Atomico’s annual State of European Tech report is a big deal, and a bit of a beast. I read it – well, heavily skimmed it, making liberal use of Ctrl-F – so you don’t necessarily have to.
The hundreds of charts speak for themselves: the UK is leading the way in European tech.
“On a cumulative basis, over the past five years the total amount of capital invested in UK tech companies has nearly reached $75bn. This is more than double the amount of capital invested in the second and third largest countries; Germany and France.” During the first nine months of this year we have had 68 rounds of $100m+ and according to the report, we are “Europe’s leading home for unicorns” with 100 in total – once again, that’s nearly double Germany (51) and over three times France (31).
More specifically, UK tech is leading the way on special-purpose acquisition companies (SPACs): “Nine out of 15 of the companies are UK-based, accounting for 60% of the total cohort by count and 53% by enterprise value.”
Venture capital in the UK is raised from the most varied set of limited partners (LPs), with sources evenly distributed between pension funds, funds of funds, sovereign wealth funds and corporate investors. And UK VCs have the lowest share (12%) of capital raised from government agencies of any region in Europe. In contrast, 52% of VC funding raised in Central and Eastern Europe originates from government agencies.
But it’s not all good news. When is it ever?
Of those SPACs I mentioned, all went public on the New York Stock Exchange or NASDAQ. This is part of a broader problem, with the UK seeing more of its unicorn tech companies list on US exchanges than other European countries. As the Economist reported today: “any pretensions the City once had as the world’s stock exchange have been dashed. Its share of global IPOs has dropped by a factor of five, to 4%, and the number of companies listed on it has fallen by 40% since the peak in 2007. As a share of the global equity market, and even of the sclerotic European one, the value of Britain’s has dropped steadily.” It is why the FCA has just changed listing rules to attract more UK IPOs – something we recommended.
Also, talent remains a challenge, with 37% of UK-based founders believing that the depth of the talent pool is worse compared to 12 months ago. To be fair, 33% think it’s better, although in France, for example, it’s 54% (better) and 19% (worse).
The report compares the number of founders that have emerged from $1bn companies and the location of these unicorn companies. While we have the highest share of alumni founders (24%), this is lower than our 33% share of $1bn companies. Someone (perhaps us) needs to take a look into why more entrepreneurs aren’t emerging from our unicorns.
As we have written about many times, UK pension funds still aren’t backing entrepreneurs, with just 6% going into venture capital. As the report states, “Nordic VCs, in particular, have benefitted from the progressive, pro-venture approach taken by local pension funds; pension funds represent almost 30% of all capital raised by VCs based in the Nordics, more than 6x higher than the next region.” It’s not just rules, the problem is the culture of our pension funds. We’re looking at ways we can do our bit to help bridge this gap.
Overall though, it’s an incredibly positive story for the UK. Economic growth isn’t a zero-sum game of course. We should celebrate the growing strength of European tech more broadly. But given someone has to be leading the way, we should be grateful that it’s the country many readers will live and work in.
Go Further
Those studying at Further Education (FE) colleges will often go on to start a business, but are they getting the inspiration and skills they need? From the other side, FE colleges are well placed to support the ambitions of local entrepreneurs, but how many entrepreneurs engage with them?
Last year, the Gatsby Charitable Foundation supported the Think consultancy to produce an excellent review of the relationship between business support services and further education. It looked at the role of Local Enterprise Partnerships (LEPs) and other business support services. It is an encouraging read, but given the chance that LEPs will be overhauled in Gove’s Levelling Up White Paper, I’m increasingly of the view that government might not be the most sustainable solution.
That’s why we’ve been working with Gatsby to explore the potential for connecting our network of entrepreneurs with FE colleges. We’ve undertaken a scoping exercise and our next step is to host some virtual roundtables with FE colleges and entrepreneurs around the country to test our ideas. We want to work out what best practice looks like.
Get in touch with Dr Anton Howes in our team to get involved. Perhaps you’re an entrepreneur who went to an FE college, and have thoughts on how your education benefited you, or could be improved. Or you could be an entrepreneur making the most of a local FE college already. Or maybe this is the first you’ve ever thought about it until now and just want to stay updated.
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