March 2, 2021

Can Europe turn record startup investments into a sure thing?

Covid-19 didn't scare investors away from European startups. Now, what does Europe have to do to take startups funding to the next level?

This article is part of Scale Up Europe, an initiative with 150+ innovators brainstorming how Europe can propel its startups to the next level. To frame the debates, Sifted is exploring the region’s most pressing and strategic questions in a series of stories. Read the full report here.

The amount of funding raised by European startups has been on a spectacular growth path over the past decade, and the region has both attracted more global investors and been able to deliver bigger funding rounds for its tech ecosystem.

In fact, according to Atomico, 2020 was a record year for European investments, reaching $41bn in early December.


On the whole, the year demonstrated Europe’s ability to navigate the challenges brought about by the Covid-19 crisis and confirmed the overall positive trend that has been building up in recent years.

Progress so far also showed Europe can deliver more of the larger fundraising rounds it needs to grow global champions, as well as a record number of American investors participating.

Now, the region needs to use this momentum as a stepping stone to further deepen its financing pool, and catch up to the still much bigger envelopes invested in US and Asian startups.

The problem

European investment remains five times less than North America’s $141bn for this year. $74bn was invested in Asia in 2020, where there’s been a continued decline of investment into Chinese private tech companies amid trade wars with the US — on top of the move by Donald Trump’s administration to block technology providers from China.

Behind this encompassing global snapshot, it's clear that Europe is steering itself in the right direction.

The overall success of 2020 was driven most notably by the increase in so-called “megarounds”, ranging from $100m to $250m, which for many years had been one of Europe’s most pressing weak points — so much so that some compared European startups to a “forest of bonzaïs”, given the lack of more developed, 'bigger' trees.

This year, the top ten largest rounds alone raised $4.1bn, or 16% of total capital invested in Europe in the first nine months of 2020. The companies that benefited from those megarounds came from all corners of the continent, including:

  • Sweden’s Klarna ($650m) and Northvolt ($600m)
  • The UK’s Revolut ($580m). Karma Kitchen ($317m) and Cazoo ($310m)
  • Germany’s Auto1 Group ($300m), Lilium ($275m) and Tier ($250m)
  • France’s Mirakl ($300m) and Voodoo
  • Romania’s UiPath ($225m)

Not all countries were equal on the whole though.

Looking at country-by-country trends on a year-by-year basis, France is the only one of Europe’s three largest markets to grow in 2020. The country had already seen investments in startups increase nearly threefold between 2015 and 2019, showing a net acceleration, albeit with a broader gap to fill. (For more on France, read the latest Sifted Intelligence report, focused on the French tech ecosystem).

Thanks to the uptick in investment in 2020, France exceeded €5bn in capital invested on an annualised basis for the first time. Paris is now Europe’s number two hub for startup investment — it’s number one if you count London out of Europe after Brexit.

France distinguished itself earlier this year when it was the first to step in with a generous bailout package including a €4bn cash injection for its startups, and additional measures including furloughing (“chômage partiel”) that have also helped companies adapt quickly.


It was followed by most European governments that stepped in with bailout packages and startup-specific measures.

In doing so, governments in the region have likely avoided any durable dent into the positive trend of recent years. While Covid-19 has caused some deals to be delayed, through various lockdowns and VCs being forced to take all their work online and remotely, it has left a stockpile of 'dry powder' that’s expected to be poured into the ecosystem. In France alone, state-backed Bpifrance estimates there’s about €10bn of money in investors’ pockets waiting to be deployed into startups of different sizes.

Looking forward, prospects for future improvement will rely on Europe’s ability to keep growing its pool of investors. Part of that will come from attracting more global technology investors. Another part will depend on getting more international LPs and GPs to discover the European ecosystem and inject money into new homegrown funds.

For existing investors, there’s also a preoccupation with creating more exit opportunities, especially as the number of bigger — more mature and better valued — startups seeking stock market listings in Europe is still limited. Successful exits are crucial for seeding the next generation of founders.

To boost the pipeline of tech IPOs, Euronext in November last year teamed up with La French Tech in France to offer training and meetups specifically designed for startups preparing for the stock market.

A banner of Sifted's The Sift report about French tech