Is it irrational exuberance, or the shape of things to come?
London-based investment fund Atomico – funded chiefly by Skype money – has a new report about innovation in Europe, a report that’s a lot more optimistic than most of the tech news coming out of Europe.
In its second “State of European Tech” report, Atomico researchers, working with data from LinkedIn and other sources, as well as interviews with 1,500 European founders, found tech is “thriving and diversifying.” Headlines in the tech press harken back to the “anything is possible” days of a few years ago.
“Europe is poised to give Silicon Valley a run for its money,” trumpets TechCrunch. Though our favorite quote is on the CNBC post: “Europe will produce the next Facebook within 10 years: Skype co-founder”
Though European tech investment is growing, somehow the effort never seems to quite translate into market share, market capitalization or net income. We hate to spoil the party this early in the post, but on the 2015 Financial Times Global 500 of companies ranked by market value, there are three European companies – Novartis, Nestle and Roche – ranked in the Top 25. All three are based in Switzerland. All three are either more than 50 years old, or – like Novartis – a merger of long-established companies.
By contrast, the No. 1 company, Apple, was founded in Cupertino, Calif. in 1976. There are three American digital companies in the FT Top 25 – Apple, Microsoft and Google – along with tech companies from Asia including Samsung. You have to go to No. 87 on the list before you get the first European digital company, Walldorf, Germany-based software maker SAP.
Otherwise, there is literally no European company on the Global 500 that’s not heavy industry, conventional electronics, finance, insurance or pharma unless you count fading cellphone companies Ericksson and Nokia.
But Atomico ‘s point is that investment – long far, far behind the U.S. and China – is finally getting traction, and that Europe is about to finally emerge as a tech player.
Points from the report:
• Since 2011, the number of deep tech startups – robotics, AI, space research or any advanced technology – founded here has grown three and a half times, with about $2.3 billion in investment since 2015. That’s compared to $1.7 billion invested between 2011 and 2014, or an increase of about 35 percent. Though the timeframe seems cherry-picked. With one month left in 2016, deep tech startups are on track to raise almost $1 billion, four times the capital invested in 2011. During the past 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, according to the report.
We should probably say here that’s about 10 percent of the U.S. investment in DeepTech by Google and Amazon.
• Atomico report states traditional industries are awakening to tech. Two thirds of Europe’s largest corporates by market cap have made a direct investment in a tech company while one third has acquired a tech company since the beginning of 2015, states the report preface. Basically, this is about all the banks investing in fintechs startups, and all the conventional companies investing in incubators and accelerators in hopes of catching the next big tech wave without actually having to innovate themselves.
• Atomico researchers found new tech hubs are emerging beyond the traditional order of London, Berlin, and Stockholm. The report projects Munich, Zurich, Lisbon, Madrid, and Copenhagen will emerge during the next few years. “Paris is starting to seriously challenge London and Berlin in terms of the number of VC-financed deals and deal volume.” Again, we see no empirical data to back this up.
There are in the report dozens of gee-whiz charts and graphs showing Europe has the best research universities and institutions, and that tech produces more new jobs than any other sector.
What we have seen first-hand in Eindhoven is an increasingly sophisticated, increasingly well-funded ultra-high-tech segment. ASML, which we’d argue is the most sophisticated high-tech company in the world, is here, building the 50 million-euro plus photolithography units that create cutting-edge computer chip architecture for phones and other devices. No chips, no tech.
We’d argue the Netherlands deserves more attention in the State of European Tech report with some of the most advanced deep-tech companies in Europe based in Eindhoven, Amsterdam and other cities. If you consider the Netherlands in toto as Silicon Region, again, it’s created more real companies than even Berlin and Stockholm including chip maker NXP, ASML, fintech unicorn Adyen and Booking.com.
But we also see the increasing trend of US-based tech giants snapping up emerging Dutch companies before they mature. Witness San Diego-based Qualcomm $40 billion purchase of Eindhoven-based NXP last month.
Oddly, Atomico doesn’t mention one of the biggest handicaps Europe has, which is affordable housing. Daniel Ek, co-founder of Spotify, wrote an open letter back in April threatening to move his company to Silicon Valley if Swedish policy makers didn’t find a way to both stimulate Stockholm’s notoriously tight housing market as well as liberalize tax laws regarding stock options, crucial incentives in the tech and startup world.
“It’s crazy to us that Europe has a larger population than the U.S. and hasn’t had one company that can be compared to Facebook, Google, Apple, Microsoft, Amazon and the other American enterprises. We want to prove that it can be done!” the letter stated. Something we quote often.
The more likely scenario for Europe is that it remains the R&D hub for American and Chinese companies.
As we’ve pointed out before, American companies pretty much take what they want in Europe.
And remember this – 30 percent of all venture funding in Europe comes from … the U.S.
About Atomic (from its website):
We founded Atomico with three core beliefs:
- Great companies come from anywhere
- Technology is transforming every sector of our economy
- Successful battle-scarred entrepreneurs and operators are best placed to help the most disruptive founders succeed