European start-up funding triples to a new record above $100 billion this year

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  • According to a report by venture capital firm Atomico, start-ups in Europe are on track to raise a record $121 billion in funding this year.
  • Europe is now home to $321 billion of “unicorn” companies, 98 of which were mined this year.
  • The European tech company’s exit this year generated a combined $275 billion enterprise value.

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London: Europe’s technology sector is on fire.

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According to a report by venture capital firm Atomico, start-ups in the sector have raised a record $121 billion in funding this year, almost three times the $41 billion it raised in 2020.

It marks the first time a European start-up has raised more than $100 billion in a single year, and highlights the growing investor interest in the continent’s booming tech industry.

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“It’s been a defining year for European technology,” Tom Wehmeier, head of Insights, told Businesshala. “I think what we’ve seen in the numbers is that European technology is creating value faster than ever before.”

Based on findings from data firm Dealroom, Atomico’s latest annual “State of European Tech Report” shows that the total equity value of European tech companies in the public and private markets exceeded $3 trillion for the first time in 2021.

“It took us decades to reach the first trillion in equity value in technology from Europe,” Wehmeier said.

“We only reached that milestone three years ago in December 2018. And then we went from $1 trillion to $2 trillion in 24 months, and then this year, the most recent trillion has been added in eight months.”

Europe is now home to $321 billion of “unicorn” companies, 98 of which were mined this year. According to Atomico, there are also 26 so-called “decacorns” worth $10 billion or more, including Klarna, Revolut and Checkout.com.

Tech start-ups were a major beneficiary in the adoption of online services during the coronavirus pandemic, Wehmeier said.

flywheel effect

According to Wehmeyer, Europe’s tech sector is gaining momentum in new ventures due to the “recycling” of talent from former success stories.

“People from one generation of companies are moving on to become the next generation, whether as founders, as builders, or as investors,” he said.

The year was also a record for “exits” such as mergers and acquisitions and initial public offerings in Europe. The European tech company’s exit this year generated a combined $275 billion enterprise value.

Notable deals include the blockbuster direct listing of British fintech firm Wise and the $8.1 billion sale of Finnish food delivery company Vault to US rival DoorDash.

Another key driver of growth for Europe’s start-ups is increased demand from large international investment firms such as Tiger Global, Cotue and SoftBank.

Fresh competition has kept European venture capitalists on their toes. For example, Atomico is raising about $1.2 billion to invest in European tech firms, while Balderton Capital has secured about $1.3 billion this year for two new funds.

This is helping to create a so-called “flywheel” effect where more talent and more capital leads to a nicer cycle of growth, Wehmeyer said.

challenges ahead

However, not everything is pink in European technology.

According to Atomico, despite venture-backed companies raising record levels of funding in Europe, early-stage firms are being squeezed.

Less than 1% of venture capital invested in the first nine months of 2021 went to established companies this year, a figure that typically ranged from 1-3% in earlier years.

Meanwhile, diversity remains a major issue. Only 1.3% of venture capital funding in Europe goes to start-ups with ethnic minority founding teams, Atomico said, citing a survey of more than 5,000 tech professionals in the sector.

Another obstacle for Europe to overcome is the lack of pension fund allocation for start-up investment, Wehmeyer said, adding that European pension funds set aside less than 0.02% of their $3 trillion for venture capital funds.

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