The state of start-up financing in Europe

Technology is booming. It’s been booming for quite some time and the pace doesn’t seem to be slowing down.

Around $100 billion was invested in European start-ups in 2021

Whether you’re basing it on start-ups, funding or research, it’s a market that’s booming, with every other title looking set to set new records in the tech funding world.

Although this is a global tech boom, the dynamics in Europe are different, and it was a historic year for the region in many ways, with the continent growing faster than any other major tech hub.

To give you some context, 98 unicorns were created in Europe in 2021, and $100 billion in capital was invested, nearly three times the 2020 level. We are now seeing a $100 million funding round. dollars roughly every two days, according to Atomico’s State of European Technology Report 2021.

Fintech is no different. One in five European unicorns is a fintech. There are huge opportunities for technology companies to remove friction and inefficiencies within the financial system. But to create new products, scale a team, and compete with incumbents while battling new competitors, a solid fundraising strategy is key to winning in a competitive market.

The good news is that with European tech creating value at its fastest rate ever, we’ve seen a tidal wave of funding entering the ecosystem and a marked increase in investor appetite for European tech start-ups.

Startups looking to grow their business have many avenues to do so, but should carefully consider the options available to them and weigh those that can offer the capital they need while matching the risk profile of the company.

Unlike the United States, Europe has never really experienced a true technology boom. The European start-up scene was too small and concentrated to take full advantage of the Dot Com era and the boom that preceded the financial crash came at a time when the industry was just beginning to mature.

The turmoil of the 2010s and Europe’s generally more conservative investment culture means that few European VCs or entrepreneurs have much real-world experience in today’s market. Therefore, the possibility of making poor funding decisions is much more acute than in the more hardened United States.

So what does this mean for European entrepreneurs?

There’s always been a delicate balance that founders have to play to promote their startup’s ambitions versus their company’s reality. For European founders, this balancing act is now even more complex.

On the one hand, the investment boom has led to inflated expectations illustrated by attractive valuations. On the other hand, the complexity of scaling in Europe means that the rapid growth that US start-ups can achieve is not necessarily replicable for many companies.

As such, finding investors with specific regional and sector experience is more important than ever. Depending on your business model, this may mean focusing your investment strategy on partnering with venture capitalists based or with experience in your home country.

Of course, this may reduce the options available, but it will greatly increase the chances of partnering with an investor who has a realistic view of your startup’s growth trajectory, given your home market conditions.

The next aspect of the European boom is the fact that transactions have never been faster. This means that Founders can find themselves dragged in during a round. Indeed, in some cases, it appears the “explosive terms sheet” has returned, designed to pressure a startup into entering into a deal.

Therefore, there is a very real risk of closing a round which, on reflection, is bad business for your business. My most important advice is to take your time, which I know is easier said than done as there is a temptation to put money in the bank during the good times.

If you have a good idea and a well-run business, investors should wait a reasonable amount of time for you to evaluate your options.

What financing options are currently available?

In general, as the venture capital market has become more competitive with a large influx of capital and new players, we have seen an increase in founder friendliness and better terms from venture capitalists in Europe.

However, this is not the only option available. That might be too slow for a company that needed cash yesterday to develop new products, for example. Or companies on a slower growth trajectory.

Many traditional financial institutions now offer loan options that are much more flexible and suitable for start-ups. This trend has been accelerated by the pandemic and the growth of freelancers. Then there are government and local council grants and investment schemes. Although more limited in amount of cash and often tied to a geographical area, they often offer incredibly favorable conditions.

Finally, there is the new generation of non-dilutive financing options that provide initial access to future income for a fee. These can be a particularly attractive option if a startup has a strong predictable revenue pipeline. As such, fintechs that have a clear sight of their revenue and growth for the next year are ideal candidates.

If we look at the United States, a fundamental difference between the two ecosystems is the extent to which founders use non-dilutive funding to grow their business. In Europe, around 5% of capital raised in 2020 (

keep it simple

Overall, the evidence shows that investors are looking to innovate and adapt their offering as competition intensifies to attract the best founders and close the gap between founder needs and market options.

With proximity to investors no longer having the same importance, this means that European start-ups are beginning to have access to a much broader and more founder-focused investment ecosystem.

With a noisy market right now, the best advice for start-ups is often the simplest – take your time, consider all your options, be aware of misaligned or outsized expectations, ignore outside and insider pressure. inside and make a long-term commitment. term investment strategy.

Mary I. Bruner