Fintech is up, sustainability up, transport down – key themes from Atomico’s ‘State of European Tech’ data

As detailed in our key findings, European VC investors began to adjust to a new reality from July onwards, as market imbalances began to drag investment levels below year-on-year benchmarks, although there were many bright spots in the ecosystem, in specific countries, in 2020 -growth terms and the continued GDP-to-VC engine that is UK/France Germany.

Atomico’s thematic trend analysis chapter zooms in further to tackle themes and sectors within the VC figures, using a classification model containing more than 17,000 unique European technology companies.

To be included, these tech companies must have raised at least one round of funding from January 2018 to October 2022, and then been subjected to a proprietary thematic model consisting of 15 unique sectors and more than 130 themes (the model itself was trained on a large scale set of manually marked companies.)

Atomico also used a deep learning system to tag companies thematically, and this has enabled it to refine the way the sector groupings are composed and important emerging themes.

Deep Tech Taxonomy

A final taxonomy step for deep technology (excluding enterprise software) and “purpose-driven” companies was applied by merging Atomico’s mapping with the relevant datasets from the Amsterdam-based provider Dealroom.

The revised definition for deep technology excluding enterprise software includes 82% of the capital raised in deep technology as a whole, and 95% of the “purpose-driven capital” is tracked according to Dealroom’s criteria.

Atomico stresses that the mapping it uses internally and Dealroom is not always perfectly aligned, and that there was a potential bias towards capturing companies “related to newer sectors and themes.”

Resilient unicorn production

When it comes to Atomico’s analysis of $1 billion valuation startups and their correlation to the year they were founded, there were a few industries that stood out.

These sectors came both in terms of those that produce unicorns consistently across different time horizons, and areas that are only starting to mature their unicorn potential now.

In particular, the retail and consumer sectors were found to be going from strength to strength, taking a 10-15% share of companies over $1 billion over various time periods.

Atomico added additional context to the summary of the enterprise software unicorn analysis. Here, the data specifically refers back to “horizontal” enterprise software as opposed to vertical industry products. In particular, the horizontal share of $1 billion enterprise software valuations has been trending downward over the years, marking a shift toward vertical enterprise software offerings.

In recent cohorts of companies over $1 billion, there has been growing growth for the food and beverage, clean energy and transportation sectors.

Fintech, enterprise software leads the way in the production of European technological unicorns

Europe’s tech ecosystem has consistently spurred the formation of “breakout” fintech and enterprise software companies ⁠— when combined over the lifetime of Atomico’s data collection, these two “themes” accounted for nearly 4 in 10 (38%) of European unicorns.

That success story continues to impress venture investors. Almost half of the capital invested in Europe in YTD (46%) has tracked companies to which Atomico has assigned one of the two themes mentioned.

Across the board, Atomico’s data shows that the thematic potential for unicorns remains robust, even if the proportion of unicorns varies from sector to sector. Enabling technologies and health and wellness are seen as “overweight” this year in terms of their share of capital investment, meaning they could be key themes that will produce future European breakout companies.

Flat investments are the “new up”

It is important to note that the overall data picture is no longer about massive funding increases year-on-year – in the context of a year in which total invested capital fell 18% year-on-year, Atomico says that flat investment levels by theme are the “new up “.

But even with the persistence of supply chain and logistics bottlenecks, compounded by labor shortages, the data suggest there is a strong “set of tailwinds” in the interaction between robotics and industry.

The industry is up 22% in venture funding year-on-year, driven by large rounds for robotics companies such as Exotec, which supports smart fulfillment that leverages robots, and Mech Mind, a German company that provides 3D vision technology to allow robots to accurately pick items from warehouse shelves.

Elsewhere, European materials innovators had themselves a “standout” year, raising 37% more funding in Y/O/Y terms thanks to a range of new businesses, covering new forms of packaging, graphene-based electronics materials and sustainable leather products, for example.

Seven of the 10 largest rounds for European materials technology startups in the last five years came in the last 12 months. The seven rounds were raised by Kraftpal ($124 million growth equity round), Repeats ($97 million growth equity round), Paragraph ($60 million Series B round) Skeleton Technologies ($36 million Series D), Worn again ($31 million late VC round) and Sulapac ($15 million Series B round.)

Transport a watch for lower risk investments – the sector experienced a sharp drop in funding in April

Additional good news for European VC includes an increase in activity in 2022 in corporate infrastructure. Although still considered relatively small in terms of absolute investment compared to the fintech sector, enterprise infrastructure includes a number of new clusters that are catching the attention of investors, including business intelligence, data tools, and security and authentication.

Two “transversal” themes were of interest across several vertical categories, namely deep technology and sustainability. Money continued to flow into deep tech startups in 2022, and while the YTD score is about a quarter lower than 2021’s record highs, it’s still nearly double what was recorded in 2020.

Sustainability is increasingly intertwined with deep tech – Atomico’s analysis of the 10 largest deep tech rounds suggests that sustainability is integrated into many of these startups; for example, carbon capture and storage technology startup Climeworks, which raised its largest round last year (a $650 million Series F.)

But while most of Europe’s innovation ecosystem continued to see good growth in funding year-on-year, the transport sector was becoming a bellwether for the storm ahead as early as April.

Atomico’s figures show that the euro to startups of the European transport sector was around 1.6 billion euros in the first four months of this year, almost 20% lower than the comparable figure for January-April 2021. In October, transport has close to 50% (48.6 %). , to be precise) backlog in the first 10 months of 2021.

Intriguingly, this picture is consistent with the decline in venture dollars to the supply chain tech VC sector set by Pitchbook in the third quarter. (Pitchbook says that in January-September venture chain financing deals fell 37.7% in the quarter and 55.7% on the year, and 40.7% below the five-year quarterly average.)

It is possible that external trends such as the rapid trade boom in supply chain and logistics companies (largely prevalent in 2021) have begun to ebb this year, bringing the overall transportation funding data closer to its natural venture funding trajectory.

Mobility Fund’s Jan-Christoph Rickers confirmed to Tech.eu that rapid trading models found it “notoriously difficult” to secure funding. “In my opinion, this is because the end customers have never been and will never be willing to pay the real cost of delivery,” Rickers said via email.

“Investors have borne the cost in recent years. As investors now look more towards long-term profitability than just growth, many startups fail.”

University spinouts

University innovation forms a key part of the wider European ecosystem, although Atomico suggests this has been hampered by technology transfer offices “dragging their legs”. (this section of the report cites data from Air Street Capital’s Nathan Benaich’s spinout tracking project, spinout.fyi.)

TTOs are used by universities to negotiate the equity terms for spinning off new businesses based on their IP (which usually remains under their ownership until a licensing agreement is signed with the academic founders.”

The median share claimed by TTOs in Europe was roughly on trend with the US, where the median is 3.5%. However, the UK lags significantly in this area, with UK TTOs typically charging almost 3 times as much as their US peers.

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