Has European tech captured Silicon Valley’s momentum?

11 Dec 2017

Softbank’s David Thevanon, Atomico’s Niklas Zennström and Founders Forum’s Brent Hoberman talking with Atomico’s Sophia Bendz at Slush 2017. Image: Kai Kuusisto/Slush Media/Flickr (All rights reserved)

Deep tech, such as AI and robotics, and solving environmental problems could drive European tech into the stratosphere, writes John Kennedy.

Let’s be clear from the start: Europe will never match the Silicon Valley engine for the sheer amount of capital available and the enduring legacy of the place as a magnet for the world’s technological talent. That is unless US president Donald Trump and his minions have their way, of course, by disrupting the true secret ingredient of the Valley: its diversity.

But, sitting in the crowd at Slush in Helsinki just over a week ago, you couldn’t help but feel that Europe has captured a fair dollop of the Valley’s former passion and momentum … for now.

‘We are living in the law of accelerated returns. In the next 10 years, we will see more disruption than in the last 10’

Bloated by its own success and beset by scandal after scandal, from the outside it feels as if the sheen has momentarily gone from Silicon Valley’s crown, and there is the ever-lurking suspicion that its residents have a hard time realising there is a whole wide world outside the Valley.

In Helsinki, though, the mood was buoyant. Revealing the findings of the latest State of European Tech report, Tom Wehmeier, partner and research director at venture capital firm Atomico, proclaimed that the destiny of Europe’s tech scene is in the hands of the Europeans.

The report revealed that a new landmark in European tech funding was reached in 2017, with more than $19bn raised, compared with $14.5bn last year and $10bn in 2015. Not only that, but now more than 41 European tech firms qualify as unicorns and more than 50 investment rounds worth more than $50m were sealed this year, compared with 43 last year.

Wehmeier said there are now more than 5.5m professional software developers in Europe comparied with 4.4m in the US and that overall, technology jobs are growing 10 times faster than the rest of the European economy combined. “And that growth rate is accelerating. Last year it was 2.1pc, and this is now 2.6pc.”

Describing the war for talent in Europe as a “battle royale”, Wehmeier said that European tech firms such as TransferWise, Zalando and Spotify are absorbing the battle by building their companies in a distributed way across Europe.

Wehmeier said that outside of venture capital, on a public markets front, European tech IPOs also outperformed the US by some margin. “Every dollar invested in every European IPO would have four times the returns delivered versus US on a weighted aggregate basis.”

He said that Europe is “going big” into deep tech areas such as AI, big data and robotics. “The European deep tech firms want to scale themselves, and the world’s biggest investors want to back them. Some $3.5bn is on track for investment in deep tech in Europe.”

What is sparking this momentum in Europe?

The key isn’t a sudden change in attitude or fortune. European tech is simply growing up, and its founders are ploughing money back into new and emerging ventures – and so, patience is its own reward.

Rovio Entertainment CEO Kati Levoranta attributed the success of one of Finland’s biggest gaming companies and the creators of the Angry Birds franchise to an attitude known in the local vernacular as sisu, which is a way of describing determination, grit, bravery and resilience. She reminded the audience that Rovio had developed 51 games before Angry Birds was launched in 2009, changing everything.

Skype co-founder and Atomico CEO Niklas Zennström said that the change is ambition. European tech founders are more ambitious and they are putting their money back into the ecosystem.

“It has almost been like night and day. The big question was always: can you build great tech companies in Europe? Well, the European tech ecosystem is proven and it works and, over the years, more companies have been founded; there is more money in the ecosystem and valuations being driven.”

Atomico sits at the top tier of Europe’s funding ecosystem, having led major investments in players such as Rovio, Supercell, Klarna and many others. It won big time when Supercell sold a majority stake to China’s Tencent for $8.6bn. Earlier this year, Atomico closed its biggest fund yet, raising $765m to invest in the future.

Zennström said that raising the fund was driven by the need to match the ambitions of European founders. “There is no doubt there is a higher level of ambition in Europe than 10 years ago. We are also seeing a continuous drive toward deep tech like AI and internet of things, which is tremendous.”

Sitting alongside Zennström was Brent Hoberman, co-founder of Lastminute.com and Founders Forum. Hoberman said that he believed what’s changing is that European founders are investing in other European founders. “Serial entrepreneurs in Europe are gaining momentum. They want to give back and help younger founders. This is resulting in more seed funds and investors. There is a robotics arms race and governments are investing. Finland is doing a great job attracting talent into the ecosystem. That can only help surface the best entrepreneurs.

“Entrepreneurialism is now a career choice. It wasn’t before. Today, if you are an entrepreneur, you are considered the best of the best. In my day, you just went into banking and consulting.”

The managing director of SoftBank, David Thevenon, picked up on this theme: “We are seeing more ambition and talent emerge in Europe. We have heard of rounds of €50m or more and this is really encouraging. We are seeing more and more European entrepreneurs coming to us with big visions, focused on deep tech and complex problems. We find that really, really exciting. Investors are more and more able to fund businesses and that’s great because we are in business to help them scale. Look at Unity from Copenhagen or Improbable from London. Improbable are an amazing company that started focused on gaming but now have technology that can be applied to cities everywhere. European corporates are realising this transition is happening.”

Hoberman chimed in: “There are record amounts of funding from European corporates going into tech firms. 20pc of funding comes from corporates. That’s because they find a market fit and can help start-ups to scale. L’Oréal, Aviva, EasyJet – those are the companies that are doing it. They realise they need to work with innovative entrepreneurs today.”

But, crucially, Thevenon said, European tech firms are not only hungry and ambitious, but are demonstrating return on investment. “A good example would be Supercell. We financed them in 2013 and gave them €1.5bn, and that helped them to stay independent and build the best mobile games and go global. They wanted to build the first and best mobile company. If they have truly global ambition, we will help them scale.”

Fix the future by being focused on the present

As well as a focus on deep tech that is being bolstered by STEM grants from governments, resulting in the wheels turning on the creation of more graduates, start-ups that can generate great returns to society are capturing investors’ imaginations.

“In Germany, Lilium is creating the electrical aircraft of the future,” said Zennström. Farmdrop in the UK is changing the supply chain. I truly believe that these are the companies that will be great tomorrow. It is all about talent. The best idea doesn’t always work, you need to have talent. Millennials are more willing to buy products and services from companies with values. From an environmental and social point of view, it is good business practice to invest in those companies.

“For Europe, it is all about playing to our strengths. Finland, for example, is one of the most egalitarian and environmentally friendly countries.

“We are ahead of the curve compared to the rest of the world by thinking of these things.”

He concluded: “We are living in the law of accelerated returns. In the next 10 years, we will see more disruption than in the last 10.”

The big question now is: how does Europe sustain this momentum?

Silicon Valley is what it is and, with characteristic energy, it will move onto the next big thing, or things. There is nowhere like it on Earth. And perhaps there will never be.

But Europe’s distributed approach to solving talent shortages, and the existence of STEM grants and initiatives such as Horizon 2020, are reminiscent of the industrial complex that spawned Silicon Valley in the first place.

But Zennström, Hoberman and Thevenon are also right to point to factors such as solving world problems, diving into deep tech and the reality that Europe is moving faster than the US in terms of increasing graduate output.

Momentum can only be guaranteed if we continue to think big.

Softbank’s David Thevanon, Atomico’s Niklas Zennström and Founders Forum’s Brent Hoberman talking with Atomico’s Sophia Bendz at Slush 2017. Image: Kai Kuusisto/Slush Media/Flickr (All rights reserved)

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John Kennedy is a journalist who served as editor of Silicon Republic for 17 years