Smarter Thinking

View from the Valley: US Corporates look to Europe

25th June 2019

By Sheana O’Sullivan

The appetite for Europe in the Valley remains hot. Europe is increasingly maturing into a flourishing market for innovative start-ups, growth companies and unicorns alike.

At FirstCapital, my role is to manage our relationships with US corporates who are potential buyers of European tech companies. Hot on the heels of our Chairman Hazel Moore’s recent trip here, I thought it might be interesting to further explore the questions these corporates have been asking about Europe and why we are getting so much traction for our clients.


What’s driving the change in Europe?

In recent years we’ve seen the emergence of some really exciting tech companies in Europe. A lot of people are asking what is driving this growth.

Though there is evidence of more US money in Europe, driving enhanced access to capital, more fundamental structural changes are  taking place. In particular shifts in the VC funding community, with fewer, but larger funds, are enabling the best companies to access significantly more capital in their local markets than was available in the past, which gives them more resources to scale faster.

It used to be that European companies would raise just a few million dollars and sell for $20-30m, and that would be considered a success. Now there is a lot more money available, and more success stories, raising the overall level of ambition. Just last month in Europe, two rounds from Deliveroo and GetYourGuide raised almost €1 billion. So far this year there have already been 19 rounds over €100m according to Dealroom, totaling €5.1 billion. That’s close to the full-year figure for 2018!


Who are the big players in Europe?

The Valley never gets the full picture of the start-up talent in Europe, only a small snapshot of what is out there. Even the top players, who have raised significant funding and are big names in Europe, remain relatively unknown.

Whenever we talk to corporates, and share  a breakdown of the market landscape, we get genuine surprise at the growth in activity. For example, 17 new European companies became unicorns in 2018 according to Atomico – double the number recorded in the previous year. It’s also exciting that there have been several extremely high-value IPOs in 2018:

  • Online luxury platform Farfetch was valued at $5,800m
  • Adyen, the payments platform for merchants, was valued at $7,810m
  • Nexi, an end-to-end digital payments provider, was valued at $8,185m.

The biggest recent European IPO success story of course is Spotify, currently valued at over $27bn – a genuinely world class European tech company.

We find that corporates in the Valley have minimal awareness of the activity outside major centers like London, Paris or Berlin, meaning high-growth tech hubs such as Stockholm, Madrid and Lisbon still lack international visibility.

In terms of M&A, it is worth noting that location is often a big challenge. Many US corporates will seek a start-up located near to their existing product centers and are not keen to open a new office unless the team is large enough to justify this. The idea of moving people to new offices is seen as high-risk, so location can often kill a deal that would otherwise make sense.


What’s happening with AI in Europe?

AI remains a hot topic of conversation amongst buyers, and there is a recognition of the cluster in AI developing in the UK in particular, where a number of buyers have completed transactions, or are locating their research labs to access the outstanding talent and academic excellence. This is hardly surprising considering that 2018 was a new record for investment in UK AI companies alone.

Many of the larger rounds involve US corporates and investors, for example:

  • Graphcore: $200m, including from BMW AG and Microsoft.
  • BenevolentAI: $115m in April 2018
  • Darktrace: which has so far raised over $230m from US and global investors.


A sign of things to come

The overwhelming feedback from our recent meetings in the Valley has been that the appetite for European M&A remains strong. Increased activity in Europe is creating excitement on the ground and this is feeding back into demand from buyers for our clients.