A window into the state of European technology and investment
More than $20 billion of investor capital will flow into European technology companies this year, up four-fold from the $5 billion in 2013. There are now 61 companies valued at > $1 billion in Europe, with 17 more added in 2018 alone - marking an annual record. Globally, three of this year’s largest tech IPOs were European. I recently took a wintertime trip to frigid Helsinki, Finland for the Slush conference to be reminded just how hot the European tech and VC ecosystem has become. I wanted to share several observations, themes, and surprises that emerged from the conference.
The annual Slush conference in Helsinki attracts more than 20,000 entrepreneurs, investors, and industry thought leaders from around the world. The goal of Slush is simple but powerful: bring together the global technology community and share the latest thinking around entrepreneurship, operating, and investing, especially within the European theater.
As its name might suggest, the weather during Slush was cold, dark, and damp. Total daylight in Helsinki this time of year is about 5 hours if you're being generous. With that said, the winter environment is intentionally woven into the conference’s design and plays an important role in the way that Slush creates such a powerful community. The outdoor conditions make it hard to do much else other than stay inside and connect with others for hours upon end.
But the darkness and frigid temperatures outside are more than offset by the warmth and sense of excitement inside. Slush is one of the most diverse technology meetups on the planet. The collaboration among entrepreneurs and investors is palpable. In a sector of the economy that is often criticized for its competitiveness and homogeneity, there is a real sense of unity among attendees, reflecting the collective understanding that great technology ecosystems cannot be built by any one person or entity, but by the effort of many.
It is clear that Europe is transforming into one of the world's hottest regions for technology development and investment, and those behind Slush want to make sure that they are doing everything in their power to help sustain this momentum.
Here are a few thoughts and themes that emerged from my conversations at the conference.
- As the figures above demonstrate, there is massive growth underway in the European technology ecosystem and the region is gaining wider recognition on the global stage. Europe is now attracting investment dollars from sophisticated investors on both the GP and LP sides, with the average European VC fund size at a near all time high. Simply put, more investment capital is now available to entrepreneurs than ever before. Interestingly, and counter to this trend, overall employment growth across sectors in Europe has remained tepid at best (and in some parts of the region, even more severe economic conditions exist). European technology development may therefore be one of the region's most powerful mechanisms of sustaining economic growth, and all the more reason why such excitement exists within the region’s tech ecosystem.
- Europe is often eclipsed by the U.S. when it comes to venture investing and technology development. In one sense, that is understandable. Last year, for example, venture deals in the U.S. represented $76B in total commitments versus $18.1B in Europe (or 4.2x the amount during the same time period). With that, 2018 has been a banner year for Europe in terms of mega IPOs (defined as technology companies with > $5B market cap on their first day of trading). This year, the number of tech IPOs of this size in Europe has been 2x that of the U.S. Within Europe: Spotify, Adyen, Elastic, and Farfetch; within the US: Dropbox and Docusign. This is continued evidence that Europe is able to manufacture technology companies of global scale as the region continues to push further into the global theater. And this trend is not new. Lest it be forgotten, some of the world's most successful tech businesses were born in Europe: Skype, Zendesk, Supercell, and King Digital, to name just a few. What adds to the hype is that entrepreneurs from this first generation of best in class companies are now beginning to re-circulate into the broader tech ecosystem and build the next generation of great companies in Europe.
- There is a deeply entrepreneurial, "boot-strappy" mentality amongst entrepreneurs in Europe - and during my conversations at the conference, this became even more apparent. Company leaders seemed just as excited by (if not more so) in building companies for the sake of making great products, as much as they did around building businesses for successful financial outcomes. The European companies that I spoke to were growing more slowly (or perhaps methodically) than their U.S. counterparts, but were doing so more efficiently and with less investor capital. Given that most VCs are paying for growth, this may be one explanation why company valuations in Europe, broadly speaking, are less elevated than their American counterpart.
- Just as there is a growing sense of community across the European tech ecosystem, there are just as powerful regional idiosyncrasies. Finland, for example, is a home of a deep, technical talent base that has become particularly well-known for their expertise in gaming. Given that the country is the home to Supercell and Rovio (among others), this may come as no surprise. Sweden, for example, has developed a reputation for housing best-in-class designers that have produced some of the most user-friendly consumer technologies on the planet (take both Skype and Spotify for example). These nuances exist throughout Europe, and as such, many of the European investors that I spoke to divided their focus and coverage by geography (rather than by sector) in order to best account for these differences.
- But perhaps more important than any of the above is the deep sense of collaboration that exists between entrepreneurs and investors in Europe. I hadn't quite seen anything like it before in my investing career. This may be engendered by any powerful movement that is in its early innings of development, but I think in this case, there is something deeper happening. For a long time, Europe has been one of the regional underdogs of global technology development and venture capital, but that is now starting to change in a big way. My read on the situation is that there is an inherent sense of pride from European entrepreneurs and investors alike to work together in creating a bigger presence of Europe’s tech ecosystem on the global stage. And that was something no one at the conference was taking lightly.
In sum, Slush has created a special community around the development of and investment in technology across Europe (and around the world, more broadly). The growth signals of the European ecosystem are now becoming obvious, and 2018 has been a hallmark year of growth for the region in terms of invested capital and meaningful public exits in technology. Taken together with the level of technical talent and collaborative spirit of the ecosystem, this is an environment that is well-positioned for continued growth and opportunity. I was compelled by what I saw at Slush, and I suspect most other participants would say the same. I look forward to returning next year.