European tech investment ($B) adjusted for reporting lag effect (the reporting lag is the difference … [+] between the date of a round’s disclosure and the reported date of a round’s occurrence).
It was a wild and unprecedented year for European tech in 2020—a year in which the term ‘technology disruption’ took on new meaning. In this 3rd edition of my year-end European tech investment survey (see here for the 2018-2019 and 2019-2020 editions), I feature exclusive insights from four of Europe’s premier investors, incorporating perspectives from different regions and sectors to offer a holistic view. These investors include Simon Schmincke (Partner at Creandum based in Berlin), Harry Briggs (Managing Partner at OMERS Ventures based in London), Paul Murphy (General Partner at Northzone based in London), and Jordi Viñas (General Partner at Nauta Capital based in Barcelona). Equipped with unparalleled first-hand knowledge and experience of the ecosystem, the investors gave their own reflections on 2020 and trends to look out for in 2021.
Key Takeaways From 2020
Access to financial and human capital has been decoupled from geography (Schmincke, Murphy & Briggs): In the words of Northzone’s Paul Murphy, “geography has become almost completely irrelevant, apart from the consideration of timezones.” Simon Schmincke echoed that the funding market is getting flatter in terms of geographies: “through the increased use of technology, today, as an investor, you have unlimited access to any startup and founder team in the world, resulting in more US VC firms looking at European companies, but also vice-versa. Additionally, by embracing fully remote or hybrid remote work setups, investment processes have sped up and become more efficient. Today, investors are willing to write large cheques for teams halfway across the globe without meeting them in person.” Consequently, competition between venture firms is heating up, with expertise, empathy and connection with founders taking priority over location.
Technology was a clear winner in one of the most difficult years for the global economy and business (Viñas, Murphy): Investors understood that the global economy was going to be impacted. What they did not fully appreciate was that tech would become the crutch for the global economy. In 2020, various tech propositions and business models were put to maximum stress and some have emerged as runaway successes, including those that have coexisted well with remote activities boosted by cloud software efficiency, specific productivity tools, communication and knowledge spreading, customized entertainment, and smart retail. Tech is what allowed the economy to continue to function and also what helped people stay in touch with others. This wasn’t anyone’s prediction at the start of COVID-19.
Capital efficiency continues to differentiate the European market (Viñas): In 2020, the pandemic made evident the need for companies to leverage cash efficiently to achieve growth. As Jordi Viñas of Nauta Capital explained: “by taking a leaner and more capital-efficient approach, companies build optionality and flexibility, characteristics that are very much needed to navigate when unexpected macroeconomic changes happen. This capital efficiency is a usual feature of European tech companies, which now makes them more attractive for global investors. In general, European tech companies have managed to survive COVID-19 and even grow faster worldwide (such as UIPath, Hopin, Mirakl, GoCardless, or Onna).”
European tech investment has proven to be surprisingly resilient (Schmincke & Briggs): Even though Limited Partners (LPs) stopped funding new venture capital firms for a while during the first months of the pandemic, the possible effects of a net reduction of venture funds is not visible yet. Now that the public market is booming once again, the asset allocation across LPs has bounced back from the early COVID days, allowing the alternative asset attribution to go back to the usual 5-10% that most large endowments, family offices and institutional investors aim for. Ultimately, by almost every measure, Europe has had a blockbuster year when it comes to tech investment. Briggs called out several stats provided by PitchBook, including the aggregate valuation of European “unicorns” surpassing the €100 billion mark in Q3 2020 for the first time in history. Thirteen new unicorns have emerged through Q3 2020, with the total number now 53, with a combined value of €102.1 billion. Finally, VC deals reached €29.5 billion as of Q3 2020, on track to surpass 2019’s record setting year.
European unicorn count and aggregate post-money valuation 2011-2020.
Focus Sectors & Trends For 2021
Digital health will continue its path to the forefront (Schmincke & Briggs): According to Schmincke, European regulations have finally started to catch up with customer demand, enabling and facilitating the shift to online treatment, wellbeing and self-care. This development was driven by the pandemic and the increased health awareness of many. Briggs pointed to several specific growth areas within the sector: the application of artificial intelligence in areas like predictive modeling, cancer detection, digital diagnostics and drug discovery will all benefit from the shift to a digital-first mindset forced by the pandemic.
Fintech infrastructure is everywhere (Schmincke): Whereas people used to believe “you need to own the customer,” today fintech is okay with “being the backbone of owning the customer on a large scale.” Whereas large providers were previously monopolizing the offering of financial services, platform and infrastructure providers are now enabling everyone to offer fintech features in their core products. Schmincke believes everyone will be a FinTech within the next couple of years. He also called out the disruption and verticalization of the largest fintechs as a particularly interesting emerging trend: startups starting to attack Klarna, N26 and Adyen. By slicing the product offering in specialized products, the re-bundled fintechs are getting unbundled once again.
The way we get food will never be the same (Briggs): The UK’s online supermarket Ocado saw sales grow by 52% in 2020 but some might say that’s the obvious impact of varying degrees of lockdown. The more exciting opportunities lie in those startups that are changing the way food is grown (Germany’s urban farm company Infarm is just one example) or prepared. Research from Statista shows €400M was invested in European dark kitchen startups in 2020 as of July. In the post-COVID world, consumer lifestyle changes will mean that, for restaurants, a hybrid infrastructure might be necessary in order to continue operating successfully. In the not-so-distant future, many new restaurant owners will likely choose to capitalize on the growing demand for home delivery and operate ‘dark’ or ‘virtual’ kitchens, which are traditionally much smaller premises dedicated to fulfilling online delivery orders.
Diversity & Inclusion is taking centerstage in Europe (Schmincke): Diversity and inclusion is a topic that is slowly but very deliberately making its way over from the American continent to Europe. Until recently, this topic was always much more publicly debated in the US than in Europe, but in 2021 there will be drastic changes in the way people assess the importance of D&I. While European board rooms in 2020 were mostly all white and male, diversity and inclusion is one of the top three governance goals for all future leaders in 2021. Until now, companies that valued diversity and inclusion stood out and attracted media attention. In 2021, they will stand out if they don’t.
A very active year of investment ahead (Viñas & Murphy): Viñas emphasized that 2019 was a record year for new funds not yet deployed and 2020 was a tough one for funds with no previous history to raise. As a result, he notes, “dry powder from previous years is overwhelming and for funds with capacity to invest, we predict 2021 and 2022 to be one of the best investment cycles ever for European tech.” Paul Murphy shares this bullish outlook, predicting that Europe will have more unicorns than ever before in 2021.
Final Word: A New Normal
One of the most interesting narratives to follow this year will be the stickiness of COVID-19 effects. Which trends emerging in the course of the pandemic will embed themselves long-term and define a new normal, and which trends will subside? How much of 2021 will be a byproduct of 2020? More so than in most end-of-year transitions, it will be fascinating to track the thread connecting 2020 and 2021, and hopefully these takeaways and predictions will prove to be both thought-provoking and prescient.
Source by www.forbes.com