Two weeks ago, K Fund attended the Slush 2021 in Helsinki, the annual reference meeting point for investors, founders and operators from all over the world. During three intensive days of panels, meetings and casual conversations, some of the world’s best fund managers and tech leaders shared their views and thoughts of the current European tech scene, hosted exciting debates about best practices and discussed the forces defining the venture capital and tech industry for the years to come. Out of countless conversations and discussions, two words stood out in every argument, making what we believe to be two key pillars for today’s European tech scene: Maturity and Diversity - where in most cases, diversity is a consequence of maturity.
The venture capital and tech scene has been rapidly growing for the last decades, mostly fuelled by an interesting set of virtuous circles that keep reinforcing investors, founders, operators and capital allocators. This growth has been triggered by an increase in capital allocation to the venture capital asset class, as a consequence of a set of macro financial trends such as low interest rates, leading to an increase of investors with available capital to deploy in founders. The more capital available for founders to build thriving and successful businesses, the more likely it is to return interesting profits to venture capital investors that are now able to trigger again the described flywheel. Over many years of running this loop, founders, investors and capital allocators (LPs) have started to evidence deeper virtuous circles within its class.
The increase in the number of founders is leading to more stories of success that inspire a second wave of founders turning their ideas into businesses motivated by the success and experiences of their previous colleagues. The global and ambitious mindset of these second generation founders is unique and one of the most exciting attributes I notice in founders starting a second project once they have already scaled in one before.
The soaring number of investors that helped founders build enduring business is encouraging more investors to turn their business angel activities into professional institutionalized investments, professionalizing the asset class into a highly attractive product for pension funds, big alternative asset managers or government and public funds.
In addition to these internal forces, the unprecedented financial macroenvironment of low interest rates is encouraging larger investors to find in venture capital an alternative asset class to deploy their money.
After more than 20 years of long lasting and life changing companies, Europe has reached an unprecedented state of maturity and has established itself as a world leader tech hub.
The European region has continued this year to produce more tech IPOs than the US, reaching another record of an astonishing $275bn in exit deal value. Moreover, the venture capital investment in the region is about to cross the $100bn mark for the first time in history, implying a 3x mark-up versus 2020 and 2019. To see these numbers on the ground we just need to take a look at the investment locations of one of the world largest investors, Softbank. Softbank Vision Fund I was invested between 2016 and 2019 and deployed only 9% of its capital in Europe; its Vision Fund II, invested since 2020, has already deployed more than 28% of its investments in the European region.
This evolution has taken Europe from an unprofessionalized investment region of independent business angels to a mature landscape of unique companies and some of the world’s best investors. Maturity has also led us to an enormous diversity, from geography fragmentation to different founding strategies and paths to succeed.
Multiple success stories spread all over Europe have empowered a second generation of smaller hubs emerging from the success of their colleagues. Today’s growth of founding teams and projects born in Barcelona or Madrid could have never been possible without early employees from companies like Wallapop, Glovo or Typeform stepping aside from their previous successful stories to start their own new projects. And as we already said, the learnings, experiences and ambitious mindset of these second wave of founders notably increases the chances of success triggering once again this virtuous circle.
After the covid19 crisis, the workforce decentralization and already born-remote teams are fuelling an even stronger fragmentation of talent location. Cities and locations with better lifestyle conditions (weather, cost of life or culture) have today a once in a life-time opportunity to consolidate themselves and attract more and better talent as long as tech organizations, regulators and public policies work together.
Cities like Barcelona, Madrid, Valencia, Porto or Lisbon are in a unique position to benefit from these new trends that could impact the overall tech scenario during many years to come. I believe regions like the US or Portugal have always been on the frontline to attract top talent working in emerging tech trends, easing work conditions and mitigating limitations for starting a business. Now it is the time for Spanish public policy makers to write the rules and laws that allow top talent to come to Iberia to start the companies of tomorrow, especially when it comes to crypto and blockchain regulations. As teams and businesses learn and fastly adopt from other’s best practices, we encourage policy makers to do the same in their fields.
Diversity is not only visible and expanding in geographies but also on founders backgrounds, experiences and founding strategies. There have been many successful stories about founders with unique backgrounds, empowering more entrepreneurs to start this journey regardless of their previous experience. Diversity is also arising on founding strategies with notable successful stories of bootstrapped business that decided to fund operations and activities by themselves. Founders are now able to learn from teams and companies that decided to fund their business without sacrificing ownership of the company and decided to collaborate with exclusive strategic partners.
Nonetheless, we still have one unresolved matter when it comes to diversity, and I am sure that we all agree when we say that it is female presence in the tech scene. There are thousands of statistics proving it and organizations trying to reverse the situation (I especially like Alma Angels and Femstreet), but after more than a year travelling from Barcelona to Madrid on bi-weekly basis on a train made by 25% women and 75% men, I know that we still have a lot of work to do and improve.
We also need to talk about the downside or implications of this rapid growth of the ecosystem; being speed and competition two of the most agreed consequences of the current situation. It is common to hear that speed and valuation can win a deal, but we believe that differentiation within investors is still the biggest deal-winner driver in Europe. Each fund is defining out loud his thesis more than ever, thesis’ ranging from expertise in one vertical to generalist that leverage on the fund's network and platform. At Leadwind, our growth fund, we believe that the operational background and the previous scaling experiences of the team in growth stages is the number one differentiator to partner with entrepreneurs and support them in sales, go to market and company building.
Now coming to an end, as venture capital investors, we need to work tirelessly to spot and understand the next trends shaping the future; so we partner with them when the time is right and our partnership unlocks the next stage of growth. From the Benedict Evans presentation or the Sequoia Enduring Fund conversation that took place in Slush 2021, now is the time for Europe, the time to invest and partner with the future tech leaders that are building companies on the top of a mature and established tech community. We are now experiencing how transformational trends are arising as cloud and digitalization did 10 years ago.
It is the time to partner with scale-ups based on the fundamental technologies of the future such as the future of work, climate emergency, quantum computing, cybersecurity and the Metaverse.