So, where are Europe’s unicorns?

4 Aug 2015

How many European start-ups are now in the unicorn club?

As Ireland’s Collison brothers join the unicorn club in Silicon Valley with a US$5bn valuation, what about the state of play in Europe. Does Europe really have any unicorn-class tech companies, and does it need them, asks John Kennedy

It is perhaps ironic that the only Irish member of the unicorn club – that is, start-ups that are valued at more than US$1bn – isn’t an Irish company at all, but a Silicon Valley tech start-up called Stripe headed by two brothers from Nenagh (yes Nenagh, not Limerick), Patrick and John Collison. Stripe is an online payments engine that simplifies the purchase of content and goods on websites.

We first reported that Stripe was headed towards a US$1bn valuation in 2012. In December, the company became a firm member of the unicorn club with a valuation of US$3.5bn.

Last week, in a funding round that brought in less than US$100m, the Collison brothers-owned company now sees its valuation at US$5bn, almost 50pc more than what it was valued at when the year began.

The total value of all of Europe’s unicorns is US$120bn, almost half the US$227bn market cap of Facebook and three times Uber’s US$40bn valuation

But it is not an Irish or European company. It was started in Silicon Valley after John and Patrick Collison decided to go stateside of their own volition. They founded Stripe after stints at MIT and Harvard and a pedigree that was established when their first start-up was acquired by Canadian firm Live Current Media for $5m (€3.2m) when the brothers were just 17 and 19, respectively.

You could argue that Stripe is an anomaly and not indicative of the European start-up scene and that would be true. It is more indicative of the Silicon Valley start-up scene where innovation is prized but the funding is there to match aspirations and ambitions of investors as well as founders.

The unicorn club is very much a Silicon Valley thing too, driven by the vast quantities of funding available, but that doesn’t mean the rest of the world can’t and won’t have unicorns too.

But can you really put a value on innovation?

The unicorn club is a product of our time, a kind of barometer for valuation, just like IPOs were a barometer for success in 2000 and we all know how that ended up.

If astronomic valuations are a barometer for innovation, are we not missing the bigger picture? And yes, it is a dangerous game in a unique time in history.

Decisions to fund companies are subjective, based on an investors’ instincts and a ton of other factors and chemistry such as how impressive, committed and passionate the founders are, the relevance of the technology within a time window of opportunity and vital business indicators like actual sales and revenue.

Is that a fair reflection of the value of innovation and is there a danger that good innovation and good research outcomes are getting lost in the jet stream of unicorn mania?

The European Commission is hellbent on a strategy to ensure that European start-ups and digital enterprises have a fighting chance and can match anything Silicon Valley can produce.

You can argue the merits of this but the Horizon 2020 investment of €70bn in R&D to turn European research into economic gain is a strong statement of intent. There is no doubt about it, if Europe wants to create the jobs that will drive its economy it needs innovators and it needs entrepreneurs. What it needs is to get these two constituencies collaborating better.

The quest for unicorns: is it just fantasy?

European venture capital firms raised €2bn in the second quarter of 2015, which is double the amount they raised a year ago, according to Dow Jones VentureSource.

In the last 12 months, Europe has produced 13 unicorn companies, according to investment bank GP Bullhound, bringing to 40 unicorns the actual total of tech companies started in Europe now worth more than US$1bn.

The 13 include Adyen from the Netherlands; Delivery Hero, Home24 and Rocket Internet from Germany, with the lion’s share coming from the UK: FanDuel, Funding Circle, Powa, Shazam, Skrill, TransferWise and Ve.

Fintech is the industry category gaining unicorn status the fastest.

But combined, Europe’s 40 unicorns, including Spotify, are nowhere near the value of their Silicon Valley counterparts.

The total value of all of Europe’s unicorns is US$120bn, almost half the US$227bn market cap of Facebook and three times Uber’s US$40bn valuation.

The value of global unicorns is frightening: Uber is valued at between US$40 and US$51bn; China’s Xiaomi is worth US$46bn; Airbnb is worth US$25.5bn; Palantir is worth US$20bn and Snapchat is worth US$16bn, according to CBI Insights.

So Europe has its work cut out for it and the argument is all for accelerating the valuations of these companies to US$10bn and US$30bn players.

But is this not all a big distraction from the core business of innovation and creating valuable jobs?

Leave the unicorn argument to the venture capital industry.

European start-ups and innovation spin-outs need to stick to their knitting. Yes, they need to compete aggressively on the world stage by creating products and platforms people want.

But don’t be distracted by valuations and hubris.

Unicorns in Salzburg image via Shutterstock

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