Last week, Apple’s market cap cracked the $ 3 trillion mark. That was more than the entire German stock market on that day. The digital revolution was an American one. As the Europeans perfected the fax machine and diesel engine, the rest of the world pulled away from them. Austerity and the resulting investment backlog did the rest.
But now something is moving in Europe – and the pandemic seems to have started. Europeans challenge the US in venture capital investing and high tech business creation. Anyone with a macroeconomic or political perspective might think it’s boring. But today’s start-ups are tomorrow’s sources of growth, and that is especially true in times of rapid technological change.
As the venture capital company Atomico writes in its annual report, European venture capital has seen a boom over the past year. The European pipeline of promising startups could now take on Silicon Valley for the first time. Total venture capital investment increased from $ 22 billion in 2017 to $ 121 billion this year.
There is a catch, however, as this is largely a British story. The island nation has cumulative investments of almost 75 billion US dollars. Germany has invested more than 30 billion and France almost 25 billion. Interestingly, Sweden ranks fourth, an amazing achievement for its relatively small economy.
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Fintechs love London
What is worrying is that this boom reflects the north-south divide in Europe. Spain is still in 6th place behind the Netherlands and ahead of Switzerland. Italy, as the eighth largest economy in the world, is not even on the list of the top ten. The UK has invested as much as Germany, France and Sweden put together. So by 2021, the gap widened in favor of the United Kingdom.
The report includes numerous other statistics on the largest VC deals, the largest VC exits, and much more. In industry jargon, venture capital startups valued at $ 1 billion or more are called unicorns.
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One in five European unicorns are currently fintechs. As a result, the UK, especially London, is a popular location for European VC companies: payment services, financial services passporting and open banking are among the innovations. I think investors will dive into the crypto industry next. This, too, could be another British story. Other industries that attract investors are the semiconductor industry and e-commerce.
Perhaps you’re now saying, “That’s great.” But I’ll tell you: Europe is a $ 20 trillion economy. $ 100 billion more than in 2020 is hardly worth mentioning. Still, some of these companies have a good chance To become the Apples and Amazons of tomorrow.Today, Europe does not have any tech giants because there were hardly any high-tech start-ups in the 1980s and 1990s.
Emmanuel Macron recently set the goal of having ten European tech giants valued at over $ 100 billion by 2030. Given the current trends, that’s realistic – although I find it strange to define a strategic goal with a round number. Also, some of these companies could then be from the UK, which is probably not what he has in mind.
Advertising for Brexit?
Here I see the unicorn in the room: One of the reasons for the market leadership of Great Britain is the deep capital markets. They do not yet exist in the EU. Atomico writes, however, that the European capital markets would mature. I am not sure if that is true. As one of the cited experts notes, the number of high-tech start-ups increased exponentially during the pandemic, but that does not apply to funding. There is still a lack of dedicated funds and foundations that invest in high-tech start-ups in Europe.
Despite all prophecies of doom, the high-tech start-ups are currently the most positive economic news in Europe. The seeds have sprouted. In fact, I’m moderately optimistic about Germany, where investment in startups has grown from a very small base. The new traffic light coalition wants to increase environmental and high-tech investments, both in the state and in the private sector. What the EU must do to be successful is to complete the Capital Markets Union and Banking Union. The two projects have stalled at the moment.
However, the EU must be careful that the current success story of the VCs does not become an advertisement for Brexit. Many of these start-ups trade in data that is often not covered by the usual trade agreements and certainly not captured by macroeconomic trade models.
In the UK, the lockdown turned a lot of people into entrepreneurs. In Germany, where jobs were much better protected, this was not the case. The most important thing when starting a new business is to get started.
More: Crypto and AI are the biggest political disruptors of our time.