Companies

Anybody that has ever tried to categorise companies against an industry classification taxonomy knows it's a surprisingly hard problem to solve. That's why no model is ever perfect.

But we don't want to let perfection get in the way of progress and so we've chosen to tackle the complexity head on and produce our own thematic and clustering analysis of the funding landscape.

The goal is to generate richer insights into any major themes that are attracting funding and to try to identify emerging trends that are gaining momentum within European tech.

The analysis that follows is based on more than 17,000 unique European tech companies that raised at least one round of funding between January 2018 and October 2022. The companies in this dataset have been tagged programmatically using two approaches.

Firstly, companies were mapped against a set of themes and / or sectors based on a proprietary Atomico thematic model consisting of 15 unique sectors and more than 130 themes. This model was trained on a large-scale set of manually-labelled companies.

Secondly, we also generated company clusters using a deep learning model that labels companies thematically based on the available company description. These labels were also used to further refine the mapping of all companies via the first approach.

In this analysis, sectors and themes are not mutually exclusive and, as such, the trends for individual sectors and themes should be interpreted on a standalone basis, unless otherwise stated. Where we refer to 'clusters', however, we have created these as mutually exclusive.

It is important to note that the labelled dataset used to generate themes and / or sector tags is based on data for early-stage companies that have raised funding over the past five years, risking potential bias towards capturing companies related to more recent sectors and themes.

Lastly, this analysis is supplemented with the Dealroom taxonomy for the definition of deep tech (excluding enterprise software) and purpose-driven companies.

Our mapping and Dealroom's taxonomy are not always exact matches as we have limited our analysis to companies with rich company descriptions for the purpose of thematic mapping. The revised deep tech definition (excluding enterprise software), captures 82% of the capital invested into deep tech (including enterprise software) and 95% of purpose-driven capital invested per Dealroom's definitions.

Looking at the distribution of $B+ by their founding years shows two patterns: sectors that have been producing $B+ consistently across different time horizons as well as a broader range of themes that are beginning to mature now. Retail & Consumer in particular has been resilient, producing between 10-15% of $B+ companies across the different time periods. In the context of the $B+ analysis, Enterprise Software refers specifically to 'horizontal' solutions and its share of the pie has gone down over the years to the benefit of more vertical solutions. It is worth saying that this is a snapshot of the current set of $+ companies but this output is likely to change as more companies across these different cohorts reach the $B+ milestone.

Food & Drink, Clean Energy, and Transportation have captured a greater share of companies across the more recent cohorts of $B+ companies.

The European tech ecosystem has consistently produced breakout companies in Fintech and Enterprise Software. In fact, these two themes alone account for 38% of all European unicorns to date. Unsurprisingly, these themes continue to attract a large share of capital investment. Indeed, almost half (46%) of all capital invested into Europe in 2022 to date flowed to companies we have mapped to these two themes.

While companies falling within the themes of Clean Energy, Enabling Technologies, and Health & Wellbeing have to date accounted for lower share of European unicorns, they are overweight this year in terms of their share of capital investment and are likely to represent key themes that will produce future European breakout companies.

Fintech and Enterprise Software are the dominant themes within European tech investment, capturing $80B and $50B of cumulative capital invested in Europe over the past five years respectively. Transportation continues to be a strong theme too, having grown at a compound annual growth rate of 27% over the past five years. This is, coincidentally, the same rate of growth seen within the Fintech theme, though fintech investment has grown at that speed from a larger absolute starting point.

Enabling Technologies, which consists of horizontal 'pure' technology enablers such as quantum computing, battery technology, robotics, satellites, new materials, etc., has seen strong growth in 2022, in contrast to the headwinds facing other sectors as a result of the broader slowdown in investment.

The largest overall slowdown in investment in 2022 is recorded by companies in the Retail & Consumer sector, which has seen capital invested fall 48% year-on-year.

In the context of a year in which total capital invested has fallen by 18% year-on-year, flat levels of investment by theme are the 'new up'.

Despite the persistence of supply chain and logistics challenges, as well as workforce shortfalls, there continues to be a strong set of tailwinds for companies operating at the intersection of robotics and the Industry sector. The performance of the Industry category is up 22% year-on-year, driven by large rounds in companies such as Exotec, a French company that supports smart fulfilment by leveraging robots, and Mech Mind, a German company that has developed a 3D vision solution to enable robots to accurately pick various items in a warehouse.

The Materials space has also had a standout year, with investment levels up 37% year-on-year, driven by companies with foci ranging from new forms of packaging, to graphene-based materials for electronics, to sustainable leather products.

It's interesting to take a closer look at some of the companies that have been driving increased investment into materials innovation. Notably, seven out of the top 10 largest rounds for Materials companies over the past five years were raised in 2022.

This top 10 list contains fascinating companies operating at the intersection of different themes. Kerecis, for example, is a company based in Iceland innovating at the intersection of new materials and healthcare, producing repair materials for the human body from Omega-3-rich fish skin.

Another notable cluster within this list of companies is graphene-based technology companies. The Estonian company, Skeleton Technologies, is the global leader in graphene-based battery energy storage, having raised over $200M to date. Paragraf is the first company globally to produce graphene-based electronic devices, which will facilitate the next generation of semiconductor devices.

While relatively small as a category in terms of absolute investment compared to the Fintech sector, Enterprise Infrastructure has seen a surge of activity in 2022. The sector contains a number of emerging clusters that have attracted growing attention, including business intelligence and data tooling. Security and authentication are also important clusters within this space, having collectively accounted for around a third (32%) of the unique companies that raised funding within the broader Enterprise Infrastructure sector in Europe in 2022.

Over our years of producing this report, we've been early in identifying the emergence of two important cross-cutting themes: deep tech and purpose-driven tech.

Additionally, we have also charted the emergence and ever-greater presence of climate tech as a core theme at the heart of the European tech ecosystem. It is a cross-cutting theme that operates at the intersection of different sectors with a clear focus on reducing carbon emissions, and is aligned with Dealroom's definition of Climate Action SDG (excludes clean energy). The trends of the past five years in these areas have once again risen to the top in 2022, setting new records in terms of total capital investment into purpose-driven tech and climate tech. Deep tech investment also reached very strong levels in 2022, though it is approximately 25% down on the record-breaking levels of 2021. This still represents, however, a near-doubling versus the levels in 2020.

The themes of sustainability and deep tech are becoming increasingly linked. In fact, an analysis of the top 10 largest deep tech rounds raised by European tech companies in 2022 shows that many of them have sustainability embedded at their core. Climeworks, for example, which is working on direct air carbon capture and storage, raised a $650M Series F round to continue to push as a global leader in the carbon removal industry.

Universities play an important role is spurring entrepreneurship and innovation across deep tech but Technology Transfer Offices ("TTOs") are dragging their feet. With spinout.fyi, Nathan Benaich compiles a rich dataset on university spinouts to level the playing field for founders entering negotiations with their university TTOs. One of the main factor of dissatisfaction for founders engaging in the negotiation process is the time it actually takes to spinout. It is currently too long with the vast majority of spinouts taking over 6 months to complete, while typically seed rounds take 3 months. While it is long across the board, it is especially long for UK founders where 73% report it taking over 6 months and 28% over a year.

Technology Transfer Offices ("TTOs") often negotiate spinout deal terms that are not setting up founders for future success. One of the most common is the share of equity that universities negotiate upon founding. While the median stake in the US is 3.5%, it is close to 3x as much in the UK where the median equity stake is 10%. Other parts of Europe are more founder-friendly with the EU median more aligned with the US but the higher average also points to the fact that not every universities is the same. In fact across the database of 140+ spinouts, the maximum recorded in the US was 22% while it climbed to 52% and 70% for Europe and UK respectively. Spinout.fyi hopes to reduce the information asymmetry that exists between founders and TTOs and help founders with the negotiation process.

In order to get a clearer sense of how investment by sector and theme has tracked through the course of 2022 and how this compares to recent years, we've mapped the cumulative month-by-month investment for various sectors and themes.

This shows how investment into Fintech started the calendar year strongly, with the pace and level of investment during the first half of the year exceeding even 2021's record-breaking levels, before slowing down considerably during the summer. Fintech investment this year is now on track to be down considerably versus 2021 as a consequence of this turn.

By contrast, investment into the sustainability theme has been trending above prior records from 2021 for every month right from the outset of the year and had already matched last year's total by October.

The slowdown of investment into Retail & Consumer companies is also clearly highlighted in this visualisation. After a strong first five months to the year, investment has slowed dramatically since then.

Total capital invested is a lagging indicator and so drilling into capital invested and number of rounds by stage provides valuable insights into the trends that are gaining momentum and sheds light on the potential game changers of tomorrow.

While the larger categories maintain a stronghold - Fintech and Enterprise Software still capture the lion's share of rounds even in the early stages - a few categories appear to have more weight in rounds of less than $5M compared to later rounds. 

Certain categories stand out. Retail & Consumer Products in particular has a larger share of deals and capital invested in rounds of <$5M. These companies often succeed in raising early-stage funding, but a higher share remain at Seed and do not progress further (see more on this topic in Chapter 3 in the dedicated section on the "Seed to $B+" journey). This is due to a number of factors such as a higher failure rate and a lack of appetite from later-stage investors and alternative sources of capital.

Health & Wellbeing has also seen a greater share within the less than $5M category. This sector has continued to benefit from strong tailwinds post-pandemic, with a continued interest in the healthcare category as well as the democratisation of mental healthcare and the development of health-related benefits as part of the human resources toolkit.

In order to dive into emerging clusters at the earliest stages of company formation, which will provide the best forward-looking indicator of future thematic clustering, we have looked to identify what's happening at the Pre-Series A stage, defined here as rounds of $5M or less. Specifically, we picked out clusters that have seen a new peak in activity in 2022 and that have seen growing investment activity over recent years.

What stands out here is the rise of climate tech clusters within the top 10 highest-ranked clusters based on this methodology. These clusters include companies working on carbon emissions reduction, solar and photovoltaics, air quality, and energy efficiency. Web3 is also a notable theme across the clusters identified, including companies working on core blockchain technologies, as well as NFTs.

Across 2021 and 2022, crypto / blockchain and climate emerged as two growing investment themes, with many established investors having raised specialised vehicles dedicated to investing thematically in these areas. On a global level, dedicated crypto funds raised in excess of $13B across 31 funds in 2022, more than five times the amount raised globally in 2020. In most cases, these funds have global mandates and are actively investing in Europe too. The crypto sector is once again entering a so-called 'winter', but companies can be assured that there is significant dry powder to be invested into the category, though there will likely be a significantly higher bar to raise as a consequence of the market turmoil of 2022.

Talent depth and experience (a topic explored in Chapter 2) also plays a role in the way certain themes or sectors develop across Europe. One way to visualise this is by looking at the clustering of activity that takes place across Europe. For this analysis, we looked at rounds of less than $20M in 2022 and their geographic distribution across different clusters. There are more than 100 different unique clusters identified by our model and these are mutually exclusive, meaning each company in our dataset was tagged against one specific activity cluster.

The chart below highlights a selection of clusters across the UK, Germany, and France where the activity in 2022 within that specific cluster is higher than the country's share of all deals. This helps highlight 'hotspots' of activity in these countries. We applied a threshold of 10 deals for the UK and 5 for the other countries, since the UK sees a greater share of overall investment activity on a European level.

From savings and investing options to banking solutions for children, the UK unsurprisingly remains the undisputed hotspot for Digital Banking, capturing 63% of deals of less than $20M within this cluster in 2022.

Germany has seen more activity in the Clean Energy space, with a plethora of companies looking to harness solar energy and reduce carbon emissions. It is also a breeding ground for B2B marketplaces - with a number of vertical solutions looking to address the low digital uptake of the Industry sector (e.g. rental / leasing of machinery and second-hand B2B marketplaces for used car or construction machinery).

Perhaps less expectedly, France has seen a number of deals in the security space in 2022 and some notable Series A rounds in this space. Yogasha, a collaborative software for security leaders to connect with hackers raised a $10M Series A. CrowdSec, an open-source security engine raised a $14M Series A to expand its operations in the US and Hackuity, a risk-based vulnerability management platform, emerged from stealth with $13M in funding.

While Europe is still ramping up its digital adoption, unleashing opportunities everywhere, Europe's untapped potential is particularly apparent across those countries currently taking only a small portion of the funding pie.

Funding for European tech is still heavily concentrated within particular geographies, with over 90% of all LP funding raised since 2017 captured by GPs in just 10 European countries. The UK and France alone represent 50% of all capital raised by European venture capital funds. But Europe has much more to offer: nearly 60% of the European population lives in a country where the share of total venture funding is lower than the share of the European population.

For some countries, there's a stark differential between the share of funding raised by VCs and the share of the European population the country houses. The most notable examples are the UK, France, and the Netherlands - all overweighted in their share of funding raised compared to the size of their population. In contrast, while being the fifth and sixth largest ecosystems for raising LP funding, Spain and Italy are underweight compared to their population size.

Overall, the growth in capital invested since 2018 across Europe has notably grown, with even the slowest-growing sub-region (DACH) increasing by a compound annual growth rate ("CAGR") of 30% over this period. Europe's fastest-growing region is CEE, which has grown at a compounded level of 44% since 2018.

Local VC funds - whether European or domestic - are vital to the health of tech ecosystems across Europe. In particular, they provide an important source of capital at the earliest stages, kickstarting the journeys of local companies.

In the UK, domestic investment makes up a large portion of early-stage rounds (under $10M), and as much as 73% of rounds under $2M. Other European countries follow a similar trend with Germany seeing the lowest share at 66%.

Italian and French founders rely on domestic capital more than other European countries across the full capital journey. As much as 44% of rounds between $100-250M involve domestic capital invested in France versus 25% across Europe overall. However, most countries depend on either European-cross border investors or US investors for the later rounds. In fact, both Germany and the UK which are two of the largest countries by capital invested are seeing only 8% and 13% respectively share of investments from domestic investors in large rounds of $250M+.

For the European tech flywheel to keep spinning, new companies need access to a sufficient pool of both domestic and European investors. While US and Asian investors are active throughout, their shares of total investment in European rounds only scale to significant levels at the later stages. US funding rises significantly at the $50-100M round level, where it is in fact the largest single source of funds, accounting for 33% of all capital invested. The share increases further at higher rounds, with US investors providing 45% of capital in rounds of $250M or more. For some countries, that proportion is even greater: in the Netherlands, for example, 75% of these rounds are funded by US investors.

At a continental level, the whole of Europe has benefitted from the absolute increase in funds flowing into local startups. The proportion of funding flowing into individual regions has remained relatively constant over the past five years, but there are indicators that this may be starting to shift. While DACH and France & Benelux have captured roughly the same share of European funding throughout the last five years, the UK & Ireland have seen a small drawback as Southern Europe has been capturing a larger share of funding in the most recent years.

One of the most common ways governments will try to support their local entrepreneurial ecosystems may be the most obvious: money. Young startups need cash to expand and governments across the world have used this tactic to help amplify their ecosystems. These cash injections take manifold forms - to the highly specific on certain areas of interest (SDGs, climate, AI, etc.) all the way to purely general initiatives supporting those starting ventures. Below is surely a small sample of what we could find in our research.

Curious? Check out more details here.

This is an incomplete list, compiled to give a flavour of policy initiatives across Europe supporting startups and venture capital. Want to make it more complete? Please share your contribution here.

Direct funding initiatives are one form of incentive governments have. . . but they also wield tax incentives as well. To help aid young and growing ventures, governments have instituted tax breaks supporting costs associated with R&D, hiring employees, and just generally locating a business within a country's borders. Below is (likely) a small sampling.

Curious? Check out more details here.

This is an incomplete list, compiled to give a flavour of policy initiatives across Europe supporting startups and venture capital. Want to make it more complete? Please share your contribution here.

When comparing the top 10 countries by capital invested with the rest of Europe, the distribution has been relatively consistent over the past five years. That said, there are some noteworthy trends to call out.

Firstly, despite significant absolute growth in capital investment into the UK and Germany, on a relative basis they have been losing share compared to other parts of Europe. France, by contrast, continues to grow its share of the pie, including capturing a record 17% of all capital invested in Europe in 2022.

The other most notable change to highlight is the fact that growth in capital invested outside of the top 10 countries is faster on a relative basis. As a result, the 'Rest of Europe' share (i.e. countries outside the top 10) now accounts for a record 13% of all capital invested, up from 9% in 2018.

The UK ecosystem continues to be Europe's most funded, capturing 35% of the total capital invested in Europe in the last five years. This is more than twice the level of investment in France, which ranks in second place. However, investment levels in the UK are down 22% year-on-year. This is in contrast to the French ecosystem, which continues to grow from strength to strength and is the only one of Europe's larger countries that has already reached investment levels on par with those of 2021.

As a result, French investment is significantly higher in 2022 than the level recorded in Germany (down a full 43% year-on-year), even though Germany has cumulatively raised more capital than France since 2018.  On the smaller end of the scale, other countries that have seen 2022 investment levels exceed those from 2021 - included in this list are:

• Iceland - 5.9x last year's levels
• Croatia - 5.4x last year's levels
• Portugal - 3.4x last year's levels

Increases in investment continue to show when looking at the absolute scale of investment now being raised by countries all across Europe. More and more countries have joined what we, somewhat awkwardly, call the '$1-5B investment in a year' club. In 2018, 64% of European countries saw less than $100M of capital investment in that year. In 2022, this has decreased to only 43% of European nations still sitting at this investment level.

By contrast, in 2018 just 9% of countries saw levels of investment between $1-5B and a further 2% of countries had investments of greater than $5B per year. This year, those numbers have increased to 27% of countries in the $1-5B club and 7% of countries in the $5B+ bracket. In short, we are seeing more and more countries mature to levels where total investment has reached a meaningful scale.

Perhaps these growth figures help explain why, after this year of geopolitical and economic turmoil, so many European survey respondents are even more optimistic about the future of European technology than they were 12 months ago. Portugal had the highest number of respondents feeling more positive - 61%, though it was also the least 'neutral' country, with a full quarter of respondents also reporting they were less optimistic. Poland had the most pessimism - nearly 40% of Polish respondents reported feeling less optimistic than 12 months ago.

Despite investment in Europe as a whole declining in 2022 compared to last year, many individual countries have seen capital investment grow year-on-year, in spite of the macro headwinds. Amongst the biggest 'risers' are Croatia and Iceland, while notable countries with large falls in investment include the Netherlands, Germany and the UK.

For both Croatia and Iceland, the step up in funding is driven by large rounds. Croatia welcome its second $B+ company, Rimac Automobili, the maker of electric supercar, following a $500M round over the summer led by Softbank. In Iceland, Kerecis, a pioneer in cellular therapy and tissue regeneration, raised a Series D of $100M ($60M of equity and $40M of debt). The round was led by the LEGO group and Icelandic pension funds and with a $620M valuation, it could very well be Iceland's first $B+ company.

Another helpful way to compare the relative maturity of different countries is by comparing capital invested in proportion to population. Overall, the European average rests at $140 per capita.

Many countries punch well above that weight, including the Nordic and Baltic countries of Estonia, Iceland, and Sweden. The more populous countries of the UK and France both score higher than the European average, though Germany comes in just under. Europe's other giant countries by population, Spain and Italy, continue to see investment levels that are well below average despite the progress made in recent years. As we have highlighted in past reports, there is still scope to see the ecosystem expand as more countries track towards the per capita level of investment of Europe's leading startup ecosystems.

Looking at how investment levels stack up compared with GDP provides another lens on the ecosystem. Estonia once again tops the charts, increasing 2 percentage points between 2020 and 2022 to reach investment levels at a 3.6% share of GDP. The only other country in the 'above 1% of GDP' category on their investment levels is Croatia. The Netherlands and Germany do not make this top 10 list but are beaten by Sweden, Lithuania, Finland, and others.

Despite current conditions and predictions, it is undeniable that Europe has made incredible progress - since 2018, Europe has seen a 33% overall compounded annual growth rate ("CAGR") of capital invested in startups. Some regions saw far higher growth rates than this average - Switzerland topped the charts at a 50% growth rate since 2018. The United Kingdom and Norway aren't too far behind, each hitting growth rates of 42% during this period.

Looking at growth rates at the individual city level, some new winners top the charts - Tallinn, Estonia beats even Switzerland's growth rate, reaching 55%. And though Finland, Italy, and Sweden aren't as high on the country-level chart, looking at Helsinki, Milan, and Stockholm alone, their growth rates rise above that of the UK by 10 percentage points.

But these numbers need to be considered in context. The fact that, for example, London's growth rate (37%) falls below that of the entire United Kingdom (42%) is actually great news for the country: the UK has famously struggled to push investment out of the 'Golden Triangle' (London, Oxford, and Cambridge) and into other areas of the country. These numbers suggest some investment diversification initiatives have had some effect. London's lower relative growth rate is also due to having grown from a larger absolute baseline of investment.

Overall, the trendline is clear - investors have realised the increasingly geographically diverse set of opportunities that exist across Europe.

Unsurprisingly, London, Paris, and Berlin all rise to the top of the list when it comes to cities with the most capital invested. Paris is even on track to grow capital invested by 21% in 2022E after a record year in 2021 (2.5x the level in 2020). Zurich, Helsinki, and Milan are all expected to grow too from 2021 to 2022E, 210%, 33%, and 94% respectively. While most cities lost some capital investing momentum from last year's boom, all are at least 1.5x higher than investment levels in 2020, with many reaching even higher multiples of growth since then.

Despite this impressive capital growth amid challenging macroeconomic conditions, the number of deals has mostly decreased across the board with a few exceptions (e.g. San Sebastián increased deals nearly 2x since 2021 and Zurich increased deals by 27% year-on-year). However, comparing 2022 to 2020's numbers still shows some impressive growth: Oslo's 2022 deal numbers, for example, increased 3x compared to 2020's figure.

But overall, deal number percent increases are not keeping pace with capital raised percent increases. Paris is a great example, where, since 2020, capital has increased by 200% but deal numbers have only increased by 25%. Another example is Helsinki, where capital invested has increased 154% since 2020 but deal numbers have decreased 3.4%. More money is going into fewer deals.

Which countries are punching above their weight in terms of unicorn creation relative to capital invested? The winner here is Germany - it captured 16% of the overall capital invested into European startups between 2018 and 2022, but has managed to create 18% of the new European $B+ class created in that same time frame. Though on a smaller scale, the same can be said about Norway, Ireland, and Denmark.

Meanwhile, the UK captured 35% of all funding but has seen its share of unicorns decrease from 41% in the years prior to 2018 to 26% over the past 5 years. It is now losing ground to other countries in terms of contribution to the unicorn creation rate.

Looking at unicorn current valuation multiples (how much greater a unicorn company's valuation is now compared to how much it raised to achieve that valuation) helps provide another layer of insight, giving a proxy of capital efficiency in creating value.

After finding the valuation-to-investment ratios for the unicorns in each region, this analysis takes the median to avoid any outliers skewing the data. Here, CEE comes out head-and-shoulders above the rest - at a 7x ratio of unicorn valuation compared to investment, compared to a relatively flat average of ~4x valuation-to-capital ratio across other regions. Southern Europe comes in last at a 3.5x valuation-to-capital ratio.

Some insights as to the dynamics behind these findings are revealed by looking at just the median capital raised for unicorns in these regions. CEE's unicorns on the whole raise far less than their regional counterparts - other regions typically raise close to twice the amount CEE unicorn founders raise to build their companies. CEE unicorn founders have been able to do much more with far less.

Europe has now seen unicorns emerge from 29 different countries across Europe. Bulgaria is the most recent addition to this list, with Payhawk reaching unicorn status in March 2022 after raising a $100M round. This brings the total count of European tech companies that have reached $1B+ valuation during their lifetime to 352.

Unicorn creation by population reveals pockets of especially efficient and productive talent within Europe's entrepreneurial ecosystem. Estonia tops this chart with a rate of 3.8 unicorns created per every one million inhabitants. Luxembourg isn't far behind at 3.1 unicorns per million inhabitants.

The United Kingdom, while still above Europe's average of 0.6 unicorns, is at less than half Estonia's rate with 1.6 unicorns per million inhabitants, the same rate as Ireland. Germany just squeaks above the European average at 0.7 unicorns created per million inhabitants, the same rate as Lithuania.

Another way to visualise the scale of countrywide ecosystems across Europe is by the sheer number of startups. As would be expected from overall funding levels, the United Kingdom, France, and Germany together are home to the lion's share of Europe's startups - nearly half.

Spain and Italy are amongst the largest countries in Europe by population size. Despite a lower relative share of funding, they capture 7% and 6% respectively of European startups, slightly below their relative share of European inhabitants.

When looking at the number of startups per population in a country, some of these high success rates are put into perspective - Estonia, for example, produces an incredible number of unicorns, but also has the highest number of startups per capita, at over one startup per 1,000 inhabitants. Estonia's concentration of tech in society is the highest in Europe by this measure. Iceland and Ireland are almost tied next in line.

The United Kingdom is, again, further down the list but about twice the size of Europe's average of 269, at 574 startups per one million inhabitants. France is only just above the average at 307 startups. Germany is much further down the list, at only 227 startups per million people - only 83% of Europe's average.

The inflow of capital supports the development of the different hubs across Europe. Growth-stage companies played such a significant role in widening the funding divide last year that, with the slowdown in 2022, the concentration of capital has slightly tapered off across the top 5 countries, which for each year consists of the top 5 countries or cities by capital invested and/or by share of deals. While this level of concentration hasn't changed on a meaningful scale, we are nonetheless now beginning to see a shift.

The flywheel continues to spin just as fast in the top countries, and it has picked up pace in other parts of Europe too. A slow and steady change is underway when it comes to capital concentration. As capital keeps scaling in aggregate, it is a win-win for all.

It is yet to be seen whether reduced liquidity in Europe will impact investment trends by geography and whether pan-regional, cross-border investors will start deploying more at home than across the region.

Larger ticket sizes seem to be par for the course in countries where larger amounts of funding flow - though this pattern doesn't always play out. Germany has the highest median Seed round size at $2.8M, followed by France at $2.2M. The United Kingdom, the much larger ecosystem by funding as well as many other efficiency metrics, has a median Seed round size of $2M. The UK, however, has the largest Series A median of these three countries, suggesting a higher willingness to provide funds once a company has had a chance to gain some traction.

Looking at how much of a country's total capital raised is accounted for by the largest rounds that happen each year is a helpful way to understand the scale of capital concentration or distribution within an ecosystem.

The United Kingdom in 2021, for example, exhibited the highest amount of funding distribution - the top 5 deals only represented 12% of the capital raised that year. Meanwhile, in 2021, Sweden saw the top 5 deals represent a full 64% of the capital raised in the country that year, driven by the outsized effect of Northvolt's $2.8B mega round.

The UK has become slightly less evenly distributed this year, reaching nearly 16% of its funding in the top 5 deals. Switzerland has seen a hefty increase to 42% of its 2022 capital being locked up in the top 5 deals. In general, big swings either way in terms of concentration typically indicate outsized rounds being closed or result from the effect a big round can have when the overall level of investment in a country is still low.

Together with our partner Dealroom, we set out to refresh the analysis we did in the past (see State of European Tech 2020) to better understand the scaling journey companies embark on and expand our analysis to dive into different types of business models.

Our first step was to create a clean dataset; this involved creating filters that may exclude certain companies. These filters were used to exclude: crowdfunding rounds, rounds with no investor, and rounds involving companies without a founding date. The analysis also looked at business models, labelling companies as consumer, business, or deep tech businesses, where some companies might fall under multiple categories.

This left two standardised cohorts of 1,260+ and 2,800+ companies that raised a qualifying Seed round of at least $0.2M between 2012 and 2017. Note that the cohort of companies is inherently exposed to survivorship bias as the companies that never make it are not as well-recorded as those who go further in the fundraising journey. The lifecycle of these companies has been tracked until October 2022. The first part of the analysis looks at the progress of these companies all the way to today, while later, on a five-year cut off is introduced after the most recent Seed funding round in order to have a like-for-like comparison for the cohort-based analysis.

One goal we set for this analysis was to compare stories across cohorts. In other words, we wanted to understand whether companies founded at different points in the development of the European tech ecosystem (say, 2012 versus 2017) show different trends in terms of their typical fundraising journeys. To aid this analysis, we fixed the total time period at five years of elapsed time since a company raised its Seed round. This means that progress for a company that raised its Seed in 2012 is measured up until 2017. A company that raised in 2016 is measured until 2021.

If we then look at distinct cohorts (in this case, companies founded between 2012-2014 and between 2015-2017), we can compare differences. Most notable, however, are the similarities across cohorts. There are small differences, but by and large the cohorts look remarkably alike in terms of the share that remain in Seed after five years (around 50%), those that have raised only one further round (around 20%) and those that have exited by the end of the five years (around 10%).

Looking at total funding raised by the two cohorts five years after their Seed funding, we can map out each company’s fundraising journey. By taking the mean of each funding round that happened, it becomes evident that our younger cohort of companies had access to more funding in the same respective period of time. The shift is evident across all rounds and accumulates across stages - when comparing companies that are in their sixth round of fundraising, the startups who raised Seed between 2015 and 2017 have raised roughly 30% more than their 2012 to 2014 peers.

It is also possible to compare what stage the mapped companies have reached five years after their latest seed round by business model. While on average, companies have performed similarly across business models, some nuances can be noted. A greater share of consumer businesses have stayed at Seed relative to other business models, but the cohorts also show that more consumer businesses have found an exit within five years than those with other business models. One reason, perhaps, is a tendency for more 'binary'-type outcomes for consumer business.

Interestingly, deep tech companies have a notably higher probability of having raised additional rounds of funding than companies with business models focused on traditional consumer or business sales. This could be a reflection of the capital intensity of these businesses and the need to keep financing them even before it is clear that they will ever be successful in achieving technical breakthroughs and / or commercialisation.

While exits are usually associated with later rounds, the reality is that they are actually almost equally common across rounds once past Seed. Looking at the different cohorts and the share of companies that exit at each stage the fundraising journey, the earlier 2012 - 2014 peer group again shows a slightly higher share of tech companies that have a recorded exit.

Both cohorts experience a relative peak in the share of companies exiting after their second round or third rounds. The analysis looks at a snapshot at five years after Seed, with only a few companies having had the chance to scale to their sixth funding round across all cohorts - and notably none of the 2015 - 2017 cohort recorded an exit then.

Adding up all the companies in our analysis that have exited shows that, while the share of companies exiting at each stage is equally distributed, as fewer companies make it to each next stage, the total share of exited companies starts tapering off swiftly. The biggest jump happens at the third round, increasing by just over 3% across both cohorts, and reaching a total share of 8.2% exited companies by the end of the five-year period for both cohorts combined.

It is visible that the newer 2015 to 2017 cohort has fewer recorded exits at the same five-year benchmark. There are many possible explanations for this trend, though we can only speculate as to the actual causes without additional data. Some of this gap might be due to the time lag between the exit happening and it being publicly recorded. It's also possible that the increased availability of capital and growing maturity of the ecosystem has also enabled more companies to stay independent for longer.

A material number of companies never go on to raise their next round of funding. The limitation of this analysis is that we are unable to distinguish whether these companies have succeeded (and therefore no longer need external funding), or if these companies have since gone out of business without any recorded exit.

The falloff is steepest at the earliest stages - after receiving Seed funding, 56% of the companies in our sample stagnated. This behaviour is remarkably consistent across business models and points to the fact that regardless of their vintage or business model, only 10% of companies go on to exit or continue raising funds after a sixth round (within five years of elapsed time after their Seed round).

The European unicorn herd has continued to welcome newcomers in 2022, though at a much reduced count from last year. 2021 was an exceptional year with 105 European tech companies reaching a billion-dollar valuation for the first time, This year, a total of 31 new unicorns have emerged by the time of publication of this report. Cumulatively, Europe has now seen an all-time count of 352 tech companies scale to a billion-dollar valuation at one point in their journey. As we will share, not all companies are able to sustain that status.

In this report, we have defined a unicorn as a company that has achieved a billion-dollar valuation milestone at some point in its lifetime. This threshold, once reached, is not always guaranteed to hold out. This year, in fact, we have seen many unicorns being 'de-horned', meaning their valuation has fallen back below the $1B+ threshold. This has been more common among those operating as public companies. As of November 2022, we count as many as 58 unicorns that are now valued at less than $1B. In fact, on a net basis, this means that the total number of European tech companies valued at $1B or more has declined by a net total of 14 (with 31 new unicorns, but 45 unicorns 'dehorned' during 2022). It's also notable that while there were 13 European tech companies valued in excess of $25B at the time of publication of last year's report, this has now fallen to eight companies.

With fortune flipping for 45 additional unicorns whose valuation dipped to below $1B during the year, the overall share of de-horned unicorns now stands at 16% of all companies that had at some point scaled to the billion-dollar milestone. Additionally, 20 companies have lost their decacorn status since the end of 2021, seeing their valuations fall to below $10B this year and bringing the overall share down to 7%.

In the midst of the market cool down, Benevolent AI was the only company to reach unicorn status via the public markets, after it completed a reverse merger with a special purpose acquisition company ("SPAC") to go public on the Euronext Amsterman exchange in April 2022. It's also worth noting that the number of publicly-listed unicorns has shrunk year-on-year due to a number of take privates - more on this in our chapter on Outcomes.