- European tech has seen a major inflow of capital over the last five years, but the growing pool of human talent is just as important for the maturation of the ecosystem.
- A combination of better available talent from technical universities, repeat founders reinvesting money and experience, and investors moving from the US to Europe is helping the continent replicate some of Silicon Valley’s magic.
- “The old criticism of Europe was that investors didn’t have experience in building companies, but that’s no longer the case,” said Joe Schorge, managing partner at Isomer Capital.
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It’s been a record year for European startups.
The continent has seen a decade that has seen the tech scene jump forward leaps and bounds with some $34 billion invested in tech startups in 2019 up from $25 billion the previous year.
That still leaves it behind the US, with American startups taking in $116.7 billion in 2019, according to Dealroom data. But it’s a major step up.
And it isn’t just the increase in capital. There is also more experienced talent to help build on the continent’s successes, a major factor in creating a sophisticated tech ecosystem.
Silicon Valley remains a key hub for tech but the center of gravity is steadily moving, according to Eric Lagier, founder and managing partner of ByFounders, a VC focused on the Nordics.
Lagier spent 10 years in Silicon Valley as a cofounder of Memolane and still spends a week there every month to build bridges with US venture capitalists who are keen to invest in more European tech companies.
“Confidence in Europe is growing and we are in a golden era of technology,” Lagier told Business Insider in an interview. “Ten years ago you had to go to the US to grow, finding tech sales talent was like finding a needle in a haystack, now the talent is here and at half the cost of San Francisco.”
Wealthy founders are reinvesting into the ecosystem
Part of Silicon Valley’s magic is the halo effect of successful founders and investors sticking around and reinvesting their gains into emerging startups, starting new funds, or lending their expertise. Take LinkedIn’s Reid Hoffman, who is regularly cited by fellow founders for his mentorship and advice.
Europe is beginning to see the fruits of that trend, producing its own successful founders and investors who have years of experience under their belts and can share their insights with fellow entrepreneurs.
The numbers bear this out.
The number of European unicorns grew from 10 between 2008-2013 to 99 now, per research from investor Atomico. As those unicorns exit or as founders sell their shares, wealthy entrepreneurs and early employees are able to invest back into the ecosystem.
Where previously Amazon founder Jeff Bezos invested in Uber and Twitter, now European tech and other business founders may be well-placed to fuel the next big thing. Recent examples include DeepMind founder Demis Hassabis, who invested in Bristol-based semiconductor company Graphcore and BlaBlaCar cofounder Nicolas Brusson who has invested in e-scooter startup Voi and AI ID verification company Onfido.
The anecdotal data tallies with research from Talis Capital, a venture capital firm that invests on behalf of high-net-worth individuals.
Over the past five years, the number of individuals and families using private wealth to directly participate in VC rounds in Europe has grown five-fold to a record-breaking $5 billion. Many of these new market participants are what Joe Schorge, managing partner at Isomer Capital, calls “players-turned-coach” investors. That includes Sophia Bendz, an investor at Atomico and previously Spotify’s ninth employee who led the firm’s marketing. It also includes Taavet Hinrikus, cofounder of TransferWise, who has invested in more than 30 companies.
“The old criticism of Europe was that VCs didn’t have experience in building companies, but that’s no longer the case,” Schorge told Business Insider in an interview. “We are now seeing the next generation of VC in Europe.”
The number of quality companies in Europe is going up every year, according to Matt Miller, partner at Sequoia Capital. Sequoia Capital is the archetypal Silicon Valley firm, having invested in PayPal, Google, and YouTube among others. It’s now making moves into Europe, Business Insider earlier reported.
US funds venture into Europe
Increasingly, the “flyby” approach of Silicon Valley VCs won’t suffice, says Lagier, where US investors drop in occasionally or expect European firms to fly to them. Particularly when many VCs see Europe’s startups as some of the best performing companies in their portfolios, he added.
“The technical talent in Europe has always been outstanding. What has changed is that more talented people are now taking the leap to start companies and work in startups in the region,” he told Business Insider. “This has us very excited about the companies being built in Europe today and I believe is the driver for why more capital is being invested in the region.”
A number of US funds have set up operations in Europe and are continuing to invest, particularly in later stage companies on the continent. That included Amazon’s massive round in Deliveroo and Sequoia’s investment in Klarna. And New York’s Insight Partners signed deals with the fintech N26 and the London startup Checkout.com.
It’s more than just an attractive price, according to Schorge, who points out that the talent and experience now available to grow companies is significant. That impact isn’t just spread across major cities like London or Paris. Many of Europe’s biggest companies are coming from the Nordics, some of which have seen top talent return from the US.
Lagier isn’t the only person to leave the US for the Nordics. Tradeshift, founded by Danish entrepreneurs in San Francisco, has seen some senior executives move back to Copenhagen.
Similarly, Peter Muhlmann, founder of Trustpilot, David Helgason, cofounder of video game developer Unity technologies, Alexander Stigsen, cofounder of Realm, Jacob Hansen, Christian Hansen, and Jakob Storm, the cofounders of Cobalt, have moved back from San Francisco to Copenhagen in the past 18 months.
In addition, Mikkel Hippe Brun, Morten Primdahl, and Alexander Aghassipour, three of the cofounders of Danish Zendesk have also moved back from Silicon Valley to Denmark to split the company’s operations.
“Now if you build a great company in Europe, the best investors will find it,” Schorge added. ” Strong entrepreneurs and tech in Europe are helping the next generation, that’s the perfect storm.”
SEE ALSO: This VC says ‘San Francisco is over.’ Here’s why she’s tipping Europe for the next big hit.
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