An entrepreneurial spring for Tech in Europe

While the US is experiencing a slowdown, the EU is now entering a boom

According to CB Insights there are currently 159 unicorns in the world, representing a -theoretical- cumulated value of $563B.

Interesting, but I’m not sure that talking about unicorns is the best way to look at what’s happening in the Tech ecosystem and especially for us in Europe where only 10–15 of these mythical animals are identified.

This is especially true when people, including some of the most respectable VCs from Silicon Valley, are increasingly critical of these creatures and their sky-high valuations (“The subprime ‘unicorns’ that do not look a billion dollars”, M. Moritz from Sequoia) and when two third of publicly traded unicorns filed in 2014 now trade below their initial public offering prices.

Source : Zero Hedge

Or If you prefer, applied to SaaS public companies :

Source : TOMASZ TUNGUZ from RedPoint

It’s like if we’re going from :

The truth is that, Unicorns (and publicly traded tech companies) are just a small part of the Tech scene. It’s very likely that we have spent to much attention on the 150 companies that managed to attract investors with 1B+ valuation.

You kwow what? There were 1500+ other tech amazing startups which managed to raise money just in 2015 and just in Europe. Our focus should be brought to them.

Fact is there now is a slowdown in the US (but not a burst) and that Europe is booming (but not a bubble). This is what strikes me most when I look at the whole Tech ecosystem and this is what’s really interesting.

Slowdown in the US ..

Things are now pretty clear : deal numbers in the US were cut by a third in just 6 months.

What happened?

When the Fed funds rate were set to zero in 2009, 3 things occurred at the same time :

  • A lot of money was made available to the market
  • Low interest rates put asset managers under pressure to take more risk, some of them chose to allocate a -small- part of their funds to Tech startups, which means “A lot of money was made available to the market” again
  • Because of the financial theory behind corporate valuation (see here for a comprehensive explanation), the decrease of interest rates implies, mechanically, an increase of valuation first for listed companies and by extent to the whole ecosystem (as public companies are often used as references)

But the Fed changed it’s position, starting to increase its rates at the end of December 2015. The increase was very small but it changed the investors anticipations : the zero rates era now is over.

Source : Market Realist

Looking at the three previous bullet points, in this new context, it means that there will be -a little- less money available, that asset managers will be able to take fewer risk while producing the same returns, and that valuations will be more reasonable. It explains why unicorns now seem less desirable than they used to be.

Source : KPMG & CB Insights

.. while Europe is Booming

It’s radically different in the EU and it’s even the contrary compared to the US : fundraising, which were stable on the year 2015, are soaring.

Source :

On Q1 2016, there were 790 deals : +70% compared to last year, it’s huge!

Source :

Is there a tech bubble in Europe?

I don’t think so : Europe is booming not because of investors money but because there are more and more entrepreneurs and because they are more and more talented. It’s not a monetary bubble, but an entrepreneurial spring for Europe. It’s huge, steady and it will last.

Contrary to the US where we’ve seen hedge funds, family offices and asset managers allocating funds to tech startups directly (59% of mid and late stage deals in April 2015 according to CB Insights), in Europe most of the deals are done by the same professional VC players as years ago. It helped curb European valuations increase, whereas in the US valuations increase were driven by Non-VC investors :

Source : Mark Suster from Upfront Ventures

The next big thing : Europe and it has just started

Q1 2016 fundings stats are just the beginning of a massive trend. Indeed Europe ecosystem has proven that its business model works with great entrepreneurs able to turn smart investments into concrete value : exits in Europe almost doubled in 2015.

Source :

And yes it’s just a beginning : judging from our own Dealflow stats at Serena Capital, it’s very likely that fundraisings growth will continue on Q2 2016 and Q3 2016.

Source : Serena Capital

And as the gap between the number of deals in the US ($77B) vs the EU ($12.9) is still very big, Europe is far from having reached a ceiling.