You might think Europe is treading water these days, with one of its biggest financial centers, London, hamstrung by Brexit and the uncertainty it has fostered.
You’d be wrong. So suggests a new survey by the venture firm Atomico that persuasively argues that Europe’s tech scene is instead being fast propelled forward by three new trends: a well of so-called “deep tech;” a growing number of tech hubs across the continent; and expanding interest by corporate investors, non-tech companies, and foreign giants in European tech startups.
The numbers Atomico cites are eye-opening. With the help of companies like LinkedIn, Meetup, Stack Overflow, Dealroom.co, and the London Stock Exchange, as well as survey responses from roughly 1,500 founders, investors and tech employees, Atomico says that deep tech companies have attracted $2.3 billion in investment over the last 22 months, and that nearly 1,000 related startups have been founded over the same period.
Deep tech, per Atomico’s definition, means startups that employ artificial intelligence; are focused around virtual reality or augmented reality; fall into the “frontier tech” bucket, meaning they make drones or robots or nanosatellites or similar; or have sprung up around the Internet of things, from wearables to smart home startups.
Some of these companies are in Zurich, including Teralytics, a big data company backed by Horizons Ventures and Lakestar; Climeworks, which has figured out how to suck carbon dioxide out of the air and aims to remove 1,000 metric tons a year of the greenhouse gas with its first commercial plant just outside of Zurich; and the computer vision company Dacuda.
A growing number are spread across a number of other hubs, too. Over the last five years, there’ve been 582 investments in deep tech companies in France alone, for example. In Germany, that number is 480. In Finland, it’s 137. In the Netherlands, it’s 332, by Atomic’s accounting.
There’ve been 282 related deals in such companies in 2016 alone, up from five years ago, when that number was 55.
Are those Silicon Valley-type numbers? No, but there’s reason to think that gap in funding — which is roughly fivefold right now — will start to narrow.
For one thing, as Atomico notes, a growing number of U.S. tech companies have set up shop in Europe, and those European employees are just as likely as their U.S. counterparts to start their own companies eventually. Alphabet is now in Zurich and London. Facebook is in Paris; London; and Somerset, England. Apple is in Cambridge; Berlin; Lund, Sweden, and Grenoble, France.
(Conglomerates headquartered in China are also planting flags in Europe, including Rakuten, which now has an artificial intelligence center in Paris. Baidu is reportedly figuring out its Europe strategy right now, too.)
Another important accelerant: M&A, says Tom Wehmeier, a principal at Atomico and its head of research. “We’re not only seeing teams grow organically across Europe, but we’re starting to see a number of European companies being acquired by Asian companies and bigger tech firms that are local growing more acquisitive.” Wehmeier cites the sale last week of Edinburgh’s SkyScanner to China’s Ctrip; Tencent’s deal to buy Finland’s Supercell Oy back in June; and Softbank’s deal to acquire U.K.-based ARM Holdings. Meanwhile, U.K.-based Funding Circle has also begun making acquisitions, as have Spotify, SAP, and other big European brands.
Not last, as in the U.S., Europe is starting to see a growing number of corporate venture funds spring up, and an uptick in the interest of pension funds in backing tech startup. Right now, says Atomico, there’s at least $2.7 billion in committed capital residing with companies. Pension funds are also starting to invest more in venture firms, says the firm, though it admits that conclusion is anecdotal for now.
Says Siraj Khaliq, a firm partner who previously cofounded The Climate Corp. (acquired by Monsanto), “A lot of pension funds are by their nature conservative. But it’s baked into their estimates that they’ll be able to [produce a] 5 to 6 percent [return] a year and they can’t make those ends meet anymore. It’s taken these professional investors a while to understand that tech isn’t funny money, but these same people are [awakening to the opportunity]. Generally people now recognize that tech is very real.”
You can find the full report here; it’s worth a read.