European SaaS may not be as big as America’s — but with 65 European cities housing unicorns, and €44.7m invested in Estonia in 2021 alone, its growth is accelerating.
Colin Lalouette, CEO of online SaaS community B2B Rocks, says this is a moment of fusion for the sector: “As you bring companies together right now, they’re all interacting, and the dots connect to form more and more potential solutions. This point is up there with the Gutenberg Press and the Industrial Revolution.”
European founders may even have a leg up over their US counterparts; not only is Europe rife with legacy markets in need of disruption, but success in Europe requires expanding across borders earlier to achieve growth goals and higher valuations.
This point is up there with the Gutenberg Press and the Industrial Revolution
Sifted sat down with SaaS founders to unravel how the sector is evolving, and how business software will shape an increasingly decentralised workplace.
The war for talent wages on
New technologies like AI, 5G and big data promise new opportunities, but a significant industry challenge going forward is a human one. The war for talent means power has shifted to employees, with half a million people working in SaaS across the globe and more and more companies fighting over the limited talent pool.
But finding fresh talent is essential to continued SaaS growth and creating a competitive edge.
You’re a teacher? Hey, we can make you a project manager... It’s identifying people, identifying skills that translate and onboarding — SaaS can do that
“Finding and cultivating talent is tough in Europe,” Lalouette tells Sifted. “Especially as organisations scale. Recruiters are desperate and are looking outside traditional channels. SaaS companies appreciate disruption, so they’re more able to bring people in from new backgrounds, with new ideas.”
“You’re a teacher? Hey, we can make you a project manager,” he says. “It’s identifying people, identifying skills that translate and onboarding — SaaS can do that.”
Keep your competitors close
Talent competition creates new opportunities for solutions that enhance HR and company culture — something Munich-based employee networking platform Mentessa is betting big on.
Dr Tina Ruseva, Mentessa’s founder, says a crowded market means user experience is essential, with multiple disciplines needed to create better experiences.
Intersecting needs will drive growth, she tells Sifted, from machine learning reinforced by diversity, equality and inclusion expertise to a payment platform with impenetrable cybersecurity. She says these integrated offerings born out of partnerships are key: “They will change the way we discover solutions — for example buying Mentessa through the Slack app marketplace instead through a demo — as well as testing and buying.”
"Horizontal" SaaS takes a wider lens. Cloud software that can streamline business functions across different industries naturally scale quicker, as proven by ecommerce and membership provider Chargebee’s $250m raise last month. In a somewhat counterintuitive move, Chargebee collaborated with other SaaS giants like MailChimp and Salesforce, integrating both products to expand market presence and value creation.
These new hybrid products and energised marketplace have caught workers’ attention too; Chargebee founder Krish Subramanian says that as AI pushes software into the future, startups will not only be marketing their product to customers but to new hires as well.
Automation means that people can focus their time and energy on more important and strategic tasks — people will want to work with more mature technologies
“Automation means that people can focus their time and energy on more important and strategic tasks — people will want to work with more mature technologies.” Amid the “talent war”, an integration deal may reel in your next teammate as well as customers.
VCs are on the fence
Hannah Asmussen, founder of German hiring platform Localyze, says more SaaS automation is inevitable: “We create billions of data points every second; that we have the computational power to analyse this data has a huge potential for SaaS businesses.”
For Anthony Noyon, cofounder of service marketplace Second, larger datasets on consumer behaviour have enabled him to create algorithms that pair customers to independent service providers instantly, based on factors like travel time, price estimation and availability. But sector-wide, these technological leaps will require similar levels of venture capital interest as seen in the US, where historically "fundraising cycles are shorter, bigger and deals close faster," he says.
He notes France’s burgeoning VC market regularly sees founders raise several rounds, “but [innovative] advantage has to be matched with funding that enables global rollout. The real question is whether European VCs will remain dependent on US funds…”
The US is still better at making big bets and shooting for the moon
Subramanian says that from a VC's point of view, launching in Europe with more than 38 sovereign governments and languages, rigid GDPR laws that threaten millions in fines, as well as different currencies, payment systems and consumer protection laws, present some structural challenges.
And yet with 26 decacorns and counting, Atomico data shows US VCs’ European investments have outperformed similar US-based startups over the past 20 years.
“The US is still better at making big bets and shooting for the moon,” Asmussen says. “But the mix of European and US capital can for example support the expansion into the US for European startups, so I would always strive for a mix.”
Value-creation mindset is key
A huge benefit for European SaaS is that it’s coming with a relatively clean slate, unlike the US, says Charlotte Pallua and Estelle Merle, founders of fintech topi: “The ecosystem is still free from the legacy of Silicon Valley and free to reinvent the ways to build great places to work, creating its own infrastructure as it grows.”
This, Lalouette says, means there’s far more room for diverse creative services and products: “We face different challenges. We must come up with Euro-centric solutions and not let legacy thinking stand in the way of value creation."
We face different challenges. We must come up with Euro-centric solutions and not let legacy thinking stand in the way of value creation
As more specialised SaaSes pop up, adding onto the existing SaaS ecosystem, user experience, value creation, and ease of integration will be at the top of everybody's to list. Lalouette says this "value-first mentality" will help SaaS innovate.
As technical barriers needed to build and integrate solutions continue to shrink, value creation will exist in adding to or combining existing solutions. Lalouette adds: "This combination of complexity and opportunity is why the SaaS industry reminds us of fusion. Not only do SaaS, like Chargebee, provide startups with essential business services accelerating time-to-market, but each new SaaS also creates cross-innovation opportunities for new companies."
B2B Rocks' June 9-11 event in Montpellier, France, will bring together 1500 entrepreneurs, venture capitalists and corporate executives around the single objective of unlocking the next generation of startup entrepreneurs. Learn more — and get your tickets — here.