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Key Findings

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Investors

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Purpose

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Policy

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Appendix

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Executive Summary

The State of Diversity and Inclusion

This report shows that European diversity and inclusion is still not good enough - in 2019, 92% of funding went to all men teams, a similar level to the figures which shocked readers last year. When you break down the data by race, age, education and socioeconomic background, we see more problems emerge: 43% of Black/African/Caribbean founders have experienced discrimination - of which 80% link it to their ethnicity. Black founders made up only 1% (0.9%) of our more than 1,200 founder respondents, which tells its own story. We also found that people from a lower socioeconomic background are less likely to become entrepreneurs: 81% of founders surveyed told us they were living comfortably before they founded their company, against a European norm of 39%. What is also becoming increasingly clear is that women VCs are being left to fix Europe's diversity problem: 63% of women VCs told us they increased their focus on attending events with stronger participation of diverse founders, though only 36% of men told us they had. This is particularly problematic as this year's report shows that VCs have not increased the share of women at partner level. One positive - in quantum computing, a rapidly growing deep tech sub-sector, we found that 23% of European quantum companies had a mixed or woman-led founding team, more than double the European average of 13%. This shouldn't be surprising given the large proportion of researchers and scientists who are women: as the report shows, women actually account for more than half of the population of scientists and engineers in Lithuania, Bulgaria, Latvia and Denmark.

People

Drawing on our founder survey responses, we have sketched a portrait of what a typical European tech founder looks like in 2019, and how their concerns change as their company scales. A number of insights emerged in the process, from granular information on how the earliest-stage founders financed their businesses, to the age-makeup of companies that scale to billion-dollar valuations. We were also able to examine the intense personal journey that company building entails through this year's report. From balancing professional and personal lives, to loneliness at the top and concerns over sourcing talent, we've assembled a data set which demonstrates beyond doubt that mental well-being is an active concern- and that many founders want help. As many as 57% of founders who have raised external capital said they would appreciate receiving support from the board or by investors to help manage the pressure of being a founder. Elsewhere, there are positives: we found that Europe's professional developer pool continues to be deeper than in the US (6.1M v 4.3M), while at the later stages European companies are closing the gap with the US on the use of stock options to incentivise talent.

Purpose

Margrethe Vestager's observation that European tech differentiates itself through purpose is explored in this report. Investors have supported purpose-driven European tech companies with more than $4B in capital investment in 2019, up more than 6x over the past five years - taking the cumulative total invested since 2015 to close to $10B. To measure investment into purpose-driven companies, Dealroom.co created a framework to assess venture-backed European tech companies based on their alignment with the United Nations Sustainable Development Goals. The analysis focused on a subset of seven of the seventeen Sustainable Development Goals (SDGs), selecting only those where Dealroom has observed greater levels of European venture-backed startup activity. We found over 500 European tech companies founded since 2005 tackling at least one of these seven SDGs as a core part of their mission.

Places

Each year our data highlights a range of tech hubs that are showing promise. Now, this promise is being fulfilled, with twenty countries fostering billion-dollar tech companies. Founders have never had more choice, but our report outlines that they prefer to found in their home market when they can, while rent prices in popular hubs like London are reflecting demand. The result? Greater geographic diversification as activity moves away from the main hubs. Eastern European cities dominate the list of growing hubs by Meetup members, as top tech hubs like London, Berlin and Paris are losing popularity amongst founders thinking about where to locate their businesses. The report also outlines the critical role played by universities, and explores the recurring criticism that Europe is failing to effectively commercialise its cutting-edge research.

Policy

To fulfil the potential of European tech, sophisticated and clear policy will be key, and dialogue essential. Too many founders are still in the dark about the European policy vision for technology: 40% of founders and startup employees we surveyed told us they do not feel informed about the European Commission's digital priorities. Our report finds tech founders are calling for simplified employment regulations, while Politico data suggests policymakers' attention is elsewhere: they are less focussed on the Digital Single Market than two years ago, and more focussed on the creation of a digital tax and the activities of big US tech firms. European success stories like fintech and digital health are also rarely discussed by policymakers. We need to ensure European policymakers and founders are pulling in the same direction if Europe is to fulfil its potential.

Investors

Following the success of the European tech ecosystem in the last five years, it's perhaps no surprise to see the European venture industry in rude health. Cambridge Associate data on VC returns shows that European VC performance is either on par or significantly outperforming indices for both US VC and, importantly, European Private Equity. Accordingly, appetite from LPs from both inside and outside Europe is increasing, and even though government agency investment in VCs dropped almost $1B in 2018, we're finally seeing a spike in pension fund investment - in fact, a 203% increase on last year. This year's report tracks more investors than ever before, from angels, who are now more likely to have been founders themselves, to the 2,600 unique institutional investors involved in a European deal in 2019. And let's not forget the corporate investors like Unilever Ventures or Next47, who participated in 1 in 5 deals in 2019, or rising investor interest from abroad: last year 21% of European rounds had at least one US or Asian investor - up from 10% in 2015.

Investments

Unlike in the US and China, investment in European tech continues to grow, and Europe's most promising companies are choosing to go bigger and stay private longer, and are arriving at multibillion dollar valuations on the back of raising $100M+ rounds at record levels. We are on track to reach $34.3B invested in European tech in 2019, with $11.6B invested in Q2 alone. Much of this has been driven by large funding rounds: 40% of all funding raised by European tech companies in the first nine months of 2019 was in deals larger than $100M. While there hasn't been a European $1B+ venture-backed tech IPO in 2019, we are truly seeing the ambition to scale to huge outcomes in the ecosystem. IPOs are no longer on every founder's agenda, but no matter how much capital flows into the region, they will always be cautious about raising the next round.

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