A curious thing is happening in European venture-capital (VC) funding. Larger sums of money are increasingly available, but the industry has been neglecting the very source of new ideas – European entrepreneurs seeking seed stage funding to get their ideas off the ground. There are, however, early indicators that Europe is at the cusp of a golden age for investment, and the next few years will be exciting times for seed. In 2020, European tech will step up to the global stage.
In 2020, US VC firms will continue to grow their presence in Europe, meaning competition and capital in series A & B rounds will grow with it. As more capital enters the ecosystem, there will be a higher conversion of seed investments to series A, particularly from the top-tier seed funds.
The good news is that, with the availability of capital and talent, European founders will be less inclined to take their business to Silicon Valley, setting up instead closer to home. European talent will finally start to come into its own. More European unicorns will create favourable conditions for nurturing talent, encouraging innovation and, of course – attracting more funding.
2020 will be a year of incredible opportunity for seed investors in Europe. More than ever, unearthing talent across countries, regions and towns across the Continent will be of utmost importance for Europe’s long-term competitiveness. With technologies such as artificial intelligence making their way into all aspects of industry and life, Europe will seek to find a way to play a meaningful role in bringing innovation to the market vis a vis the world’s economic giants – namely the US and China.
In order to enhance competitiveness, new, software-driven approaches to talent discovery and to scaling VC operations will start to take hold across Europe in 2020. So far, most top-tier VC funding has been concentrated in a handful of European cities, meaning countless entrepreneurs are left to fend for themselves and may never get the opportunity to scale their ambitions. Scouting for talent across Europe on foot, so to speak, will no longer be a viable model for the industry.
Entrepreneurship is driven by technical and creative innovation, which is not impacted by the macro environment. Despite the anticipated correction in the macro economy, we should expect to see big tech continue to invest and grow their businesses in 2020. But this comes with a caveat. Most IPOs in 2018 and 2019 were priced below the high expectations of founders, VCs, boards and their bankers. It would not be a surprise to see total VC investments in 2020 decline from 2019. The financing will take longer, diligence on new investments will be more rigorous and valuations will come under pressure for even the most attractive propositions.
The posterboy for European investment has been fintech. Europe’s early success in the sector has been due to favourable regulation (the EU passport system creates a single market), a continuing expansion of capital and access to global talent, with London’s status as a traditional financial capital. London alone accounts for 18 fintech unicorns. This sector will continue to flourish in 2020. Companies such as Revolut, Monzo and N26 could see their growth skyrocket, and we may even see global fintech megabanks starting to emerge. If the larger rounds continue, the amount of money going into European fintech is on course to grow to $10bn to $12bn – five to six times the amount raised just five years ago.
Away from fintech, Europe has created a handful of technology businesses with powerful global footprints, including Spotify, Supercell, King, Skype, Booking.com and Adyen. We are now seeing the next generation of founders coming on the scene with higher ambitions. In 2020, European fintech companies will blossom globally, but other business successes may come from anywhere in the ecosystem. European companies will lead by example, producing unicorns at scale and expanding to the rest of the world.
Mattias Ljungman, a co-founder of VC firm Atomico, founded Moonfire Ventures in 2019
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