Undeterred by economic and political uncertainty in the region, venture capitalists continue to raise large sums of money for European tech start-ups.
European tech start-ups received more than $17 billion in venture funding last year, representing an 11% rise over 2015, according to Tech.eu, which tracks regional fund-raising. In February 2017, Skype co-founder Niklas Zennstrom, who now runs venture capital firm Atomico, announced a new $765 million fund – one of Europe’s largest-ever technology venture capital fund-raisings.
The fund’s main focus will be to identify promising new European companies that can eventually compete on a global stage. “We’ve had some political headwinds, but the underlying European tech ecosystem remains strong”, Zennstrom said. “Success of tech companies is very binary: They will work or they will not”, he added. “Some macroeconomic ups and downs are not going to make a big difference.”
Silicon Valley still dominates the global technology sector, and while Europe’s fund-raising efforts have been increasingly robust, they fall far short of funding in the US. Tech companies there raised over $40 billion in 2016, according to research firm CB Insights. “Going forward, Silicon Valley won’t be as important if you’re an entrepreneur building a start-up”, said Jeppe Zink, a partner at Scandinavian venture firm Northzone, an early backer of Spotify. “But right now, it’s still the place to beat when growing a company.”
European tech start-ups are positioned to avoid some of the pitfalls that have tripped up their Californian counterparts. While the success stories of American tech start-ups are the stuff of legends, many received millions or billions in funding, only to flop. Because Europe has a smaller pool of venture capital and start-ups are thus expected to be more focused and generate revenue early on, they are less likely to burn through their capital quickly. “In Europe, we don’t have the luxury of endless amounts of money”, said Zennstrom. “We’ve had to work in a smarter way.”
From Zennstrom’s perspective, the significant drop in the cost of technology, along with an increasingly global pool of tech talent, are making it easier than ever to start a company in Europe. But as the New York Times notes, the European tech sector still faces challenges. For one, entrepreneurs are questioning the post-Brexit future of London, Europe’s biggest tech hub – particularly in regards to a potential talent shortage. Ahead of Britain’s departure from the EU, UK tech leaders have called for a new visa scheme to avert a skills crisis in the industry.
