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A Decade of Transformation: Explore Europe’s Evolving Tech Ecosystem
The tenth edition of Atomico’s State of European Tech report offers a compelling view of the European tech ecosystem’s remarkable transformation. From talent and capital expansion to sustainability initiatives, the report explores the progress and challenges facing European tech.
A Rapidly Growing Tech Landscape
The European tech sector has made significant strides since 2015. With a tenfold increase in venture capital and a growing talent pool, Europe has surpassed expectations and become a force shaping the global tech landscape.
Venture capital funding in Europe has seen nearly 10x growth, reaching $426 billion from 2015 to 2024 - up from $43 billion in the prior decade. The influx of capital has helped to create an environment for innovation to thrive.
Europe has generated more new technology companies than any other region in the world, dramatically increased investment levels, and positioned itself as a frontrunner in sustainability and an established global leader in fintech.
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The UK in particular continues to lead the charge as the regional leaders on a capital invested as a share of GDP basis:
The UK’s success stems from its strong domestic talent pool, an abundance of VC firms looking to deploy capital, and a thriving innovation ecosystem that catalyses growth. To emulate this, European nations must support founders with policies that attract world-class talent, capital, and key ecosystem players. By prioritising these elements, other European regions can develop fertile environments for startups to scale, fostering growth across the continent.
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Three defining factors for innovation: Talent, Capital, and Mindset
Europe’s remarkable growth is underpinned by three pillars: talent, capital, and mindset. With these foundations embedded, they must be nurtured to support Europe’s tech ambitions.
Talent Growth: Over the past decade, Europe has seen a 24% compound annual growth rate (CAGR) in its tech talent pool, which now numbers 3.5 million. This growth is projected to align with the US by 2030, strengthening Europe's ability to compete globally.
Start-Up Success: Europe now boasts 35,000 early-stage companies, more than any other region globally, with eight times more growth-stage companies than ten years ago.
Shift in Perception: Public attitudes towards entrepreneurship have also improved significantly. According to the report, 64% of founders with over ten years in the industry noted that societal views on entrepreneurship are more positive today.
Tackling the Growth Funding Gap
One key area where European tech startups lag behind their US peers in securing venture capital. US startups are twice more likely to raise a growth stage $15M+ round. This has created a $75 billion growth stage funding gap in Europe over the last decade.
European entrepreneurs have demonstrated they have the talent, innovation and ambition to succeed on the global stage. However, all too often these scale-ups have limited choices other than to source overseas capital to build full-stack companies at scale. Our investment infrastructure in Europe must develop to deliver long-term, values-aligned capital at scale.
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One solution could be increasing contributions from pension funds and major insurers. If Europe can match the US’s levels of investment from pensions and insurers, it could bring transformative benefits to the tech ecosystem.
We’re seeing a diversification in financing strategies that European tech companies, particularly in deep-tech sectors, are leveraging to drive growth. Many early-stage companies are turning to smaller loans from local banks, often backed by government guarantees, to mitigate risk. These are frequently combined with larger working capital facilities sourced from global banks, offering more liquidity as companies scale. To further boost cash flow, some firms are relying on R&D tax credits as a critical liquidity source.
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However, 2023 saw a drawback in European Venture capital funds raising funding from LPs, so work needs to continue to ensure allocations are secured from LPs to European VCs.
The last 12 months have seen a continued slow pace of both deploying capital in private markets and returning capital to LPs via exits. Substantial dry powder remains tied up in funds, and as such, LPs have been increasingly selective in their private market allocations. The flight to quality has continued in 2024, with LPs focusing on key VC relationships. It has been observed that managers are using this 'down time' in M&A activity to address weaker performers in their portfolio in advance of their next raise.
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A Vision for the Future
Europe is poised to continue its tech transformation. As the report outlines, fostering cross-border collaboration, increasing investments, and developing robust funding networks will be pivotal to unlocking the next wave of growth.
