Europe is one of the few places in the world that is fertile ground for native enterprise-cloud startups. It has top-tier universities and talents that build excellent software tools. For instance, European-founded companies like Datadog, Uipath, Dataiku and Elastic Search have captured investors’ interests in past years. A glut of capital has poured into the area meanwhile.
Furthermore, in Europe, there is a rich customer base that enterprise startups can target and sell to. An exciting trend for European startups is that they tend to build out their businesses in their hometowns and then start to look out for another spot and place their headquarters there to expand worldwide. The US is their first choice for global maneuvers, in most cases. Nevertheless, there has never been a better time to start an enterprise startup in Europe than now, considering the corporate customers and talent.
London is an epicenter, where the brightest crowds move to from all over the world; Dublin is famous for its generous hospitality as well as favorable taxation and a native English-speaking talent pool. As such, EqualOcean has drilled down into London and four cities scattered around it, namely Amsterdam, Brussels, Dublin and Paris, while trying to learn the market dynamics in one of the most vibrant innovative areas in Europe. Here we continue to see the market with some key trends, as described in the following part of the article.
Venture investment in the region’s enterprise startups is growing quickly
From the investment deals disclosed in the past five years, the investment activity saw upticks between October and December each year before 2018. The upticks might have been signs of a more changeable fundraising landscape, as more large deals influence numbers. In the second quarter of 2018, for instance, business analytics firm Concentra –which focuses on Human Resource (HR) management – bagged USD 55.8 million from investors, including Morgan Stanley; the same quarter, Aircall, which helps enterprise generate leads, raised USD 29 million.
A few more significant rounds closed in the third quarter of 2019, especially in the field of financial services, which is traditionally strong here. Sonovate and Spendesk landed USD 135.80 million and USD 38.40 million funding, respectively, at that time.
The big gap in enterprise market values in Europe and the US continued decreasing
For instance, from the selected five cities in Europe, the average deal size of Series D rounds and later rounds of funding reached an all-time annual high in 2019, at USD 100 million, from USD 51 million in 2014. San Francisco, in contrast, achieved a USD 113 million average deal size for Series D and up.
Though European startup valuations and the respective deal values have soared to massive levels, there remains a big gap between the US and Europe. Over time, the gap may dissolve as more global category leaders emerge in their relative niches.
In the short term, however, there might be a market correction, especially for late-stage investments. The jump in average deal size for Series D stages and later rounds from USD 6 million in 2018 to USD 100 million in 2019 was unusual.
Finally, strong players are emerging from a diversity of functions, from Data & Analytics to Software & Applications
The two subsectors reached the highest level of average deal size from Series A to Series D and up a round of funding, mainly owing to the late-stage investments.
List of top 20 enterprise startups in Amsterdam, Brussels, Dublin, London and Paris
From a financing standpoint, the list had raised a total of USD 1.7 billion as of the end of 2019; nine companies from the list raised more than USD 100 million.
Geographically, London and Paris remain active with eight and five companies, respectively.
One particularly bright spot here is financial services. The sub-industry came out on top versus other sub-industries, with five companies on the list raising over USD 352 million. That was on the back of late-stage deals like Sonovate, mentioned before, and also some such early-stage firms as TransferGo’s USD 17.6 million Series B round.
Another one is going to be security, an industry that is becoming increasingly important. While there is only one security software firm on the list, we are expecting more from the industry to come next year. The introduction of regulations about how data is collected and stored, like the General Data Protection Regulation (GDPR) and California Consumer Privacy Act of 2018 (CCPA), has pushed startups to think about how to react to this new reality. Specifically, the GDPR applies to all businesses that process the data of EU citizens, irrespective of their location or size. Privitar, one company that designs software for enterprise-wide privacy protection, carried a USD 40 million Series B in July 2019 from Accel and Salesforce, among others.
On the other hand, as Software-as-a-Service and cloud migration become dominant, issues of data privacy and security are emerging as a major concern around the world. Solving security flaws early in a product development lifecycle and driving an agile DevOps will become mainstream.