European tech’s confidence crisis is its biggest challenge
European tech is in the grip of a low mood. AI is developing at speed, regulators are torn on the path ahead, deep tech faces funding challenges and Draghi’s report raises questions about technology’s contribution. The consensus is that things have been better!
I believe this negativity is exaggerated. In fact, Europe has never had a clearer framework for the new, differentiated ecosystem we’re building. But a shift in mindset is crucial to achieving our potential.
Firstly - a reminder on why Europe’s story is important. The questions being asked have serious repercussions for the region as an attractive place to start and build a tech company, and therefore, as a centre to invest capital.
Part of the problem is the hackneyed benchmarking of Europe against the US’s 40-year head start, anchored on valuation. Years ago, building Skype, I used to be asked if Europe could produce billion dollar technology companies. There are more than 350 such firms now. The bar was raised to $10 billion, and then $100 billion - since then we’ve seen Europe smash through this target with Arm, ASML - and just last week Spotify was newly minted.
Now the question is whether we’ll see trillion dollar firms emerge from Europe. The answer is, and has always been, yes. But while this US comparison once served a purpose in promoting healthy competition, it’s now outlived its usefulness.
Let’s put to bed the idea that Europe is a laggard in a race with the superpowers, and instead focus on the special, different ecosystem we’re building. To understand our true potential, we must look at the leading indicators for our ecosystem.
Let’s put to bed the idea that Europe is a laggard in a race with the superpowers, and instead focus on the special, different ecosystem we’re building.
There are a few essential ingredients any ecosystem needs to thrive - experienced talent, capital and mindset. Over the past decade, Europe has been transformed across all fronts.
We lead the world at the early stage, creating more new technology firms than any other region. And we’re just as likely as the US to convert firms at Seed stage to valuations of a billion dollars or more. The number of scale-ups has grown eight times over the last ten years, and we’ve seen a ten fold increase in investment to venture capital-funded technology over the same period, alongside nearly $1 trillion in exit value.
Europe has always had exceptional talent, and its cohort of operators and founders is becoming more experienced as the ecosystem develops, particularly when it comes to specialisms like AI. 3.5 million people are now employed by European tech companies, up from 600,000 a decade ago.
And there’s growing evidence we’re taking a more conscious approach to our innovations. In 2024 21 per cent of all funding raised in Europe went to companies related to sustainability, almost double the ratio for the next largest region.
….So why is the mood today so downcast?
Of course, there are very real obstacles. Our State of European Tech report asked thousands of those in the industry about the barriers the region faces in reaching its potential. The results include frustrations about regulation, bureaucracy, capital, and scaling across a still fragmented European market. We’ve organised these under ‘six keys’ for Europe to reach its potential.
These challenges are surmountable, but they rely on bold, positive action. We must put our full force behind the solutions that are emerging. One example is EU Inc’s campaign to unify an EU legal framework. If we can harmonise and unite the market, the scale of the opportunity available even within the region is unparalleled. Let’s not forget Europe is the biggest single market in the world.
Another is the $375 billion growth funding gap - the amount that Europe is underfunding its growth companies. European pension funds could go some way to fix this with their $9 trillion in assets under management by increasing their scant 0.01% allocation to venture capital. The Tibi Initiative, Germany’s WIN (Growth and Innovation Capital for Germany) and UK’s Mansion House proposals are all dedicated to making this theory reality.
Looking at the indicators already outlined in this blog, these aren’t great leaps.
The most successful entrepreneurs know what’s possible. Founders from companies as diverse as Spotify, Wayve and Adyen all say the same thing, that building in Europe made those firms what they are today. They achieved success not in spite of growing from the region, but because of the ecosystem’s unique advantages when it comes to talent, diversity and in promoting resilience.
The most successful entrepreneurs know what’s possible. Founders from companies as diverse as Spotify, Wayve and Adyen all say the same thing, that building in Europe made those firms what they are today.
At a conservative estimate, we are on track to strengthen the talent pool to 20 million tech jobs by 2034. And this talent is building not only for societal, but economic merit, contributing directly to Europe’s gross domestic product. We’ll see at least $5 trillion in additional value created over the next decade, but with an adjustment in mindset, this should be into double digit trillions.
The opportunity is unprecedented. Europe as a leader, not a follower. We’re building a technology superpower for a new generation - have confidence in it.
