that. Dublin continues to flourish, thanks to Big Tech’s presence and considerable state funding for early-stage entrepreneurs. (For the first time it is a Runner-Up in the Top 30 Global Ecosystems list.) Excitingly, Europe dominates the ranking of Top 10 Emerging Ecosystems, with five countries. Barcelona zipped past fellow Spaniard Madrid to #5, where it ties with Estonia, which rocketed up from #14.

Attracting technical talent is vital to European success. Over the past 18 months we have witnessed a huge tailwind in hiring diverse talent and funding underrepresented founders. But there remains much to do at a grassroots level to ensure we create a generation of diverse technical talent. Public- and private-sector partnerships will be key, as we discovered with our launch of 01 Founders: free-to-access coding schools with job guarantees for students of all ages. Each country also must establish favourable visa processes for entrepreneurs and technical talent to ensure it can compete in the talent race.

In sum, while it’s no surprise to see the continued exponential growth of Europe’s tech ecosystem, both in number of deals and total funding, individual countries have a lot in play. How countries respond to state funding of startups, the influx of U.S. and Chinese venture capital, Brexit, hiring environments, and the need to nurture talent will influence who produces the next batch of ecosystem success stories.