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On Monday, the Startup Coalition, a British tech advocacy group, expressed concerns via a blog post regarding the potential negative effects of Finance Minister Rachel Reeves’ tax proposals on the technology sector, warning that they could precipitate a “brain drain” of talent from the industry.
In a recent report, venture capital firm Atomico forecasted that investment in European tech startups is likely to drop for a third consecutive year. However, the firm noted signs of stabilization, with both improving startup valuations and declining interest rates contributing to a more optimistic outlook.
According to Atomico’s “State of European Tech” report, the region’s venture-backed startups are expected to secure approximately $45 billion in funding by the end of 2024. This figure marks a slight decline from the $47 billion raised in the previous year, yet it reflects a stabilization of European tech funding levels amidst challenging global economic conditions that have led to three years of downturn.
Atomico underscored that the current state of Europe’s tech ecosystem is significantly more robust than it was a decade ago. The funding anticipated for this year would still surpass the total $43 billion raised between 2005 and 2014. In total, from 2015 to 2024, European startups have amassed $426 billion, a remarkable increase compared to the preceding decade.
Tom Wehmeier, head of insights at Atomico, mentioned in an interview with CNBC that certain critical improvements are still necessary for Europe to cultivate tech companies of a scale comparable to the largest firms in the United States and China. He pointed out the ongoing frustrations related to regulatory hurdles, bureaucratic obstacles, and limited access to capital, alongside the challenges posed by a fragmented European market.
One specific issue highlighted by Wehmeier is the reluctance of European pension funds to engage with venture capital. He noted that these funds allocate a mere 0.01% of the $9 trillion in assets they manage to domestically based venture capital funds, limiting their involvement in Europe’s dynamic startup landscape.
Could Europe See Its First $1 Trillion Tech Company?
Atomico’s report suggested potential improvements within the sector. Notably, UK Finance Minister Rachel Reeves recently announced intentions to merge 86 local government pension funds into eight larger “megafunds” aimed at increasing investment in local assets. In response, the tech advocacy group techUK welcomed the reforms, stating that they could eliminate barriers that currently limit pension fund capital availability and enhance investment in UK technology startups.
These pension scheme reforms are under consideration or already in progress in various European countries. Wehmeier emphasized that such changes could enable billions more in funding for European startups, which could distinguish top companies from their international competitors, potentially preventing them from relocating elsewhere.
Looking ahead, Atomico holds an optimistic view for the next decade in European tech, projecting that the overall ecosystem could grow to a valuation of $8 trillion by 2034, up from approximately $3 trillion today. The firm also anticipates the emergence of Europe’s first-ever trillion-dollar tech company within the same timeframe.
While Europe boasts several “decacorns”—companies valued at $10 billion and above, such as Arm, Adyen, Spotify, and Revolut—it has yet to produce a single company reaching the $1 trillion valuation milestone. This is in contrast to the United States, home to multiple companies, including Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, that have surpassed that benchmark.
Wehmeier concluded by stating that unlocking capital on a large scale, retaining top talent within Europe, and focusing on addressing significant societal and economic challenges would be crucial to achieving the milestone of a trillion-dollar tech company.
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www.cnbc.com