Atomico's State of European Tech: A decade of growth and innovation

This week, Atomico's State of European Tech released a special tenth-anniversary edition. It looks back over a decade of huge growth for the ecosystem and maps its superpower potential against significant challenges faced by the sector today. 

The State of European Tech report combines quantitative data from 41 European countries and a survey of thousands of founders, operators, and investors to understand what's really going on in European tech. 

I spoke with Sarah Guemouri, Principal at Atomico and co-author of the report, to learn more and Russ Shaw CBE, founder of Tech London Advocates and Global Tech Advocates.

Here are just a few of the key insights from the report: 

Europe's tech companies have raised $426 billion since Atomico launched the inaugural edition of its State of European Tech (SoET) report in 2015 - ten times more than the $43 billion raised in the decade prior (2005-14). 

Atomico expects that European companies will secure $45 billion in investment this year, in line with the $47 billion raised in 2023. 

According to Guemouri: 

"Over the past decade, startups have demonstrated remarkable flexibility in scaling, attracting top talent, and securing substantial funding. This has empowered founders to set ambitious goals and drive rapid innovation."

This year's report finds that: the fundamentals are strong for Europe's early-stage startups - and in some regards, they are pulling ahead of the US. 

More founders starting companies in Europe than the US

Europe is home to more founders starting companies than the US - as has been the case every year for the past decade. There are currently 35,000 early stage tech startups in Europe - more than in any other region globally.

Back in 2015, London was the only European city in the global list of top ten hubs by funding raised for early-stage startups (rounds under $15 million). Fast forward to 2024, and London has risen to second place globally, with Berlin and Paris also joining it in the top ten. 

According to Shaw, it's significant that, of more than 350 European unicorns, nearly half of $1 billion IPOs in the past decade have come from the UK. 

"Success stories like Revolut — which today was also granted its UK trading licence — and Zopa — on course for a 35 per cent revenue increase this year — are shining lights for the UK's ongoing leadership in fintech and innovation. European venture capital fell to $45 billion this year — less than half the $101 billion raised in 2021 — the UK has once again retained its status as Europe's top destination for investment."

Guemouri highlighted the ambition of founders who don't just dream of building a billion-plus company. 

"They're actually thinking of a scale that's 100 times that. 

We asked founders to reflect on what it means to be successful for their businesses. Some people mentioned going on Mars or servicing billions of users — a very different mindset there versus what we saw when we started the report. 

There's more companies with more ideas, built to solve harder problems that are really leveling up across the board. 

That translates to an expanding opportunity set."

However, the ecosystem must address a critical growth-stage funding gap

There are now 8x more growth companies than there were ten years ago in Europe, despite an uneven playing field. 

While Europe and the US start on equal footing, US startups are twice as likely to raise rounds above $15M than their European counterparts. 

As many as 1 in 2 European scaleups have turned to a US investor for funding. 

This matters as this creates a pull away from Europe - leading to talent, knowledge and economic leakage. 

This issue needs solving at an institutional level. European pension funds currently invest just 0.01 per cent of capital into European venture capital - a figure that looks like a rounding error for the $9 trillion of assets they manage. 

One issue that's been consistently hampering  upscale ambition is the growth funding gap.This year the report tried to unpack what exactly that means and what it equates to. 

Researchers found that over the past decade, Europe has been underfunding its growth-stage companies.

According to Guemouri,

"For the past decade, there's been a significant disparity in access to capital, particularly compared to the US. Reducing this dependence on foreign capital, especially the US, is crucial."

Guemouri asserts that one potential solution lies in domestic capital sources, such as pension funds:

"Despite holding trillions in assets, these funds allocate a minuscule 0.01 percent to European tech—essentially a rounding error. By increasing this allocation, we could unlock billions more for European scale-ups.

This increased capital could significantly impact the European tech ecosystem. It could encourage top talent to stay in Europe and build successful companies rather than seeking funding elsewhere. Ultimately, this would strengthen Europe's position as a global tech leader."

The report also highlights other strengths of the European tech landscape: 

Job creation has thrived 

In Europe, almost 20 million jobs have been created since 2015, and it's growing at 24 per cent at a compounded annual growth rate, which is the same place that we'd see in the US. 

There are 7x more people working in funded tech companies today in Europe compared to 2015. 

Talent pools in the US and Europe are growing at the same rate. The European tech sector now employs 3.5 million people - as many as the US had in 2020. 

Further, over 2.5 million of these jobs have been created since 2015, meaning Europe's tech talent market has grown at a rate of 24 ppercentCompound Annual Growth Rate (CAGR) —n par with the US. 

According to Guemouri, European tech continues to focus on solving the toughest of issues, with climate grabbing the attention of founders, capital and talent. 

"Europe is allocating its resources to sectors with the potential to solve new societal problems. 1 in every 5 dollars —21 per cent of the capital invested this year – has gone into companies related to sustainability, which is double the ratio of what we see in the US, which is 11 per cent."

Over the last ten years, carbon management is the theme that's seen the greatest increase in its share of Seed-stage funding. It has climbed 39 places in Atomico's rankings since 2015. 

Europe is well-placed to seize on opportunities in deeptech, but money and mindset need to follow. 

Deeptech (including AI) has captured 33 per cent of Europe's total funding levels this year. 

Over the last ten years, European deeptech startups have raised $94 billion, versus $123 billion in Asia and over $300 billion in the US.

The report forecasts that in ten years' time European tech could have an ecosystem value of $8 trillion and a world class talent pool of 20 million employees. 

This year's survey finds that founders with over ten years' experience say they have seen progress in diversity and inclusion over the past decade - a statement with which participants from under-represented groups also agreed. 

However, the report finds that the needle has moved only fractionally this decade when it comes to closing the gender funding gap. While all-women teams now raise double the proportion of pre-Seed funding they used to (at 4.9 per cent), their share of the pie continues to decline at later stages, receiving just 1.7 per cent of funding at Series B and beyond. 

According to Shaw, diversity remains an urgent challenge. 

"Women still make up just one-third of Europe's tech talent, a number that has stagnated for nearly a decade, and ethnic minority founders continue to face systemic barriers to funding. 

To secure its future as a global tech leader, the UK investment community must prioritise inclusion and develop opportunities for underrepresented groups, ensuring innovation reflects society's diversity."

To mark the tenth anniversary of the State of European Tech, Atomico has created a documentary interviewing individuals who helped build the ecosystem into what it is today, and speaking to those who are helping to shape its future.