As the Covid-19 coronavirus spread across the globe in early 2020, Europe’s tech ecosystem was flying high — then came the shutdowns, and concerns startups globally were facing a “black swan” event.
Instead, as an annual “State of European Tech” report from venture firm Atomico, event host Slush and law firm Orrick found, investment in European startups reached record highs in 2020 (though barely). And with a U.K. grandmother the first to receive a vaccine earlier in December, some investors and entrepreneurs are looking to the future even as they brace for short-term challenges.
Forbes spoke to the two newcomer investors to break through onto the Midas List Europe in 2020 — as well as several other notable repeat listmakers — to hear how their portfolios weathered a turbulent year, and what they expect in 2021 and beyond.
“An exciting moment”
Johan Brenner remembers the Dotcom Bubble’s crash all too well — the entrepreneur had just sold his startup to E-Trade in the 1999 peak, only to launch his investor career in mid-2000 as the ecosystem came crashing down. “It was a nuclear event for the European tech ecosystem, worse than in the U.S. Everybody got burned. There was very little money going around.”
Today at Creandum, the Midas Europe debutant at No. 23 says the region’s startups were better equipped to weather lean months due to a few factors: the cost of operating a business, the breadth of cities churning out promising tech companies, and the better depth of talent. The Stockholm resident notes that years ago, Nordic startups like Skype and Spotify were the talk of the industry; now, they’re a proving ground.
“In the startups we look at across Europe, somewhere on the team there’s a Spotify developer or something,” Brenner says. “I think on the talent side, you can satisfy yourself with what’s in Europe.”
Pitching over Zoom in the pandemic, meanwhile, has made it easier than ever for U.S. funds to explore Europe’s startup offerings. But Brenner says in practice, that accessibility goes two ways. “It’s an exciting moment, because you have global access to any startup and founder team,” argues Brenner. “That can also be reversed. We look at companies ‘across the pond’ as well, to try to find out that when we are looking at a company in Europe, we’re backing the best company in the world.”
The Covid consumer
At Sequoia, Midas List No. 12 Luciana Lixandru says she and her new firm, which she joined from Accel earlier in 2020, are banking that soon enough, Europe’s entrepreneurs will want “boots on the ground” again to provide in-person advice, support and networks of qualified candidates to hire. That also includes their expansion to other regions like the U.S. and Asia, where Sequoia hopes its local funds can prove an advantage for European founders looking to establish sales presences.
What Lixandru sees as having changed permanently during 2020 for Europe’s tech scene: the return of the consumer startup. Historically, Europe’s most valuable tech companies have often come from fintech, where Adyen went public and Klarna holds a $10 billion valuation, or enterprise. With Covid-19 pushing more shoppers online and more consumer behavior onto phones, Lixandru says she’s seeing “a lot more” consumer startups than in years before.
“We’re living our lives online as consumers, so it make sense,” Lixandru says. Historically, language differences and cultural nuances between Europe’s national markets have put a ceiling on how fast or how far a consumer-facing startup could scale, she argues. That’s gotten easier as entrepreneurs learn from — or hail from — successes like Deliveroo and Spotify. “Because of Covid, consumer tech is really finding a new life in Europe,” she says.
At Angular Ventures, Midas Europe investor No. 21 Gil Dibner says he’s used to taking an outsider’s perspective. And in this case, it’s a belief that enterprise tech is still the tried-and-true bet for a European breakout — and that its playbook hasn’t changed much from life over Zoom.
The former Index Ventures investor spent four long years raising his debut fund, but has now built up a career portfolio that includes conversation analytics business Chorus.ai, work inbox provider Front, DevOps provider JFrog (which went public in September) and cybersecurity unicorn Snyk. He says Europe’s startups aren’t so different from anywhere else: they’re often known to a large group of investors flush with record amounts of cash.
“There isn’t a single geography or sector that isn’t over-saturated with capital. That cannot be a reason to pick up your ball and go home,” Dibner says. “If you think valuations are too high for your model to work, that doesn’t mean the markets are too crowded, it means you’re playing at the wrong stage.”
And while Dibner has looked at deals all over Europe, as well as in Israel, during the pandemic, the investor believes that the more things change, the more some will stay the same. That’s especially true of what Dibner considers the tried-and-true playbook for enterprise startup scaling. Companies will still need to get on a plane to meet key customers and put staff “in with their data centers,” Dibner says, meaning more offices globally and people to staff them.
“It doesn’t matter whether you’re Israeli or Icelandic. If you want to succeed in enterprise tech, you have to penetrate the U.S. market somehow,” Dibner argues. “You can start anywhere, but there are well-trodden paths to success.”
See the full Midas List Europe for 2020 here.