It’s a tough time for European tech. Inflation is still high and startup funding has slowed. We’re clearly in a different economic climate, and whatever happens, in the months ahead, tech entrepreneurs are adapting for leaner times.
That said, it’s not all doom and gloom. Many European startups have adjusted quickly to the new economic reality and companies like Celonis, Doctolib, Alan, and Huel are still growing rapidly. Most of the founders and investors I meet are positive about the future, and Atomico research found over three-quarters of those in European tech are as, if not more, optimistic compared to a year earlier. That’s because the fundamentals of European tech are as strong as ever.
Brimming with talent
For one thing, Europe is brimming with talent. The continent is home to almost 50% more software developers than the US, and there are plenty of experienced leaders steering their companies through the slowdown. When Patrick and John Collison started Stripe a decade ago, there wasn’t a European tech giant to look up to. Now there are literally hundreds of ambitious tech companies–from Wise to Spotify–to seek advice from.
The European Venture Capital ecosystem is now well structured, with companies like Atomico, Seedcamp, Kima, and plenty of others backing ambitious European founders. And global VC firms like Sequoia or A16z are investing in European companies without requiring them to move to Silicon Valley.
European policymakers are playing their part too. PSD2 and the financial passporting regime have made Europe the easiest place in the world to start a fintech business. And thanks to campaigns like Not Optional, we’re starting to tax stock options in a way that makes it easier for European startups to compete for top talent.
But we should not take any of this for granted. We train tens of thousands of software engineers every year in Europe–far more than in the US–but this is still not enough to meet the needs of high-growth tech companies. In fact, the world is expected to need four million more developers by 2025, and China and India are on a much better trajectory than we are to meet that demand.
Not just a numbers game
It’s not just a numbers game. We need the best software engineers in the world. The fact that most computer science students don’t step foot in a tech company until their third year hinders their potential. New approaches, like the University of Limerick’s course with paid residencies at leading tech firms, could encourage more students into software careers, boost the supply of homegrown talent, and bolster ambition to start more tech companies.
Regulatory friction is also a persistent problem. In a Stripe survey, two-thirds of the startups we spoke to said they would grow much faster if rules were consistent across borders. In particular, they highlighted the time and resources spent on interpreting and complying with regulations, much of which they suspect is designed for larger companies. Startups would grow much faster if rules were harmonised across markets, and passporting–which has been so important in financial services–was rolled out to other highly regulated industries. Introducing easy-to-use compliance guides for startups, and a tight feedback loop between founders and policymakers would also make regulation more accessible and supportive.
Europe used to rue its lack of global tech giants; now they’re everywhere. Despite a substantial de-horning, Europe is still home to over 350 unicorns. Now we’ve built them, we must give them the support they need to become global leaders. Take fintech, an industry Europeans can rightly brag about. PSD2 put Europe ahead of the pack, but we need to follow through on its promise. That means taking the next steps on Open Banking and Open Finance, letting non-banks access central bank infrastructure, making Instant Payments more widely available, and using the idea of a Digital Euro to modernise the payments infrastructure that underpins the European economy.
Climate change pioneers
We also have the chance to be pioneers in one of the greatest tech challenges of our time: climate change. Europe has some of the boldest carbon reduction goals globally, but its climate tech industry is pretty small. Startups like 44.01, Mission Zero, and Climeworks have developed novel carbon removal techniques–sucking CO2 out of the air, sprinkling CO2-reactive dust on agricultural fields, and turning CO2 into rock–but we need thousands more of these companies to start and scale. With 65% of global climate tech investment going to US climate startups last year, we can surely do better.
Why not replicate the playbook that has fostered the world’s leading fintech companies and give Europe’s climate tech startups the boost they need? We could introduce more flexible rules–like the regulatory sandboxes which worked so well for fintech–and better incentives to help climate tech businesses get to market quicker. Policymakers could help forge stronger links between Europe’s new generation of climate startup founders and scale-up capital. And we need more of Europe’s institutions, governments, and businesses to set high standards for permanent carbon removal, act as a customer, and help these companies scale.
Times like these push everyone to be more risk-averse. Entrepreneurs hold back from starting a new company. VCs focus less on the long-term opportunity. And policymakers are tempted to push startup policy to the bottom of their to-do lists.
But deprioritising European tech would be a huge mistake. From Ford in the 1930s to Google in the 2000s, recessions are a hotbed for generational companies. And there’s no doubt many great tech companies will rise from this recession. So instead of debating whether this is the end of a golden era for tech, how about we set the next generation of European founders up to win?
Prior to serving as Head of Global Sales at Stripe, Eileen O’Mara filled various executive roles at Salesforce.com and Oracle.