The study “Seed the Future: A Deep Dive into European Early-Stage Tech Startup Activity”, is a joint effort between Stripe, TechStars and TechEu and aims to deliver an overview of the early stage investment in Europe during the first quarter (Q1) 2015 until the second quarter (Q2) of 2018. This deep dive into the European early stage tech-startup activity shows at first glance that during this period, the number of deals and early stage investments has increased considerably from 400 million euros in Q1 2015 to 2 billion euros in Q2 2018, as well as the number of early stage deals tracked, from 375 to 630 during the same period.
The UK, France and Germany lead on investment share
In terms of geography of funding of early stage companies and as seen in other reports, the UK and France lead the growing entrepreneurial scene, followed by Germany Sweden and Spain.
According to the study, even though the UK and France received the greatest share of early stage investment – earning 24.59 and 24.04% respectively – Germany (with a 12.65% of all early investment funding) has a higher average. “This is because the average amount of investment per deal is much higher than in either the UK or France – which received the greatest amount of seed and series A deals during this time period -. In other words, while the size of these starting deals remains lower than in the UK and Germany, each of these investments represents a strong commitment in the country’s growing startup ecosystem. Germany, while only attracting just over 12% of the deal flow across the time period, attracted the largest average investments per early stage rounds and the largest investment median, meaning that while occurred less frequently, investment rounds in Germany tended to be larger elsewhere”.
Investments in early stage ventures: Fintech
Regarding the investments in early stage companies by sector, the leading industry is Fintech representing the greatest share of early stage investment with 2,318,201,403 (M in Euro), followed in the category by MedTech, SaaS, Analytics and Mobility.
According to Marie-Hortense Varin, Principal at Partech (Global investment firm with over $1.2 billion dollars under assets and with offices in Paris and Berlin) “Fintech is one of the most promising verticals in Europe today, as a unique combination of factors is pushing for unprecedented growth in the sector. First, recent regulatory push towards open banking creates new opportunities for disruptors; second, broad adoption of advanced AI techniques in this data rich sector allows Fintech’s to personalize their products and dramatically improve customer experience; finally, changing customer mentalities gives opportunities for Fintech to create and distribute complex financial products in innovative ways, while banks continue to experience lower customer trust and satisfaction”
The size of the investments however, need to be carefully looked at. “However, when we instead compare the median investment values per industry, a few significant results jump out. When evaluating all categories, average values, can be influenced by outlying variables. Investment trends are particularly sensitive to outlying figures. This can result when you have a number of particularly high deal rounds (or particularly low ones), which can push the average values upwards (or downwards). For example, a very large round, such as UK challenger bank, Starling Bank’s £48 million Series A round, received in January 2016 effectively inflates all UK early stage Fintech rounds, by its very inclusion in the frequency. When we rely on the mean value or look only at the absolute value when it comes to funding levels during a certain quarter, particularly valuable deals like Starling Bank’s can impact how we interpret the overall quality of the ecosystem”
More capital is available than ever before
The amount of money invested in Europe´s early stage ventures is larger than ever before. But, while private investment in European companies continues to grow, the reality is that many early stage ventures in Europe depend on government support in the initial stages. Thankfully, the European Commission is one of the world’s largest investors in early stage companies and continues to innovate when it comes to supporting the continent’s startups. Beyond European Union financing, many startups in Europe turn to domestic support. An example of a supporting initiative for founders in Germany is the EXIST Business Start-up Grant which supports students, graduates and scientists from universities and research institutes who want to turn their business idea into a business. The EXIST program supports founders and their teams for one year with a monthly subsistence grant, material expenses (up to €10,000 for sole founders and €30,000 for teams) and startup related coaching (€ 5,000). Here, are also other funding opportunities.
Combining public initiatives such as the Exist Business Startup grant and private initiatives such as the Growth Alliance Fintech (which allows Fintech startups to meet banks and financial insiders in a micro-accelerator program to gain direct contact with corporate executives and create the connection with agile tech startups are the necessary steps to impulse a regional startup ecosystem.
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