European growth technology : 2015 review and 2016 perspective

February 4, 2016

Europe is building a strong base of high growth tech companies in the scale up stage. In 2015, 90 companies raised over $20m in growth funding. This reflects the growing ambition of European entrepreneurs and the greater availability of growth stage funding. The European ecosystem continues to go from strength to strength

 

The 90 lucky European digital startups that raised more than $20 millions in 2015

 

FrenchTech, GermanTech and EnglishTech on top

 

16 out of the 90 startups are French

 

Founded in 2006, the ride-sharing company BlaBlaCar has broken all records in France with its $200m fundraising round in September 2015. The Paris-based company allows riders to share the cost of their long distance trips with passengers. After announcing the massive investment, BlaBlaCar became a member of the very exclusive Unicorn Club with a $1.6bn valuation.

 

Germany gets 18 startups

 

Rocket internet invested a crazy $568m amount in Delivery Hero in February 2015 ($328m in equity, the rest being a secondary share purchase). The food delivery company is now valued $3.1bn and is part of Rocket Internet’s strategy to control the global online food delivery market: Delivery Hero and Foodpanda are the two leaders around the world…and they’re Rocket Internet backed.

 

UK remains on top with 25 startups

 

The “fundraising of the year” in the UK is a B2B business. Founded in 2012, OneWeb is a a developer of a low-earth orbit communication satellite network: the final goal is to provide high-speed internet access worldwide by 2019 with a network of 648 satellites.

 

1/3 of these startups are e-commerce companies or online marketplaces

 

There are today marketplaces for almost every single vertical and these businesses are cash burners (online paid marketing). Although these Rocket Internet-like startups are not the most exciting regarding technological innovation, online is taking share from offline and they can be represent great investment opportunities for Venture Capitalists.

40% of the European Unicorns are marketplaces or e-commerce startups: it’s a 100% in Germany with Delivery Hero & HelloFresh (online food delivery), Home24 (online furniture delivery), and Zalando (online fashion delivery), all backed by Rocket Internet.

 

Cloud-based software startups are getting more and more interest from VCs

 

¼ of the 90 European startups that raised more than $20 million are cloud-based software companies. FinancialForce, based in the UK, is the European software startup that raised the biggest amount in 2015. It is a Human Capital Management (HCM) solution on the cloud supporting the entire HR spectrum — HR system of record, recruiting, on-boarding, talent management, benefits, and time & attendance.

Other HR softwares raised more than $20m: PeopleDoc (France), TalentSoft (France), Workable (Greece) and Jobandtalent (Spain). HRTech is a very promising sector as human capital is the top priority for most of the companies and my bet is that the coming years will see HR software startups / investments proliferate.

 

B2C or B2B?

 

Consumer oriented startups are highly appreciated in European countries: 80% of the European unicorns are consumer services companies. Therefore, many B2C startups are evolving in a winner-takes-all environment, multiplying the risk factor for venture capitalists. Consumers’ markets are much more competitive than enterprises’.

Moreover, regarding exits, 60% were B2B companies in Europe and tech startups operating a B2B model were more successful than B2C-oriented startups…

 

Predictions for 2016?

 

1) There will be more EUnicorns (European unicorns) at this point next year than there are today

 

CB Insights ran a Twitter poll asking this question last week and of the 186 who answered, 52% believed we will see less than the 145 (global) unicorns at the end of 2016 than we see today.

 

We’ve also seen reports break over the last couple of days that Swedish unicorn-in-waiting Truecaller has let as much as 20-25% of its staff go due to financial reasons, potentially putting their seemingly imminent unicorn status on hold.  BUT, (and that is a big BUT) Europe has an exceptional pipeline of companies close to a billion dollar valuation in the wings.

 

Taking an average of six years to achieve a billion-dollar valuation, Europe has a whole host of companies about to pass this milestone in the next couple of years. So, barring a spectacular market crash, we are likely to have more European unicorns at the end of 2016 than we see today. According to WSJ’s Billion Dollar Club, that number is currently 13.

 

2) Investment from the United States in European tech startups will continue to increase

 

American investment in Europe in 2015 has increased dramatically, and I believe this will pick up even more pace in 2016. 2015 has seen Sequoia invest in a Swedish seed round,Andreesen Horowitz leading Transferwise’s $58 million Series C, 500 Startups setting up all over Europe and Union Square Ventures European funding rounds accounting for 25% of their total investments.

 

As these renowned U.S funds continue to look to Europe, other American investors will follow their lead and join the party in 2016.

 

Especially as Europe benefits from a more attractive entry pricing with the median pre-valuation by round considerably lower than the US. And, the US actually ‘only’ creates three times more ‘unicorns’ than Europe does – but they raise five times more capital in total. This means ‘Europe is an underserved market with enormous potential’, and the US are waking up to this. Further evidence: Sequoia and Goldman Sachs both narrowly missed out on being classed as part of Europe’s 25 most active investors in H1 2015.

 

3) 2016 will see a record year for European tech IPOs

 

As 2015 saw Deezer and HelloFresh put their IPOs on ice,  however I believe 2016 will see more IPO’s than this year and last, and despite the current market uncertainties, will ultimately be a record year for European IPO’s.

 

I fully expect HelloFresh to go public next year (and possibly even Deezer still), and in addition, Delivery Hero, Global Fashion Group, WestWing and Home24 are all strong IPO possibilities in the first half of 2016, meaning we could see a large group of big European tech companies (including several unicorns) all go public in a short space of time.

 

This will put momentum and belief back into the market, and subsequently lead to even more in the second half of the year.

 

4) Bigger unicorns will start buying smaller unicorns

 

This is a trend that we expect to happen globally, but one that could have a sizeable knock-on for the European scene.

 

Big American companies are well attuned to shopping European, with Facebook, Yahoo, Microsoft and Snapchat all buying European companies in Q3 2015 alone, and I believe this trend may well pass down to the American unicorns that are still privately held.

 

Best wishes for 2016

 

Any questions, just contact me here

 

Bruno

 

*Article with the help of Tech.eu and First capital

 

Also read:

 

http://blogs.forrester.com/category/predictions_2016

http://www.gartner.com/newsroom/id/3143718

 

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