Europe’s technology ecosystem holds the promise of a golden age of technology on the old continent.
The past two decades have been characterized by the meteoric rise of tech giants. Their impact on our lives and on the stock markets has been enormous. Acronyms as innocuous as FAANG (Facebook, Amazon, Apple, Netflix and Alphabet [ex-Google]) and BAT (Baidu, Alibaba and Tencent) are now worth hundreds of billions of dollars in the United States and China. However, in this area, Europe has proven to be relatively unproductive: in terms of digital platforms, it has simply stalled. But it is time to draw a line under this recent past, because the future looks much more promising. Europe has experienced a real technological awakening in recent years and even if the environment is changing, it now benefits from a technological ecosystem that is here to stay.
The foundations of this ecosystem were dug during a period of abundant capital and thanks to the emergence of a population of patient and supportive investors, a powerful combination that favored the formation of a wave of European entrepreneurs ready to conquer the world. Capital invested in the European tech ecosystem has increased fivefold over the past five years, from $22 billion in 2017 to a colossal $100 billion in 2021. Between 2014 and 2021, the number of tech unicorns has also multiplied by five and President Macron has expressed the wish to see the creation of ten technology giants in Europe worth 100 billion dollars by 2030.
None of this would have been possible without a transformation of aspirations. The tech ecosystems thriving in different European cities, from Amsterdam to Berlin to Stockholm, provide a favorable environment for entrepreneurs. It allows them to aim far. These entrepreneurs are not lacking in ambition: Daniel Ek from Spotify is taking on the American giants Apple and Amazon in the field of music streaming, while Pieter van der Does from Adyen has given birth to a true champion. world of online payments. One success leading to another, there is a ripple effect: Daniel Ek and Pieter van der Does inspire the new generation.
The problems facing Europe today are many, but lack of entrepreneurship is not one of them.
After being celebrated as heroes on the stock exchanges, these new tech companies are now being maligned. Due to the changing economic environment, their valuations fell much faster than the market as a whole and commentators became very critical of their models. It is true that the abundance of available capital may have led to excessive financing of certain companies, a phenomenon that has already occurred many times in history, from the American railroads in the 19th century until the present.
Businesses are now faced with rising financing costs, which poses an existential threat to those that are cash-hungry or whose growth relies on external capital inflows. On the other hand, this situation presents an opportunity for established companies with sufficient capital.
Professor Carlota Perez evokes the transition from a phase of the irruption of new technologies, characterized by a certain frenzy, to a period during which they will deploy their full potential. A golden age of the technological revolution during which we could witness a remodeling of the competitive landscape and the emergence of new winners. This phenomenon is particularly marked in the food delivery sector. In this sector, the decline in available financing should increase barriers to entry and put considerable pressure on new players who have not yet reached a critical size. Conversely, companies that have reached a certain size, such as Just Eat Takeaway.com or Delivery Hero, should benefit. Gorilla, Getir and Zapp have already made significant job cuts, leaving a void for bigger, more experienced players like Just Eat Takeaway.com and Delivery Hero to fill. This is what happened a few years ago with HelloFresh which, having outlasted its competitors, was able to gain new market share.
For those companies that have yet to go public, the scarcity of capital will force them to adapt and ultimately improve their sustainability. They will have to be more careful in managing their liquidity and focus on their competitive advantages rather than seeking growth for growth’s sake. This development provides access to a wider range of high-growth companies which, when they enter the stock market, will be more robust.
The problems facing Europe today are many, but lack of entrepreneurship is not one of them. It’s an exciting time for European equity investors, who can now invest in a number of disruptive technology companies. The frenzied phase that is ending could be followed by a golden age of European technology, of which we are still only seeing the beginnings.