At a regional level, the digital economy already contributes more than 6% of Gross Value Added ('GVA'), equivalent to nearly $800B and significantly more than the European finance and insurance industries combined. While Europe as a whole lags behind the US materially on this measure (6.3% versus 8.8%), selected individual countries within the region, such as Sweden & Bulgaria, are already on par with or close to achieving the same level of GVA contribution from the digital economy. Economically, tech is already vital to Europe.
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.
Given the shift in the macro environment and the widespread layoffs, it is not surprising to see less confidence in tech in this year's survey: 28% of survey respondents believe tech now offers less attractive opportunities. Last year only 2% felt it was less attractive.
But despite the hardship, many remain positive. According to our survey, 41% of employees and department heads believe it is more attractive to work for a European tech company today than it was 12 months ago.
Notably, sentiment is particularly optimistic in France and Spain, where the local ecosystems have thrived in recent years. In fact, many within the ecosystem, especially those with stronger risk appetites, see the downcycle as an opportunity for faster learning and development, as well as for better access to risk-adjusted upside potential.
While most of the dry powder raised by investors has a European mandate and therefore local dry powder is not restricted to domestic investments only, a fair share gets invested locally.
Since 2017, dry powder has significantly grown across all regions, though this growth is not uniformly distributed. Perhaps encouragingly, given overall funding amounts are still the lowest thus far, Southern Europe and Central and Eastern Europe saw the largest multiple increases since 2017 - 3x and 2.7x respectively.
This year, the Nordics and the UK & Ireland saw dry powder decreases - 11% and nearly 10% respectively - while Germany was flat.
Funds raised by VC remain highly concentrated in certain geographies, with more than 90% of European VC funding captured by just 10 countries. The UK and France alone represent more than 50% of the funds raised, even though they account for just 25% of total European GDP, and 19% of the European population.
This means there is a huge amount of untapped potential. Nearly 60% of the European population lives in a country whose share of total European venture funding is significantly smaller than their share of the European population.
Similarly, looking at each country's share of total European GDP, many are still considerably underweight when it comes to the scale of their venture industry. For example, while Germany, Austria, and Switzerland (DACH) is the third largest ecosystem in Europe by overall venture funding raised, this is still small in proportion to its overall economy as represented by GDP. Other countries are well capitalised relative to their population: The Netherlands comes out on top, with nearly 4x the proportion of total funding compared to its proportion of Europe's population. This is followed by the UK and Switzerland at 3x above, and France at 2x above.
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.
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.
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.
Through our sample of tech founders and leaders, we analysed more than 21,000 moves across European borders - and 40,000 moves between cities. This analysis highlights the inflows and outflows of talent in each country, and how these flows have evolved over time. For example, we can see that in the period 2020-2022, France has had a 2.2x net inflow of founder and leadership talent. In other words, for every tech leader that moved out of the country during this period, there were more than two that moved into France.
The data shows how certain ecosystems have been able to transform their talent flows over time. Most notably, France, Germany and Spain saw huge gains in inflow of founders and leaders in recent years. By contrast, other ecosystems, like Belgium and Ireland, have seen a small decline in net inflows.
It's important to note that this analysis is based on a data sample that exclusively looks at founders and C-Level leaders of companies that received investment in 2022. As such, the conclusions we can draw from these trends are limited by the scope of the analysis.
The pull of the entrepreneurial ecosystem in France is evidenced not just by young founder cohorts, but by the rising interest in tech jobs. Looking at the share of job searches focussed on tech, France has seen the strongest growth year-on-year out of any European country, according to Indeed's dataset. France is followed by Sweden, Germany and the UK, respectively.
While most countries have seen a relative increase in searches for tech jobs, there are also notable declines in some countries, including as Portugal and Italy.
If founders who have prior experience at a unicorn company are more likely to go on to help build another unicorn, the current distribution of those companies should act as a strong indicator for where success will compound over the coming years. To test this hypothesis, we compared each country's share of European unicorn companies, to their share of talent with unicorn experience.
Broadly-speaking, countries that have produced higher numbers of unicorn companies are also home to higher proportions of founders and leaders with unicorn experience. This is not surprising. However, some interesting variances emerge when we add data on the geographic distribution of all companies (not just unicorns) to the analysis.
Germany, for example, captures a disproportionate share of total unicorns, as well as share of founders and leaders with unicorn experience, relative to its share of all companies. Sweden and the UK follow the same pattern. France, by contrast, under-indexes on unicorns relative to its share of all companies in the dataset, even though in absolute terms it is still a key driver of European unicorn creation.
The total number of European unicorns is currently at 352, of which 31 were minted in 2022. Unsurprisingly, this is a dramatic slowdown from the record-breaking numbers in 2022, when 105 new companies reached unicorn status in a single year.
Despite this overall slowdown, what is most notable is that the number of unicorns has grown across all sub-regions within Europe. Notably, regions such as Central & Eastern Europe and Southern Europe have now both seen the emergence of dozens of unicorns – another indicator of the fundamental shifts taking place across all corners of the European ecosystem, and the breadth and depth of the talent pool.
From 2021 to 2022, Southern Europe added 4 new unicorns to their 'herd' - a 21% increase - while Italy minted its first two born-and-raised $1B+ companies: Satispay and ScalaPay.
Women's representation is not automatically improved by increasing the size of the overall pie. One clear sign is that, looking across European countries, gender parity and total funding are not correlated. Some countries that rank highly for total investment - like Sweden, Ireland and Finland - also lead in the number of rounds raised by teams with women founders, as a proportion of their female population.
On the other hand, France and Germany are among the top three most VC funded countries on the continent, but see far fewer funding rounds going to women, per capita. Respectively, they see 23 and 18 rounds per one million working women - which is only 31% and 25% of Sweden's figure.
Looking at the ratios of rounds going to all-men vs. all-women and mixed-gender teams, the gap is steepest in the Czech Republic where there are more than 9x as many funding rounds per working men than per working women. The average across Europe stands at 4.3x, and stands best in Ireland, Spain, and Portugal.