Is 2021 a good year to invest in startups technology-based companies? Or will the effect of the pandemic continue to be felt?

Digital Transformation
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The European technology industry has been a clear beneficiary of the digital transformation caused by the Covid-19 pandemic, with private financing about to reach a new record of 41.1 billion dollars (about 33.926 million euros) and with 18 startups technology-based companies that have achieved unicorn status (their value exceeds $ 1 billion), according to the report on the situation of the European Technology Sector 2020, prepared by the London-based venture capital firm Atomico[1].

The study reveals that investors around the world are now investing three times more money in the European technology industry than five years ago. The study clarifies that the capital invested in Europe during 2020 in technology startups amounts to 35,000 million dollars, although it is expected that with the rest of the data from financing rounds until the end of the year, those 41,100 million targeted will be reached, a 1, 2% more compared to 2019. The report also points out that the United States has set investment records (141,000 million in 2020) and that Asia has seen financing decrease for the second consecutive year, with 74,000 million, but it offers an encouraging figure for Europe: this year will receive 40% of all capital invested globally in amounts of less than five million dollars (compared to 35% in the United States) and Europe’s share will almost double that of Asia in the financing tranche of between 5 and 10 million.

Were the markets highly volatile in 2020?… of course, yes.

European technology as a whole has proven to be extremely robust. “The virtuous circle of talent, capital and big ideas is turning, and in most mature technology markets, such as the UK, Germany and France, we have already seen a rebound in funding in the second half of the year.

“Faced with a global pandemic and an uncertain and highly volatile macroeconomic climate, the European technological ecosystem has been resilient”, they specify in the aforementioned study, in which they also point out that the portfolio of unicorns continues “to be solid”, with the incorporation in the last twelve months of 18 new companies whose valuation exceeds 1,000 million, compared to 14 the previous year. They also ensure that general investment trends on a continental scale have been driven by the activity of new companies in the region. In Europe there are more than 144,483 startups. Of these, 43,201 have carried out at least one financing round.

Despite this, these data cast shadows, since France has been the only one of the three major markets in Europe in which the capital invested has grown, to 5,199 million dollars and exceeds this barrier on an annualized basis for the first time. They are followed, although with more modest rises, Sweden, Finland, Belgium and Ireland. In the case of Spain, the decline experienced is significant, which has gone from 1,457 million dollars in 2019 to 636 million dollars in 2020. We have to go back to 2016 to find a similar figure (687 million dollars)[2]. Because of this, the same is likely to happen in Spain in 2021.

How was the investment distribution in 2020 by sectors? Is the contribution for technology startups enough?

Year after year, the entrepreneurial ecosystem in Europe receives an ever-increasing boost. According to a recent Dealroom report[3], investment by venture capital funds broke records in 2017: 19.2 billion euros were invested in startups. The main sectors where it has been invested are:

Travel and tourism startups will see their funding cut by 1,215 million at the end of the year, 62% less compared to 2019, surely impacted by the health crisis.

Fintech, healthtech, SaaS (Software as a Service) and deep tech projects (an area that ranges from artificial intelligence to augmented reality or voice technologies) raised 7.6 billion euros in 2017, compared to 5.7 billion the previous year, becoming the sectors preferred by investors.

Technology companies committed to climate change. The total capital invested in startups with this specific objective exceeds 6,000 million this year. In the last five years, more than $ 11 billion has been invested in European technology companies that target climate action and $ 9.7 billion in those that address clean and affordable energy.

If you are an SME or an entrepreneur, these are some of the financing lines that you should pay attention to:

  1. SME Instrument of the European Commission. Within the most recent financing programs, the European Commission has turned towards SMEs and startups, launching the SME Instrument, a financial program intended only for these types of companies.
  2. SME Horizon: Every year more than 90,000 million euros of public funding is allocated in Europe to the development of innovation projects
  3. Eurostars: is a European program to finance cooperation projects between at least two European companies for the creation of an innovative, market-oriented product.

While the pandemic is not over and inefficiencies still hold back our ecosystem, we have the foundations to make 2021 an excellent year for European technology. This is the best time to become an entrepreneur, to look for patterns in what appears to be chaos, and to fearlessly build technologies that make the new normal a better normal.

In future posts, we will be continue writing about technology and business trends for enterprises. Furthermore, we recommend consulting the following literature to continue your digital transformation journey:

The objective of this blog is to provide a personal vision of how digital transformation trends will be impacting in our daily activities, businesses and lifestyle.

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[1] https://www.cnbc.com/2020/12/08/atomico-state-of-european-tech-2020-report-another-record-year.html

[2] https://www.bloomberg.com/news/articles/2021-01-06/eu-will-become-shareholder-in-startups-for-the-first-time

[3] https://blog.dealroom.co/wp-content/uploads/2018/02/Dealroom-2017-vFINAL.pdf

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By Fernando Castañolinkedin2

Senior researcher, his research interest includes Smart-sensor, Industry 4.0, Internet of things, and cyber-physical systems.

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