When you think of a unicorn company, what part of the world first comes to mind? Most people tend to first think of global tech companies based in the United States. In fact, we usually think of a very specific place, Silicon Valley, which has generated a large share of the tech companies that have achieved “unicorn” status (US$1B valuation). But as globalization continues, things are changing. After the United States and China, Europe has the largest share of gross domestic product (GDP). It’s an important part of the world to watch, for all of us working in tech.
The global pandemic is heightening realization that teams can collaborate remotely from anywhere. Tech companies are among the biggest beneficiaries of this trend. More and more countries around the world are creating their own unicorn company success stories. So, how many tech unicorns are headquartered in Europe, and in which countries? Could Europe be on the cusp of creating its first tech titan?
Valuation Tiers: Titan, Decacorn, Unicorn Company & Contender
The report starts out by breaking up tech companies by valuation tier. It’s well-known that a tech firm is considered a “unicorn” company when it hits a valuation of US$1B. Most of us are probably less familiar with the other categories. For example, HubSpot, which recently achieved a market cap of US$10B, apparently now qualifies for the “decacorn” tier.
Using revenue tiers and employee ranges is a common technique to group companies by size, in order to analyze their similarities and trends by category. The growth trajectory of a unicorn company in the tech space tends to map more to valuation and market cap than to just employee count and revenue ranges. Valuations drive interest from investors, after all.
European Unicorn Company Findings
The authors share some noteworthy trends in the European tech space. Here are some of the most important highlights from the report:
- Since 2014, the number of billion-dollar tech companies in Europe has nearly quadrupled
- European tech firms now have a combined value of US$416B
- 32 European tech companies entered the unicorn company list in the last year alone, adding US$50B more
- More companies are waiting longer before they go public and IPO
- 64% of the current firms with a unicorn company valuation of US$1B or more are still private
- Public companies and acquired firms account for 2/3 of the total US$416B value
- Greater access to capital for European tech firms is helping them grow faster
- Shifts in sector focus have led to Enterprise Software and Fintech companies adding more companies with high valuations recently, especially in Cybersecurity and Storage
- Marketplace models are dominating in Europe, as opposed to pure ecommerce players
- The United Kingdom is still ranked in first place in terms of the number of tiered (high valuation) tech companies and total value
- Germany has added significant value recently due to the Teamviewer IPO (current valuation of US$9B) as well as four new companies that crossed the US$1B mark recently
- Israel is playing a more important role than ever with 20 companies in the ranks and 11 added in just the past year
- A growing “long tail” of countries are now contributing unicorn company success stories in the space, including Estonia (Bolt), Ukraine (GitLab), Portugal (Outsystems), Romania (UiPath), and Lithuania (Vinted).
In short, these findings show that while Europe has yet to create its first “tech titan,” it’s likely to happen in the near future as tech firms in these markets grow. And, as more tech firms from diverse parts of Europe enter this coveted league of companies, they will hopefully give rise to more unicorn company hopes in those countries too.
Impressive Growth of European Tech Leaders from 2014 to 2020
The report discusses the high rates of growth that these European tech firms have seen from 2014 through 2020. They note that there were 30 companies worth US$1B or more in 2014, and today there are 112 such companies, a 3.7X increase. Valuations of those firms in aggregate have growth at an even faster pace, a 4.7X increase in the same time period. Importantly, the number of companies worth US$5B or more also increased by 4.2X.
The breakdown of those 112 companies is interesting too. Nearly half (48%) are now public, about a fifth (19%) have been acquired, and a third remain private.
The report also lists out all 72 private tech companies in Europe and ranks them by valuation. This is an extremely valuable list to pay attention to. Brand awareness for tech companies is often highly local in nature until a company either reaches a certain size or expands beyond its own borders. So, it’s likely that many individuals interested in the tech space, especially those who are more locally focused on the US market, have not heard of a lot of these European unicorn company names before.
The report also lists all 23 European public tech companies, and notes that as of 2020, Adyen has surpassed Spotify as the European leader.
Most people in the United States know the brand Spotify thanks to its B2C popularity, but Adyen is not as commonly known in the US outside of its B2B client base. However, Adyen is an important name on the global tech scene. Why is it so important? Adyen and the space they are in is helping actually drive the international growth of other European and American tech companies too. More on Adyen below.
The authors of the report also highlight that European public companies with a valuation of US$1B or more are outperforming the Nasdaq by a significant margin.
Adyen: Enabling Global Growth and Heading Toward Tech Titan Status
Adyen is a Dutch global payment platform that is enabling global growth for a huge number of companies. If you have ever worked on launching international offices and adding currencies, you’ve surely heard of Adyen. When I first began doing that work several years ago, I asked around at many other US-based tech companies regarding their preferred global payment platforms. Adyen was the name that came up most frequently. Fast forward to 2019, when they processed €239.6 billion in global payments, and had net revenue of €496.7 million. (See their 2019 annual report here.)
What’s also interesting about Adyen, from my point of view, is that in 2019, they achieved this revenue target with only 1200 employees, which means revenue per employee of €414,000, or US$467,726 using today’s exchange rate of 1.13. A typical SaaS company obtains an average revenue per employee that ranges from an estimated $200K (Tomasz Tunguz) to $300K (SaaStr). Adyen is nearly doubling those ranges, which is impressive.
Why do I bother to flag this for readers of this blog, who largely work to enable international growth?
Adyen occupies a very important space in terms of growth potential. They are enabling global payments, and thus, sitting right at the intersection of tech revenue and international growth. They are enabling the global expansion of many technology companies. They are also a global company themselves, with those 1200 employees (as of 2019) representing 80 nationalities — across more than 20 offices from São Paulo to Sydney.
One sentence really stood out to me from Adyen’s annual report in their message from their CEO, Pieter van der Does:
“As we continue to grow into new geographies and verticals on the back of merchant demand, we are well on our way to having the full strength of Adyen available across the globe, and in every sales channel.”
Pieter van der Does
CEO and Co-Founder, Adyen
As van der Does explains, increased globalization is a major driver of Adyen’s growth. In turn, their customers are able to reach more markets too. This is quite the exchange of value. It’s hard to imagine any product that could be more closely tied to their customers’ success than one that literally enables them to realize their international revenue potential.
32 New European Unicorn Company Entrants in 12 Months
32 new companies based in Europe achieved a $US1B valuation in the past 12 months, while five companies had their market cap fall below that amount.
The authors shared the line-up organized by HQ country too, with Israel in the lead, followed by the United Kingdom and Germany.
The report also provides the tech segment breakdown too, with the restaurant space still going strong from 2015 to 2020. Plenty of new segments entered the scene during that period too, paving the way with new unicorn company entrants. Full COVID impact on these companies for 2020 revenue, especially those with high concentrations of customers in just one vertical, remains to be seen.
The Watch List of European Unicorn Company Contenders
Another favorite part of this report is the unicorn company “contenders” section. In this part of the report, the authors discuss the companies they peg for hitting unicorn status soon. I suggest paying close attention to this section of the report. The authors have a decent stated track record. They point out that 7 out of the top 10 contenders they ranked in 2018 are now unicorns, as of 2020.
The report includes more detailed descriptions of each unicorn company along with interviews from many of the founders/CEOs. To learn more about each of them, download the full Titans of Tech 2020 report.
Unicorn CEOs: Globalization and Localization Are Key to Success
What do European unicorn company founders and CEOs have to say about their businesses and why they are succeeding? European companies are often prepared to go global earlier in their growth paths that US-based companies. In Europe, founders often build their businesses to support multiple markets from Day One.
American tech companies typically don’t share this characteristic, at least not until they get bigger, which is when international growth gets harder. They often build with a US mindset, so it typically takes them a bit longer to unlock international revenue. There are exceptions, for sure, of companies that buck this trend and prioritize localization and globalization from an early stage. Usually, those companies have founders/CEOs who are either from another country or have lived and worked outside the US.
Below are some quotes from four of the tech unicorn company CEOs profiled in the report that I found to be relevant on this topic.
Peter McKay from Snyk on Global Mindset
“As we continue to grow, our goal is to maintain our organisation’s diverse, multicultural, global mindset, where people work well together, care deeply about each other, and have fun on this journey.”
It’s not often that you hear a tech CEO talk about the importance of a global mindset, so this quote from Peter McKay really stood out to me. A global mindset is critical to enable a company’s international growth, and this is obviously top-of-mind for Snyk.
Oscar Pierre from Glovo on Knowing the Local Market
I also loved what Oscar Pierre from Glovo had to say, about a major inflection point for their business.
“We had built significant market share in Spain and Italy by late 2017. While we could have stayed a smaller project in Europe or sold the business, we aimed higher […] In 2018, we launched in about 14 countries […] we easily entered Latin America, with a similar language and culture, and other countries we thought attractive.”
CEO and Co-Founder, Glovo
Pierre goes on to explain that they learned a lot of lessons along the way. Their business is highly influenced by local competitive dynamics, not just at the country level, but at the city and state level. He also mentioned the importance of being the market leader at the local level. Pierre’s awareness of how important “local” really is speaks to the heart of every localization person out there. All business is local, and every unicorn company that seeks global success will always end up realizing this at some point, often through trial and error.
Jean-Charles Samuelian from Alan on Leading with International
I also enjoyed reading the viewpoint from Jean-Charles Samuelian, the co-founder and CEO of Alan, a healthcare tech company.
“We were the first digital health insurance company in Europe, the first independent provider licensed in France since 1986, and we are expanding in Spain and Belgium […] we think we are very well positioned to lead with our international team.”
CEO and Co-Founder, Alan
Leading with international? What’s not to love?
AleXandre Prot from Qonto on the Role of Regulations in International Expansion
Regulatory issues often show up as a blocker to growth in both domestic and international markets. I appreciated what Alexandre Prot, co-founder and CEO of Qonto, had to say from the Fintech space about expanding into other European countries.
“Although businesses in Europe face different regulations and environments in the various countries, fintech startups have the benefit of single license banking, which makes operating in Europe similar to that of a large single market, such as the US. We operate in France, Italy, Spain and Germany using one license that can be passported according to EU regulations.”
CEO and Co-Founder, Qonto
It’s great to see a tech CEO like Prot citing ease of international expansion as a differentiator and a path that provides reassurance to investors about their growth potential. This isn’t something you often see at this stage from US-based tech firms, for comparison purposes. It’s a question I wish more investors would seek to understand, at earlier stages, to identify international growth “snags” companies will likely hit later on. But again, European companies think outside their home market from much earlier. Because their total addressable domestic market is smaller than the US, and because their economies are more interconnected, they are wise to do so.
Des Traynor from Intercom on the Globalization of Access to Capital
Lastly, as a major fan and follower (ok, cheerleader) of the Irish tech scene, I really loved this observation from Des Traynor at Intercom.
“Having started in Ireland and then expanding to San Francisco, the biggest differentiator in 2011 between Europe and San Francisco was access to capital. […] Today, there are many more ambitious funds in Europe willing to pay top prices.”
Co-Founder and Chief Strategy Officer, Intercom**Updated from prior version which referred to Traynor as CEO. Karen Peacock is Intercom’s CEO.
With offices in San Francisco as well as Dublin, Intercom knows firsthand how where you raise capital and set up offices can impact your company. Time zone challenges are real, and having offices in many places can make it harder for companies to communicate, especially during the building years. However, while that initial work is tough, it also creates an important muscle that pays off later on. Those businesses that are internationally-minded from early on and already know how to work across cultures tend to have fewer barriers of localization as they scale.
Expect to See Tech Unicorns Emerge from More Diverse Places
I believe someday we’ll look back at the global pandemic as a pivotal moment for globalization of the tech space and enabling more local companies around the world to shine. As they do, more companies that are already global will realize they need to truly take local approaches, more than ever before, if they want to drive international growth. After all, global is really just the sum of many locals. The pandemic will help shift more focus toward the base unit. 😉
More and more tech companies are motivated by big and bold missions, not just to see their own companies grow, but to make more significant change happen, to create jobs in the process, and to spur on the tech industry from within the places they are proud to call home. This isn’t just a trend we should expect to see in Europe, but all over the world, and even in the United States. Here in the US, we’re now seeing tech companies achieve valuations in the US$ billions that hail from many places that a few years ago would have been surprising and unexpected.
For Ideas to Go Global, Capital and Talent Must Go Local
Recently, Luis von Ahn, the co-founder and CEO of Duolingo, also mentioned on Twitter that he would like to keep jobs in Pittsburgh, but the US government’s increasingly limiting immigration policies might actually force his company to hire and create jobs not just outside of Pennsylvania, but outside the United States.
Current immigration policies in the United States are shameful, and particularly upsetting in cases like these. If it weren’t for these restrictions, Duolingo could make impact even more broadly on its own local Pittsburgh economy. Pittsburgh has great feeder schools for tech talent, such as Carnegie Mellon, which boasts many international students. Duolingo’s success so far in contributing to the start-up ecosystem in Pittsburgh is a great example of a company with a bigger mission to drive more local impact.
In fact, it reminds me a lot of HubSpot and how many of our former employees have gone on to create their own tech companies in Boston. These local start-ups get strong encouragement and even financial support from our founders and broader HubSpot community in doing so. For tech founders like these, it’s not just about creating a business, but about leaving a local legacy.
However, perhaps one broader effect of restrictive U.S. immigration policies will be that globalization will only continue to increase. Combined with the pandemic impact, and a greater understanding of the possibilities of remote work, maybe instead of worrying about a “brain drain” from a given country or even a given state or city, more tech companies will shift their thinking, to become truly “location-agnostic” and allow those brains to live wherever they choose (so long as they can legally employ them).
And, as Des Traynor points out, venture capital is extending into more places, like Europe, too. This makes me excited about the possibilities of unicorn company creation in other parts of Europe, where local economies may benefit in an outsized way. It would be great to see more investment going into countries like Ukraine and Poland. Companies based there will have no problem finding top-quality engineering talent. It’s affordable talent too. Companies with lower-cost locations have a potential advantage in terms of profitability. When tech firms in these countries start to access more venture funding, their chances of creating businesses with unicorn company valuations will grow.
Marc Andreessen wrote several years ago about what it would take to create 50 Silicon Valleys instead of just one. Since that time, we’ve seen well-funded tech start-ups emerge in many U.S. states. But we’ve also seen Silicon Docks emerge in Ireland, Silicon Fen in the United Kingdom, Silicon Allee in Germany, Silicon Wadi in Israel, and Silicon Oasis in Dubai.
Globalization is enabling more and more of the best ideas to come from anywhere. How long before society catches up, so that capital and people can more easily flow from place to place? What else will it take to fund those ideas and enable people to work from anywhere to make them a reality? How long before we see tech clusters in all 197 countries of the world?
It won’t happen quickly, but we’re on our way.