Europe, from Unicorns to Reality. There’s life on planet Scaleups!
SEP published today the first cross-country research on European ICT Scaleups and Exits in the last 5-year period.
- SEP identified and analyzed 990 scaleups and almost 40 scalers in these five countries, who were able to raise a combined total of $23 billion in funding.
- UK is the most prolific country in Europe both in terms of number of scaleups and capital raised. Germany and France follow, while Spain and Italy lag behind. Software solutions and e-commerce are the sectors that attract more European scaleups.
- The majority of funding comes from VCs rather than IPOs: 7% of the scaleups raised 56% in venture capital, of which 40% was raised by 32 scalers. Top 3 scalers includes Markit (UK, $1.5 billion), Delivery Hero (Germany, $1.3 billion) and Zalando (Germany, $0.9 billion). The stock market plays a relevant role only in the UK ($4B raised through the IPO channel).
- 374 exits were identified in total: 24 IPOs and 350 M&A. While there were only 20 M&As in 2010, this number grew six-fold in 2014 to 126 cases.
- Only one third of the scaleups were acquired by domestic companies, while 14% of the scaleups were acquired by a company from another EU member state. In general, approximately 1 out of 2 remains in Europe after the acquisition.
- “Enabling easier access for startups to the stock markets could trigger the scale-up process of the European ecosystem. The European Capital Markets Union project could be key in this regard”, is the comment from Startup Europe that re-extends the invitation for the upcoming Startup Europe comes to Silicon Valley SEC2SV event next September.
- The new Monitor offers a 1:1 comparison among the five incumbent countries and a vertical focus for each country.
Berlin, Brussels, Madrid, Paris, Rome London, July 6th 2015. — Startup Europe Partnership (SEP), in collaboration with PEDAL Consulting /Ud’Anet and CrESIT, published today a new Monitor that includes data on the European ICT scaleup ecosystem, named “From Unicorns to Reality, a Five-Country Comparison of European ICT Scaleups”. It is the first cross-country research of its kind – covering the UK, Germany, France, Spain and Italy – and fully dedicated to scaleups and exits across Europe.
SEP identified and analyzed 990 scaleups and almost 40 scalers in these five countries, who were able to raise a total of $23 billion in funding, including capital collected through IPOs. Differences among the five countries in the amount of capital raised are even bigger than the differences in terms of number of scaleups.
“There’s definitively life on planet Scaleups – commented Alberto Onetti, Coordinator of SEP – Rather than looking for the Unicorns, that is private companies with over 1 billion dollar valuation, we analyzed the Scaleups and Scalers, that is those startups that have been able to respectively raise over $1 and $100 million. In short, quantity over valuation. And the results we got – 1,000 scaleups and 400 exits – are ultimately a valuable starting point to scale-up the European startup ecosystem”.
UK leads: UK proved – with no surprise – to be the most-prolific country among the five considered. With $11.1 billion, UK scaleups alone raised nearly 50% of the total amount: this represents 1.7 times more financing than German startups ($6.6 billion) and 3.6 times more than France ($3.1 billion). Germany follows: Though France and Germany host almost the same number of scaleups, German scaleups raised twice as much capital as their French neighbors. If we move south and look at the Mediterranean region, the availability of capital to fuel growth gets further reduced: Spanish scaleups raised $1.8 billion whereas the Italian ones raised $0.4 billion only, 28 times less than UK, despite having only 6 times less scaleups.
If we look at the average capital raised per scaleup, UK scaleups raised $27.8 million, $31.7 million in Germany, $15.1 million in France, $17 million in Spain and only $5.6 million in Italy.
IPOs: the missing brick in Europe
The scale-up process of startups in Europe still depends to a large extent on venture capital funds. The stock markets play a relevant role (30%+ of capital raised) only in the UK and Spain while in Germany, France and Italy they provide a minor contribution to startup financing (10% on average). The London Stock Exchange plays a key role in pushing the growth of UK scaleups: UK scaleups raised $4 billion of capital via IPO, more than double of what the other four countries were able to collect together. Funding via the stock market represents the real discriminator in scaleup financing. In fact, if we limit the analysis to venture capital funding, the gap between Germany and UK is minimal: $7.1 million raised in UK versus $6 million in Germany. Spanish scaleups raised via IPO more finances than their French neighbors ($520 million vs. $430 million), despite the significantly lower number of companies. The lowest stock market financing was recorded in Italy, with only $40 million raised.
“Startups in Europe are growing. And, when it comes to scaleups, the stock market channel could be certainly strengthened in Europe – Isidro Laso Ballesteros, head of Startup Europe, commented – Enabling easier access for startups to the stock markets will contribute to trigger the scale-up process of the European ecosystem. The European Capital Markets Union project plays a key role in this regard”.
Venture Capital channel
The vast majority of funding via venture capital is in the range of $1-to-$10 million capital injections. Out of 981 venture backed scaleups, 67% received funding less than $10 million.
The higher the funding value, the less the number of scaleups: only 14% of VC funding was concentrated in the $10M-20M range and 12% in $20M-50M. 7% of the scaleups raised 56% of the capital, of which 40% by the 32-VC backed scalers.
The Monitor identified 37 scalers in Europe, i.e. private companies i.e., startups able to raise over $100 million (including the IPO channel). Around 50% (19) of them are established in the UK. Germany follows with 9 scalers, France with 6 and Spain with 3 scalers. No scalers have been identified in Italy yet.
The 3 top scalers (companies close to the $1 billion bar, in terms of capital raised) are the British Markit ($1.5 billion, $1.3 of which via IPO at NASDAQ) and two German companies: Delivery Hero ($1.3 billion raised) and Zalando ($0.9 billion, $700M of which was raised via IPO in Frankfurt). The top scalers in Spain are Odigeo (eDreams) and Privalia: both raised over $0.5B. The most funded company ($314 million raised) in France is Criteo. None of the scalers were established in the last 3 years.
Software Solutions (18%) and E-commerce (14%) are driving the scale-up of the European ecosystem. They are followed by Enterprise Services, Mobile and Advertising (about 10% each). These five categories represent 60% of all scaleups in the five countries analyzed.
Restricting the analysis to the scalers, the most recurrent category is E-commerce with 8 companies (out of 37). It has to be mentioned that the diversity of scalers in terms of sector is quite high: if we look at the top 10 scalers, 3 are in the E-commerce category, 2 in Gaming, Fashion and Hospitality, and 1 in Finance sector.
…and, hopefully, Exit
The Monitor identified 374 exits in the ICT Europe sector for the period 2010-2015.
Over 90% (350) are M&As, while only 24 were IPOs. Regarding the latter, UK confirms to be the most active with the 50% of the European ICT IPOs. France follows with 7 IPOs, while Germany, Spain and Italy play a more marginal role (1 or 2 per country).
In terms of M&A, Germany is the most dynamic country, with 125 exits, followed by the UK (85), France (75), Spain (37) and Italy (28). In Germany, there has been 1 M&A for each 1.7 scaleups, in Italy 1 per 2.6, in France 1 per 2.7, in Spain 1 per 2.9, and in the UK 1 per 4.7 scaleups.
Since 2010, the number of M&As in Europe has grown substantially, moving from 20 cases in 2010 to 126 in 2014 (6-times) and the interest of acquirers seems to have been especially attracted by scaleups offering Software Solutions.
Data shows that around 32% of the scaleups were acquired by domestic companies, while around 14% were acquired by a company from another EU member state. It means that around 45% remains in Europe after the acquisition, while 55% exited outside Europe, being mainly acquired by US companies (43% of all transactions).
In any case, all IPOs for Italian, Spanish and German scaleups happened in the local stock markets. Only four IPOs happened in the United States (Markit and Criteo chose the NASDAQ, while King and Sequans chose the New York Stock Exchange), but the majority of IPOs were domestic.
Data does not fully support the thesis that European companies need to move to the US to raise a large IPO, though the above mentioned cases suggest that this option cannot be ruled out.
“It is important to create deeper and broader connections not only inside Europe, but also outside – Isidro Laso Ballesteros, head of Startup Europe, commented – That’s why Startup Europe Partnership, one of the flagship initiatives of the Commission, organizes Startup Europe Comes to Silicon Valley (SEC2SV) next September. Europe and the USA will mutually benefit from building even closer links to help create economically impactful and long lasting ecosystems where innovation can flourish. We expect to have a large and qualified delegation from Europe, including startups, scaleups, corporates, accelerators, investors and policy makers”.