“Life is Growth” - How, where and when European tech companies start scaling up by #TechEu

May 15, 2019 | Publisher: Techcelerate Ventures | Category: Finance |  | Collection: Investments | Views: 1 | Likes: 1

"Life is Growth" - How, where and when European tech companies start scaling up MAY 2019 European Tech Companies Scaling Up :: stripe.com 2 Introduction "Life is growth" is a quote from Morihei Ueshiba, founder of the Japanese martial art of aikido. It continues: "If we stop growing, technically and spiritually, we are as good as dead." It's easy to associate said quote with the world of startups, which Y Combinator founder Paul Graham in a widely-read September 2012 essay simply defined as such: "a startup is a company designed to grow fast". European startups are no different, and there are plenty of fast-growing companies to analyse. In this report, we strive to do exactly that, as a follow-up to the previous "Seed The Future" report put together by Tech.eu in collaboration with Stripe and Techstars, and focused on early- stage startups in Europe. Just like with 'early-stage startups', there's no standardised definition for a 'growth-stage' company, making it challenging to compare our research with other studies; and merely looking at financing rounds evidently only tells part of the story (which is why we combined the research with qualitative interviews with startup founders, who in unison highlighted the importance of 'sustainable growth'). In the context of this report and for the sake of consistency with the previous one, a growth- stage startup is defined as such: a company that has gone through the early stages of establishment, initial development of a product or service and reaching at least some form of product-market fit, to reach a state where business development becomes a crucial factor to become a sustainable business, and the concept of growth (in revenue, audience, new users, employees, addressed markets, etc.) takes precedence over pure 'survival'. The time horizon between the two states remains, however, highly variable and there's evidently a degree of overlap. In general, we equate growth startups to companies that are getting traction and have begun investing in scale rather than development only. The data we've analysed spans just south of 2,300 growth investments made in almost 2,000 European tech startups between 2016 and 2018, reaching just under 30 billion in total. European Tech Companies Scaling Up :: stripe.com 3 In this report, we dug into our vast data set to distinguish early-stage funding from growth financing rounds as those that (1) occur more than one year from initial seed or series A funding, or, (2) if occurring within the same year, they stand out in comparable size or scope to differentiate a new strategy. Wherever possible, we've returned to the original funding announcements to distinguish just how the funds were used for additional verification. As such, this constitutes one of the most comprehensive investigations of follow-on funding behavior of European startups anywhere. One take-away from our research is that each startup has its own timeline, particularly across a multitude of regions/ecosystems, and that it's challenging to affix an arbitrary measure of age to a company to indicate when it might be 'moving from early-stage to growth stage'. This is true across verticals and business models, even with e-commerce and SaaS. Raising private capital is only one way European startup founders choose to finance their businesses, and what you can learn from them is that there are also few generalisations to be made within that subset when it comes to follow-on funding, as time and size only gives you part of the story. After all, raising 1 million as a bootstrapped, revenue-generating SaaS company is different from a science-heavy deep tech or medtech startup raising 10 million to pursue scale, even if they're theoretically in the same stage of business development. Each startup journey is individual, but this report offers a unique perspective on what defines and drives growth-stage startups across Europe, and how they are funded. European Tech Companies Scaling Up :: stripe.com 4 BROUGHT TO YOU BY Stripe is a technology company that builds economic infrastructure for the internet. Businesses of every size from high-growth technology companies like Deliveroo, ManoMano, Catawiki, Uber, Booking.com and Salesforce use our software to accept online payments and run technically sophisticated financial operations in more than 120 countries. Headquartered in San Francisco, with global offices in North America, Europe, Australia, and Asia, Stripe helps new companies get started and grow their revenues. For more information on how Stripe works with startups and can partner with VC's or accelerators, please get in touch at startup-partners@stripe.com European Tech Companies Scaling Up :: stripe.com 5 Tech.eu is the premier source of European technology news, data and market intelligence, providing unprecedented insights into the tech startup, investment, M&A and IPO activity across Europe (including Israel, Russia and Turkey). Founded in 2013, Tech.eu combines solid editorial products with data-driven market intelligence reports across investment stages, geographies and sectors, as well as bespoke event, research and consultancy services. Tech. eu offers a curated selection of stories on European startups, scale-ups, venture capital, policy and more, through a combination of a unique online magazine, industry newsletters, reports, a podcast, job platform and event calendar. For more information on Tech.eu and our partnership opportunities, please get in touch with Helen@tech.eu BROUGHT TO YOU BY European Tech Companies Scaling Up :: stripe.com 6 Key Takeaways This report analyses 2,000+ growth startups that have raised a total of more than 30 billion in growth funding across 2,300+ investment rounds from 2016 to 2018. On an annual basis, both the total investment in growth startups and the number of funding deals have roughly doubled in the last three full years. This sign of maturation was particularly apparent in the UK, Germany, France and Sweden, where scale-ups raised the bulk of growth funding (21 billion out of the 30 billion total, or 70%). The average and mean size of the investment rounds going to growth startups have dipped slightly year-over-year. Looking at verticals, the top industry categories for growth financing rounds in Europe are fintech, medtech/health tech, SaaS and transportation, in that order. In 2018, just south of 3.4 billion went into growth rounds for UK tech startups, compared to 2.4 billion in France and 2 billion in Germany. In 2018, total investment into growth startups in France and Germany grew by roughly 27% and 26%, respectively, whereas the number in the UK virtually stagnated and Sweden's total dropped by 13%. Looking at the top 10 investors in European growth startup funding rounds, most prolific backers are located in the UK, France and Sweden, with German VCs only trailing Compared to the US and China, Europe as a whole still pales in comparison with regards to the total amount of venture funding going to startups. The US leads with $255 billion in total financing from 2015 to 2018, followed by China with $123 billion and the aggregate of European countries at roughly $66 billion during that time period. 1 2 3 4 5 6 7 8 9 European Tech Companies Scaling Up :: stripe.com 7 A preliminary analysis for Q1 2019 shows a continuation of the positive trend, with a 14% jump in total funding for growth-stage tech companies in Europe, from 3.25 billion in Q4 2018 to 3.7 billion in the first three months of 2019. The preliminary data for Q1 2019 also shows that Israel and the UK were neck and neck in terms of number of deals out of 242 transactions analysed, but Israel far outstrips the latter when it comes to total investment (roughly 850 million compared to 640 million in the UK). The preliminary data for Q1 2019 also demonstrates the bulk of growth funding going to medtech companies, with SaaS and fintech duking it out for 'second place'. When it comes to internationalisation, Stripe research shows that only 1 in 2 growth- stage company in Europe has physically expanded beyond its home market, even though the vast majority of German, French, British, Spanish and Italian businesses start selling abroad within their first 2 years of existence. The United States remains - by far - the number one destination with 27% of European companies having a physical presence there. The largest EU economies follow, with the UK (12%), Germany (10,5%) and France (7,5%) being the most attractive European markets to open an office in. 10 11 12 13 14 European Tech Companies Scaling Up :: stripe.com 8 Contents Introduction 2 Key Takeaways A first look at the top-line numbers 9 Totals and Aggregates The evolution of growth round financing in Europe, by geography - Growth Round Differences by Geography Analysis of Growth Rounds by Vertical Focus on Growth Stage Fintech Investments Focus on Growth Investments into Marketing Tech Startups Focus on SaaS Growth Investments Focus on E-commerce Growth Investments Focus on Adtech Who's investing in Europe's growth companies? A look at investor density How Europe Stacks Up Strategic Investments: Supporting European SMEs at Growth 35 - Best Practice for Growth: The Ireland Strategic Investment Fund Scale Up Challenges: Talent Acquisition, Employee Ownership and Mindset - The Not Optional Movement Existing Employee Ownership Schemes - The United Kingdom - Sweden - Estonia - Moving Forward Perception and mindset may challenge scaling in Europe Growing Abroad Founder Case Studies 46 Teamleader, Jeroen De Wit, Co-founder and CEO Aircall, Jonathan Anguelov, Co-founder & COO Push Doctor, Wais Shaifta CEO Job Today, Polina Montano, Co Founder and COO SwiftComply, Michael O'Dwyer, Co-Founder Karma, Hjalmar Sthlberg Nordegren, Co-founder and CEO; Ludvig Berling, Co-founder and CTO Conclusions 58 Methodology and Disclaimers 59 European Tech Companies Scaling Up :: stripe.com 9 Taking into account our definition of a growth-stage startup and some of the inherent limitations with this type of research as outlined in the methodology section at the bottom, it's clear that the overall trend for growing European technology companies is positive. In terms of total investment volume going to growth-stage tech startups in Europe, the increase over the last three years is significant; in fact, from the starting point of our dataset (Q1 2016) to the end point (Q4 2018), the total amount of funding going to growth companies has nearly doubled in size. The same is true for the number of growth funding deals we've monitored in 2016 compared to 2018, when Tech.eu recorded nearly 1,000 transactions vs. 510 in the first year of the analysed data set. That said, the data also shows that the average and median size of funding deals for growth-stage companies have virtually stagnated, and even gone down slightly over the researched period. We've taken a preliminary look at the data for Q1 2019, and it looks like the positive trend remains. In the first three months of 2019, Tech.eu has tracked more than 240 financing deals for growth-stage companies in Europe, totaling roughly 3.7 billion or close to 500 million more than the best quarter in the past three full years (Q4 2018 at 3.25 billion). In Q1 2019, Israel and the UK were neck and neck in terms of number of deals, but Israel far outstrips the latter when it comes to total investment (close to 850 million compared to 640 million in the UK). A first look at the top-line numbers Totals and Aggregates Growth Rounds, Europe 2016-2018 European Tech Companies Scaling Up :: stripe.com 10 Measuring Investment in European Growth Rounds, 2016 - 2018 Total Growth Rounds in Europe, 2016-2018 European Tech Companies Scaling Up :: stripe.com 11 Changes in Average Growth Rounds Size Across Europe, 2016 - 2018 Median Size of Growth Rounds in Europe, 2016-2018 European Tech Companies Scaling Up :: stripe.com 12 The evolution of growth round financing in Europe, by geography Taking into account the aforementioned definition of a growth financing round and growth- stage startup, there are noticeable differences in the speed of maturation across the pan- European ecosystem(s). Unsurprisingly, the most sophisticated and mature ecosystems, namely the UK, France and Germany, have seen a large increase in both the number of growth financing deals and total investment volume in this category, with the former steadily leading the continental hubs. Sweden is a surprising fourth in this ranking with more than 2 billion going into growth startup financing rounds from Q1 2016 to Q4 2018. The total of financing going to British, German, French and Swedish growth startups in this time period exceeds 21 billion, nearly double the amount raised by tech companies in the next 20 countries in the ranking. This finding really speaks to the difference in ecosystem maturation between the top brass and the followers, which are all relatively close to each other in total investment volume compared to the four aforementioned outliers. It highlights that fragmentation is still a reality in Europe, and that its ecosystems move at varying speeds. Difference Between Median and Average Growth Rounds in Europe, 2016-2018 European Tech Companies Scaling Up :: stripe.com 13 Total Growth Round Investments in Europe, 2016-2018 1 When it comes to determining attributing a country of origin for companies, there often lacks a consensus. But for the purpose of quantitative analysis,Tech.eu's data makes a justification on a startup location by looking at a company's founding team and where the majority of the team is based. We use a multiple of sources to help make these distinctions, however, that doesn't necessarily make it easy. Take the case of Revolut, a company largely based in London, with a Russian-born founder, that is currently angling for a Lithuanian banking license. Is the company British, Russian, or soon to be Lithuanian, based on the outcome of the license? In this case, Tech.eu would attribute the company to the UK, as it where the company claims its headquarters and where the founder seemingly resides. Growth Round Differences by Geography1 European Tech Companies Scaling Up :: stripe.com 14 COUNTRY 2016 (in M) 2017 (in M) 2018 (in M) Total Investment in European Growth Rounds, 2016 - 2018 (Top 25 Countries) Growth Rounds, Europe 2016-2018 UK France Germany Sweden Switzerland Spain Netherlands Ireland Finland Belgium 1,978 1,199 1,123 351 463 279 175 231 217 168 3,478 (+75.83%) 1,870 (+55.96%) 1,651 (+47.02%) 916 (+160.97%) 333 (-28.08%) 495 (+77.42%) 389 (+122.29%) 281 (+21.65%) 277 (27.65%) 163 (-2.98%) 3,365 (-3.25%) 2,372 (+26.84%) 2,079 (+25.92%) 796 (-13.10%) 467 (+40.24%) 358 (-27.68%) 351 (-9.77%) 265 (-5.69%) 216 (-22.02%) 233 (42.94%) European Tech Companies Scaling Up :: stripe.com 15 The top verticals for growth financing rounds in Europe are fintech, medtech/health tech, SaaS and transportation, in that order and in tune with the leading verticals for overall funding going to European technology companies. The top 10 is rounded out by popular verticals for investors, such as transportation/mobility, martech (marketing tech), security, travel and fashion. Europe-based growth companies in the financial technology category lead by a margin, attracting close to 5.4 billion worth of growth funding from Q1 2016 to Q4 2018, more than half the amount that went to the third vertical in the ranking (Software-as-a-Service startups). It is worth noting that 2017 was a particularly good year for the top verticals in the ranking; fintech, medtech and SaaS all saw the highest growth financing total in that year, rather than in 2018. This is in line with other Tech.eu research, which shows that 2017 was a record year for funding going to European technology companies overall, with the total number slightly dipping last year. Top 5 European Countries by Total Growth Round Investments, 2016-2018 The evolution of growth round financing in Europe, broken down by vertical European Tech Companies Scaling Up :: stripe.com 16 Analysis of Growth Rounds by vertical Top 25 Growth Round Investments by Main Industry Vertical, Europe 2016-2018. One possible reason is that the total of growth-stage investments into e-commerce companies has noticeably gone down since 2016, which is surprising given Europe's overall excellency in building e-commerce platforms and marketplaces in the past. It is also worth noting: when looking at the median round size for growth financing in the top industries, it shows that the top 3 ecosystems in Europe are similarly shaped, with the exception of Germany, which boasts a noticeably higher median for the 'medtech' category. European Tech Companies Scaling Up :: stripe.com 17 Top Three Industries Attracting European Growth Rounds (by Main Industry Vertical) 2016-2018 Top Five Countries Attracting European Growth Rounds in Fintech, Medtech and SaaS (by Main Industry Vertical) 2016-2018 European Tech Companies Scaling Up :: stripe.com 18 Country Table of Median Deal Sizes Across European Growth Rounds in SaaS, Medtech and Fintech, 2016-2018 Special Focus on Growth Round Investments into European Fintech, 2016-2018 by Quarter and Number of Deals. Focus on Growth Stage Fintech Investments European Tech Companies Scaling Up :: stripe.com 19 Growth Round Investments into European Fintech, by Country 2016 - 2018. Growth Stage FinTech Investment in Europe, Top 20 deals, 2016-2018 iZettle Klarna Smava finleap WorldRemit Monese MarketInvoice Starling Bank SolarisBank Proplend Reward Finance Group Receipt Bank iwoca Tinubu Square Credit Peers Simplesurance Zopa Global Processing Services Monzo Nutmeg Sweden Sweden German German UK UK UK UK German UK UK UK UK UK UK UK UK UK UK UK 100M 97M 90M 81M 77M 65M 63M 58M 57M 57M 56M 55M 54M 53M 50M 50M 50M 50M 49M 47M STARTUP COUNTRY FINTECH European Tech Companies Scaling Up :: stripe.com 20 European Growth Round Investments into Marketing Technologies, 2016 - 2018 Focus on Growth Investments into Marketing Tech Startups European Tech Companies Scaling Up :: stripe.com 21 Differences Between European Average and Median Growth Round Investments into Marketing Technologies, 2016 - 2018 European Growth Round Investments into Marketing Technologies, 2016 - 2018. European Tech Companies Scaling Up :: stripe.com 22 SaaS Investment, Europe by Quarter, 2016-2018 Focus on SaaS Growth Investments Growth Stage MarTech Investment in Europe, Top 20 deals, 2016-2018 Blippar Showpad Market Logic Software Uberall Teads Qubit Linkfluence GlobalWebIndex iAdvize Bink SendinBlue Lovecrafts Beamery NewVoiceMedia Dolead Upstream Systems LoopMe Swrve Bliss Emarsys UK Belgium Germany Germany Romania UK France UK France UK France UK UK UK France UK UK Ireland UK Austria 80.9M 45.5M 45.0M 44.3M 43.0M 36.4M 36.0M 34.4M 34.2M 30.2M 30.0M 29.1M 28.6M 27.3M 25.9M 25.0M 23.7M 22.8M 22.7M 20.3M STARTUP COUNTRY MARTECH European Tech Companies Scaling Up :: stripe.com 23 Mean SaaS Growth Investment, Europe, 2016-2018 Median SaaS Growth Investment, Europe, 2016-2018 SaaS (Software as a Service) remains one of Europe's most vibrant industries for growth company investment. As we are capturing growth rounds, the amount invested can be quite variable from year to year, and quarter to quarter. However, we see when compared to other verticals across Europe, that these digital technologies receive amongst the highest amount of investment from year on year. European Tech Companies Scaling Up :: stripe.com 24 Growth Investment into SaaS - Total, Top 5 Countries, 2016-2018 Growth Investment into SaaS - Total, by Country, 2016-2018 UK France Germany Sweden Finland Netherlands Switzerland Denmark Norway Russia Poland Italy Ireland Belgium Spain Luxembourg Hungary Estonia Austria Portugal 772M 554M 396M 155M 111M 103M 88M 85M 53M 44M 40M 33M 33M 19M 18M 14M 12M 6M 5M 2M 56 32 34 15 10 7 4 6 6 6 2 3 5 2 5 1 1 2 1 2 COUNTRY AMOUNT (EUR) NO. OF RECORDS SaaS, Top 20 Deals, 2016-2018 UK France Germany Sweden Finland Netherlands Switzerland Denmark 45M 9M 14M 8M 23M 56M 61M 13M 9M 28M 60M 42M 16M 15M 1M 2M 16M 14M 19M 12M 138M 147M 59M 53M 15M 118M 125M 64M 11M 34M 13M 46M 22M 20M 217M 14M 62M 4M 25M 32M 41M 4M 45M 53M 6M 6M 22M 35M 7M 10M 41M 47M 24M 57M 12M 13M 61M 25M 48M 11M 7M 13M COUNTRY 2016 - Q1 2017 - Q1 2017 - Q1 2016 - Q2 2017 - Q2 2017 - Q2 2016 - Q3 2017 - Q3 2017 - Q3 2016 - Q4 2017 - Q4 2017 - Q4 Scality oodrive Timico MessageBird Shadow Recommerce Algolia NewStore Bizagi SonarSource Survicate MariaDB beqom Callsign Zenly Wynd Templafy HR Path Yubico Nuxeo France France UK Netherlands France Belarus France Germany UK Switzerland Poland Finland Switzerland UK France France Denmark France Sweden France 61M 59M 56M 55M 52M 50M 48M 46M 44M 41M 36M 33M 32M 32M 31M 30M 29M 27M 27M 27M STARTUP COUNTRY SAAS European Tech Companies Scaling Up :: stripe.com 25 Growth Investment into SaaS - UK Total 2016-2018 Top Investors into European SaaS Growth Companies, 2016-2018 by Number of Deals * Q3 2016 - no recorded deals European Tech Companies Scaling Up :: stripe.com 26 E-commerce has historically remained an area of European excellence in technology. However, as we see from the graph below, the amount of growth stage investments has dipped somewhat in Europe over time. While there could be a number of reasons for this, we can assume that the growing influence of non-European e-commerce platforms such as Amazon have impacted the amount of growth investment for E-commerce companies in Europe. However, when we look closer, some countries, fare quite well over the time period of investigation. For example, investments into UK growth stage E-commerce companies have grown year on year during our time period of investigation. Focus on E-commerce Growth Investments Change in European E-commerce Growth Investments Over Time, 2016-2018 by Quarter European Tech Companies Scaling Up :: stripe.com 27 Differences Between Average and Median Growth Round Investments into European E-commerce, 2016-2018 Top Countries Attracting European E-commerce Growth Investments, 2016-2018 European Tech Companies Scaling Up :: stripe.com 28 Differences between Average and Median Growth Investments into European E-commerce Companies, Top 5 Countries Advertising technologies make up a smaller portion of Marketing technology. We've divided out these companies for a closer look. When compared to marketing technologies, we find that advertising technologies are experiencing considerable growth over the time period of analysis. In 2016, growth deals tagged as adtech received less than 20 million in Europe over the course of the year. By 2018 however, growth investments in adtech exceeded over 130 million. Unsurprisingly, the UK remains the leading destination in Europe for growth investments in advertising technologies, attracting over 125 million during 2016-2018. Focus on Adtech European Tech Companies Scaling Up :: stripe.com 29 Changes in Growth Investment into European Advertising Technologies, 2016-2018 Differences between Average and Median Growth Investments into European Advertising Technologies, 2016-2018 Top Investments into Advertising Technology, 2016-2018 GlobalWebIndex Totallymoney Upstream Systems Vectaury Geolid Crealytics Partnerize Buzzoole Adbrain Universal Avenue admedo PowerLinnks Adyoulike Meniga DanAds UK UK UK France France Germany UK ITALY UK Sweden UK UK UK UK Sweden 34.4M 32.8M 25.0M 20.0M 15.0M 8.5M 7.7M 7.7M 6.8M 6.0M 5.5M 5.1M 5.0M 3.0M 0.8M STARTUP COUNTRY ADTECH European Tech Companies Scaling Up :: stripe.com 30 Top 5 European Countries Attracting Growth Investment into Advertising Technologies Europe's Top Investors at Growth Stage, 2016-2018 Who's investing in Europe's growth companies? A look at investor density European Tech Companies Scaling Up :: stripe.com 31 Top 9 European Countries for Startup Investment - Per Investor Which investment firms are backing growing European technology companies, exactly? As it turns out, growth financing is sourced from across the globe, but the data clearly shows a strong representation from domestic investors. Comprehensive lists of all VCs in Europe are difficult to find, but the list below - compiled by Techstars - gives some indication of investor density in this part of the world. European Tech Companies Scaling Up :: stripe.com 32 From the responses, we can assume that most tech investors are based in the UK (roughly 25% of the total) followed by Germany, France, Spain and Sweden, which corresponds neatly to where most of the financing for startups take place. Proximity to backed startups in the growth stage clearly remains a highly important factor for VCs and other types of investors providing funding to fuel the fire for companies gaining early traction. From 2016 to 2018, the most prolific investors in European growth-stage startups were Bpifrance, Balderton Capital, Idinvest Partners, Index Ventures and Partech Partners. Notably, no German investment firm made the top 5 in the ranking; and in fact when looking at the number of deals, Sweden's Creandum and EQT Ventures come in at the 6th and 7th place, respectively, before HV Holtzbrinck Ventures turns up. We also see relatively new, entrepreneur-led VC firms like Atomico and Global Founders Capital climb in the rankings. On the other hand, it's a surprise to see big-name VC Accel Partners only being the 20th most active investor in Europe's growth companies in this time period. Two other things that are worth noting: one individual (Xavier Niel) made the ranking ahead of firms like LocalGlobe, Passion Capital and Cherry Ventures; and New York-based Insight Ventures Partners has been actively investing in Europe long enough to make it to 16th place. Density of Local VC Firms NUMBER OF RECORDS 1 115 European Tech Companies Scaling Up :: stripe.com 33 How Europe Stacks Up Investment into European growth rounds can be analyzed in context with the overall investment landscape. When examining global investment into technology companies, it is easy to see how investments made into North America and Asia vastly overshadow those made into Europe. These graphs, developed from data shared from Pitchbook, indicate just how divergent the paths of private investment are. While funding into European tech has grown, especially at the growth stage, the graph below highlights unequal funding distribution of VC investment. This distribution has required European companies to depend on different avenues of furthering their ventures besides venture capital, encouraging them to turn to public investment, bootstrapping, or growth forecasts that are slower or more limited than they might be under different funding conditions in alternative geographies. The Landscape of Global VC Investment CAPITAL INVESTED $22.09M $255K European Tech Companies Scaling Up :: stripe.com 34 Total Investment Volume, All Stages 2015-2018 Global Venture Deals 2015-2018, Total Amount Invested (in $M) While the USA and China garner the highest amount of venture investment from 2015-2018, when it comes to the number of deals made, Europe's dealflow follows the US, at 12,158. USA China European Countries India Canada Israel Singapore Japan South Korea Indonesia Brazil Hong Kong Australia UAE Taiwan Argentina Australia Austria Bangladesh Belgium Brazil Bulgaria Canada Chile China Colombia Czech Republic Denmark Egypt Estonia Finland France Germany Ghana Greece Hong Kong Hungary Iceland India Indonesia Ireland Israel Italy Japan Jordan Kenya Latvia Lebanon Lithuania Luxembourg Malaysia Mexico Netherlands New Zealand Nigeria Norway Peru Philippines Poland Portugal Russia Singapore Slovakia South Africa South Korea Spain Sweden Switzerland Taiwan Thailand Turkey UAE UK USA Vietnam $254,921.70M $122,965.00M $65,946.53M $24,087.06M $8,260.38M $6,334.54M $4,719.71M $3,767.40M $3,244.09M $2,865.56M $2,567.09M $2,241.22M $2,073.86M $1,764.43M $1,142.82M $338.28M $135.63M $93.32M $101.85M $737.78M $388.20M $510.02M $3,085.93M $535.56M $160.75M $822.52M $38.97M $115.91M $770.27M $193.91M $844.07M $4,719.71M $97.32M $406.49M $3,244.09M $2,181.42M $3,857.96M $2,859.72M $1,142.82M $335.70M $258.98M $1,764.43M $22,952.45M $254,921.70M $281.48M METROPOLITAN AREA METROPOLITAN AREA METROPOLITAN AREA AMOUNT ($M) AMOUNT ($M) AMOUNT ($M) CAPITAL INVESTED $22.09M $255K Global Venture Deals, 2015-2018, Number of Deals USA European Countries India China Canada Israel Australia Singapore Japan Brazil South Korea Indonesia Hong Kong UAE Taiwan 27,907 12,158 2,703 1,830 1,411 835 544 458 448 288 270 172 134 98 60 METROPOLITAN AREA NO. OF DEALS $207.03M $2,073.86M $770.06M $22.09M $936.91M $2,567.09M $46.64M $8,260.38M $113.20M $122,965.00M $149.35M $124.78M $1,150.55M $63.25M $115.51M $2,107.99M $6,508.29M $12,362.47M $103.38M $51.28M $2,241.22M $337.25M $152.64M $24,087.06M $2,865.56M $1,980.92M $6,334.54M $660.43M $3,767.40M $35.53M European Tech Companies Scaling Up :: stripe.com 35 Global Venture Deals, 2015-2018, Total Amount invested (in $M) Strategic Investments: Supporting European SMEs at Growth As we have seen in the previous section, private investment into European tech remains yet a fraction of the total as found in North America and in China. It is for this reason that across Europe, public funding has remained a crucial component for enabling and supporting European startups as they grow and scale. At the early stage, domestic initiatives such as Germany's EXIST programme, or supranational programmes, such as the European Commission's Horizon 2020 Phase 1 funding have become integral for companies to find foundational support. As companies grow, public funding continues to be an option for many companies in Europe, especially those building products that might fit outside traditional expectations of venture capital investment. One of the most innovative in this space is the European Investment Bank's European Fund for Strategic Investments (EFSI)2. The EFSI is the first pillar of the "Juncker Plan", a wide ranging proposal designed to encourage European investment after economic downturn in the early 2010s. Launched in 2015, the instrument aims to mobilize 500 billion in new European investment by 2020 for projects aimed to support European competitiveness and growth. EFSI funding, alongside third party co-investors aims to grow companies and increase their impact, on jobs and economic growth. Ultimately, the European Investment Bank expects that 857,000 SMEs will benefit from the EFSI's funding (across all categories)3. 2 "The European Fund for Strategic Investments: From crisis response to lasting impact". The European Investment Fund, May 25, 2018. Available at https://www.eif.org/news_centre/publications/efsi-from-crisis-to-lasting-impact-en.pdf 3 "EIF in 2018". European Investment Fund. April 12, 2019. Available at: https://www.eif.org/news_centre/publications/ eif-2018-brochure-en.pdf European Tech Companies Scaling Up :: stripe.com 36 "The EIB loan, backed by the European Fund for Strategic Investments (EFSI), the heart of the Investment Plan for Europe (the Juncker Plan) will allow the 200-strong company to scale up operations in the rapidly evolving autonomous driving segment and expand its customer base of OEMs, Tier 1s and mobility services companies. AImotive will also be able to further mature its technology and bring safe, automotive grade versions of its product suite to the market."4 " While the EFSI has a large remit, European scale ups are benefiting from the fund's investment priorities in the following areas: Research, development and innovation Energy Digital Transport Environment and resource efficiency Social infrastructure Sustainable agriculture, forestry, fishery and aquaculture Industry-support in less-developed and transition regions Smaller and midcap companies The EFSI helps diversify the types of funding available for growth companies in Europe by addressing gaps in existing private investment. The type of support provided by EFSI funds varies according to programme, but can include loans, grants and equity funding. Of the equity funding opportunities, a newly "window" of funding is specifically targeted for Expansion and Growth companies. The funding is particularly suited for companies whose products developing innovative, research intensive technologies and who might fit outside the scope of traditional calendars of venture capital. One example is Hungarian self-driving car startup AImotive. In 2018, the company was able to take advantage of a 20M loan from EFSI to help scale their technology. At the time, AImotive highlighted the importance of this funding stream: 4 "EIB Supports AImotive". December 14, 2018. Available at: https://aimotive.com/news/content/6607 European Tech Companies Scaling Up :: stripe.com 37 These figures are not part of formal EIF reporting on EFSI. Therefore, they are provisional and unaudited. They include all approved and signed transactions, irrespective of whether the availability period has already started. Available at: https://www.eif.org/what_we_do/efsi/ipe-efsi-geographies.pdf European Fund for Strategic Investments (EFSI), SME Guarantee Window Geographical Spread in the EU. Approved amounts as of April 8, 2019 Austria Belgium Bulgaria Croatia Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden United Kingdom Multi-country TOTAL 5 17 13 9 2 16 6 8 7 50 29 14 9 9 78 8 6 6 1 12 13 15 15 7 2 28 12 18 139 554 171 187 136 95 10 549 195 29 292 2,725 977 413 128 279 2,799 22 19 93 6 196 246 1,290 122 80 20 1,309 392 636 5,588 19,004 899 1,283 1,515 346 28 3,250 717 811 1,556 16,783 6,137 3,798 1,395 1,564 32,850 399 408 280 17 1,527 3,743 4,473 1,377 428 645 13,676 1,408 3,853 40,792 145,959 NUMBER OF TRANSACTIONS EIF FINANCING (M) EXPECTED MOBILISED INVESTMENTS European Tech Companies Scaling Up :: stripe.com 38 The European Fund for Strategic Investments is unique in its aims to support high growth companies, alongside more traditional strategic objectives, such as infrastructure spending. Member state governments across Europe have also sought to build their own strategic investment funds to support key strategic priorities in society, alongside financial objectives.5 Differing from more traditional sovereign wealth funds, strategic investment funds can provide a complementary fit with existing innovation policy to support competitiveness and economic objectives. In Europe, several countries maintain strategic investment funds, including France's Fonds Stratgique d'Investissement (FSI), and Italy's CDP Equity, (formerly Fondo Strategico Italiano). But unlike the EFSI, these funds tend to focus largely on supporting large infrastructure projects, rather than SMEs. However, Ireland's Strategic Investment Fund (ISIF) illustrates some of the benefits of how strategic support can help domestic ventures scale and grow. Ireland's Strategic Investment Fund was developed in late 2014 and made its first investment in March 2015. Managed by the country's National Treasury Management Agency (NTMA), in the fund's first five years it had made over 100 investments worth over 3 billion. This strategic investment fund supports scale up and growth companies in a myriad of ways, including propelling the country's local venture capital landscape as well as direct investments in innovative, scaling companies. In ISIF's portfolio, you can find key investments in domestic companies, such as a 10m equity investment in Mainstay Medical, a Medtech company to support the development and commercialisation of a device to treat Chronic Low Back Pain.6 Other investments have been made in local venture capital firms, such as supporting BGF, in a 2017 fund of 250M to be put towards investments in Irish small and medium-sized companies. Further investments in firms including Silicon Valley Bank, Draper Esprit, Scottish Equity Partners, and Frontline Ventures have further channeled venture funding to Ireland, helping to support the country's startup climate. In 2019, the Fund has focused on commercial investment with impact, and providing "patient capital" to support domestic businesses in becoming global ones.6 Ireland's experience with the ISIF shows how countries can prioritize investment into growth companies strategically, as well as make investments with strong returns. For example, an investment in investors Carlyle Cardinal Ireland provided a four-fold return for the ISIF when one of the firm's portfolio companies was purchased two years later.8 5 "Strategic Investment Funds: Different Animals to Deal With". IPE. September 2016. https://www.ipe.com/investment/ briefing-investment/strategic-investment-funds-different-animals-to-deal-with/10014922.fullarticle 6 "Investments to Date" Available at: https://isif.ie/portfolio/investments-to-date 7 "Ireland Strategic Investment Fund Investment Strategy 2.0: Towards 2040 -investing commercially and with substantial impact". 1 February 2019. https://isif.ie/uploads/publications/ISIF-Investment-Strategy-For-publication.pdf 8 "State banks strong return from Payzone 100m sale to AIB/First Data" Irish Independent. https://www.independent. ie/business/technology/state-banks-strong-return-from-payzone-100m-sale-to-aibfirst-data-38056522.html Best Practices for Growth: The Ireland Strategic Investment Fund European Tech Companies Scaling Up :: stripe.com 39 Scale Up Challenges: Talent Acquisition, Employee Ownership and Mindset Startup funding remains only one part of the scaling puzzle in Europe. Other factors, such as talent acquisition, ambition, and strategy have been examined when comparing the outcomes of European startups as compared to their counterparts in North America and Asia. Conditions for building high growth companies across each of these geographies remain highly divergent from one another, however, a considerable perception remains that European potential continues to lag behind what it could be. In November 2018, the European Commission's Digital Single Market strategy organized a high level workshop to troubleshoot the challenges of European companies scaling in Europe. Entitled, Startups: how to scale-up and face world competition, the workshop brought together a number of key stakeholders and experts to investigate some of the policy areas that have stymied startup growth in Europe.9 The delegation's conclusion identified talent acquisition as being the primary challenge for European scaleups. The difficulty in attracting talent is attributed to three factors. First, fragmentation in ownership. The Commission report outlines that Europe lacks a playbook when it comes to giving equity, and that considerable fragmentation in ownership schemes exists across the continent. Secondly, for countries that offer relatively clear paths to employee ownership, there remains little awareness or understanding about the existing schemes. Finally, the commission argues, that the final barrier to attracting talent is down to cultural differences in how entrepreneurialism is understood. The report argues that young people in Europe are more likely to prefer working for corporate entities rather than startups, preventing companies from attracting early stage talent. 9 Startups: how to scale-up and face world competition, Event held November 19, 2018, Avenue de Beaulieu 25, Auderghem. Digital Single Market Directive. https://ec.europa.eu/digital-single-market/en/news/startups-how-scale-and- face-world-competition The Not Optional Movement Later that month, the European investment firm Index Ventures launched Not Optional, an open letter and campaign to improve the conditions for equity ownership in Europe. The letter aimed to spark a new social and political movement and conversation around employee ownership and taxation in Europe. The letter argues that the European tech sector lags behind others in the opportunity for firms to give stock options to their early employees. They argue that the punitive and patchy rules across the continent prevent companies from giving early employees stock options, which prevent them from receiving payouts at a company's exit. Without this shared ownership, the letter, and movement argues, European companies will be unable to attract top talent for their companies, and the lack of stock options is the key rationale for why European European Tech Companies Scaling Up :: stripe.com 40 tech companies in the scale and growth phase struggle to find talent. In contrast, the Not Optional movement highlights that the opportunity for Silicon Valley companies to do this, has been one of the prime rationales for the region's growth and success. The letter, calls on legislators to fix the existing regulatory climate to ensure that these rules better allow companies to pass on stock options for early employees. Since its launch, a number of Europe's most significant CEOs and tech founders have signed on from the original 31 names advanced at the project's launch. Most prominent of these, Nicolas Brusson of French unicorn BlaBlaCar, who argued: "Successful companies shouldn't just generate a handful of wealthy executives and entrepreneurs they should also create wealthy early employees through stock option schemes, as this will, in turn, mean more is being re-invested into the local ecosystem."10 While the Not Optional movement ties limited avenues for employee ownership and stock options to poor workforce acquisition, it doesn't mean that employee ownership is absent (in our interview section, we have heard from Push Doctor and Aircall, which both give stock options to their employees). Currently, the UK, Estonia, and France have developed initiatives that allow generous stock options to be shared with employees at hiring, but across Europe every country allows some degree of employee ownership, despite restrictions. 10 Europe's stock options muddle is handing America a big advantage. Katia Moskvitch. Wired. November 28, 2018. https://www.wired.co.uk/article/europe-startups-open-letter-governments European Tech Companies Scaling Up :: stripe.com 41 Existing Employee Ownership Schemes 11 Tax and Employee Share Schemes. UK Government Digital Service. https://www.gov.uk/tax-employee-share-schemes/ enterprise-management-incentives-emis 12 Guidance HS287 Employee share and security schemes and Capital Gains Tax (2015). HM Revenue and Customs, Updated April 6, 2018. https://www.gov.uk/government/publications/employee-share-and-security-schemes-and- capital-gains-tax-hs287-self-assessment-helpsheet/hs287-employee-share-and-security-schemes-and-capital-gains- tax-2015 13 Statens budget 2018 Rambeslutet, Sveriges Riksdag. November 22, 2017. https://www.riksdagen.se/sv/dokument- lagar/arende/betankande/statens-budget-2018-rambeslutet_H501FiU1 14 Long Live Swedish Startups. Precisely. November 23, 2017. https://precisely.se/2017/11/23/long-live-swedish-startups- employee-stock-options/ 15 https://www2.deloitte.com/se/sv/pages/tax/articles/employee-stock-options-would-not-be-subject-to-benefit- taxation-if-certain-criteria-are-fulfilled.html The United Kingdom Sweden In the UK, stock options are most commonly shared through either Enterprise Management Incentive (EMI) Schemes11, or Unapproved Share Option Schemes. Enterprise Management Incentive Schemes are available to employees if their companies have assets of 30 million or less. Companies utilizing this program may grant shareholder-employees options up to the value of 250,000 in a 3-year period, of which the employee won't have to pay Income Tax or National Insurance on the shares if they were originally bought for market value rate. Unapproved Share Option Schemes, in contrast, are open to considerable choice by employers in how they are designed and what types of company they can be used. However, in contrast to EMI schemes, employees owning shares under Unapproved Share Option Schemes generally will have to pay capital gains tax at the time of sale on their shares.12 In November 2017, Sweden passed new budgetary requirements13 for awarding stock options after long consultation with the country's startup ecosystem, investors and local stakeholders.14 A less cumbersome climate for awarding stock options was one of the key demands set out in the country's startup manifesto, and the new regulation provides for companies under ten years old to pass on tax-free stock options to their employees, which are only taxed at the time of sale. Previously, shares in equity were subject to income taxes. These options must be exercised between three and ten years of their granting, and may only be authorized by companies that fit several conditions, as to their company sector, company size, and public employee ownership.15 European Tech Companies Scaling Up :: stripe.com 42 Estonia Moving Forward According to an analysis by Index Ventures, Estonia has Europe's most proactive and supportive regime for awarding employee stock options in Europe.17 Estonia's current regulatory scheme for stock options was developed after long consultation with the country's Startup Leaders Club,18 a key organization of the country's top entrepreneurs and investors. Estonia's stock option plan, is even more employee and investor-friendly than tax regimes in the United States, by allowing the use of stock options by startups at all stages of growth, and for all levels of employee. Employee taxation is deferred to the point of sale, and taxation on shares is limited. Shares are recorded at a central register point, and the country utilizes open documentation for share ownership.19 Not Optional argues that different regulatory and taxation environments across Europe have led to different ownership laws in each country, leading some geographies to be disadvantaged. The movement argues, that a pan-European scheme of employee stock ownership and taxation should be prioritized, to bring consistency across the continent. Since the movement's inception, Index Ventures has been prominent in continuing dialogue around these regulatory challenges, however, it is unclear that this movement would have developed without the support of an institutional investor. An investigation by both Index and third parties has found that stock options might not be particularly attractive to startup "Stock options offer an excellent means for startups to motivate and retain their employees. In order to encourage companies and especially the startup community to take up this possibility, the Estonian Parliament made taxing employee stock options more flexible. Our system is simple and applies to all companies. I am glad that the attractiveness of this solution has been recognised in an international comparison" TOOMAS TNISTE, ESTONIAN MINISTER OF FINANCE16 " 16 "Estonia Is Internationally Acknowledged for the treatment of Employee Stock Options" 5. December 2018. https:// www.rahandusministeerium.ee/en/news/estonia-internationally-acknowledged-treatment-employee-stock-options 17 Index Ventures. Rewarding Talent, When are Employees Taxed? https://www.indexventures.com/rewardingtalent/ handbook/when-are-employees-taxed 18 Estonian Startup Leaders Club, Eesti Startupijuhtide Klubi https://www.startupleadersclub.com/ 19 Startup Estonia Resources for Estonian Startups. https://www.startupestonia.ee/resources European Tech Companies Scaling Up :: stripe.com 43 employees, especially considering that they do not expect it,20 21 which in some respects challenges Index's assertion that the lack of employee ownership is killing talent prospects. While stock options remain a key consideration for employees, it is clear that other policies aimed at talent acquisition must be considered alongside efforts to promote a common shareholding scheme. As of March 2019, over 700 European tech CEOs have signed on to Not Optional's letter. But as we have seen in this report and beyond, Europe's technology sector continues to flourish, harmonized stock options in place, or not. In 2018, Spotify and Adyen each surpassed valuations of over $20 billion, and Europe has been home to more IPOs than the United States over the last four years. Commissioner for the Digital Single Market Mariya Gabriel has highlighted how, Europe's ecosystem is more dense than ever there are now 5.7 million professional developers in Europe, up by 200,000 on 2017 while the US amount to a flat 4,4 million.22 While acquiring talent will always remain a pressing need for European scaleups, other barriers remain to prevent the actualization of the full potential of European companies. 20 Does Europe need to fix "monkey money" stock options? Maija Palmer. March 20, 2019. Sifted. https://sifted.eu/ articles/europe-fix-stock-options-notoptional-employee-ownership/ 21 Index Ventures Guide to Stock Options for European Entrepreneurs https://www.indexventures.com/blog/introducing- our-guide-to-stock-options-for-european-entrepreneurs 22 Opening speech by Commissioner Mariya Gabriel - Startup Europe Summit 2019. https://ec.europa.eu/commission/ commissioners/2014-2019/gabriel/announcements/

European startups are no different, and there are plenty of fast-growing companies to analyse. In this report, we strive to do exactly that, as a follow-up to the previous “Seed The Future” report put together by Tech.eu in collaboration with Stripe and Techstars, and focused on earlystage startups in Europe

About Techcelerate Ventures

Tech Investment and Growth Advisory for Series A in the UK, operating in £150k to £5m investment market, working with #SaaS #FinTech #HealthTech #MarketPlaces and #PropTech companies.


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