Scale-up: UK leads the ranking despite Brexit
Europe is home to approximately 4,200 fast growing, ICT scale-ups in 45 countries, collectively raising about $58 billion in funding. And the UK is far and away the leader, with 34% of the scale-ups – 1,412 – and capital raised 35% of the total available to scale-ups in Europe, followed by Germany, France and Sweden at a distance.
This is what emerged from the latest SEP Monitor on Scale-up Europe presented by Mind the Bridge and SEP – Start-up Europe Partnership – at the Start-Up Europe Awards in Brussels.
“Scale-up Europe is still young but it is doing well, I see a lot of potential for growth,” said Andrus Ansip, European Commission vice president for the Digital Single Market. “Start-up Europe Partnership data shows a remarkable increase in the number of scale-ups in recent years. 2016 has been a turning point for Scale-up Europe as $12 billion of fresh capital poured into European scale-ups. I am very pleased to see European startups on a firm scale-up path.”
The new report is the most comprehensive analysis regarding the status of European innovative start-ups and shows a remarkable increase in the number of scale-ups in recent years (on average, 67% of scale-ups were established after 2010).
“Our research clearly shows the leading position of UK in the European Scaleup market for so long now – added Alberto Onetti, Chairman Mind the Bridge and Startup Europe Partnership (SEP) Coordinator, who presented the Report – In fact, if we consider this scenario without the UK, in a potential post-Brexit situation, the number of European scaleups shrinks from 4,000 to 2,540 and capital raised from $56M to $35B. In short, Brexit will reduce Scaleup Europe by 36% and could consistently hurt the European Fintech industry”.
Germany comes in at a distant second after the UK, with 442 scale-ups (11% of the total) that raised $10.1 billion (17%). In terms of the number of scale-ups, Germany is slightly less than one third of UK with approximately half of the capital raised.
France has a larger number of scale-ups, 513 (12%, about 1.2 times more than Germany), but a lower amount of capital raised (11% of the total funding). Sweden ranks number four with 279 scale-ups (7% of total) able to raise $5.3 billion (9% – and out of this more than half came from Spotify.
Scale-ups and stock markets are not (yet) a good fit in Europe, the report says. Only 2% of the European Scale-ups go public and approximately 15% of the overall amount raised in Europe has been collected through IPOs. 45% of the IPOs over $100M are completed in the US and scale-ups that decide to go public there raise about six times more capital than those that IPO in Europe.
It is not a coincidence that the top performing country in terms of scale-ups (UK) shows also the highest percentage (19%) in terms of capital raised on the stock markets. Germany and France are below average (10% of capital raised via IPO).
Scale-up Europe is still far too venture capital driven. This poses a problem, because IPOs, beyond simply providing growth capital, offer exit opportunities to the VC funds. Without exits, the venture capital engine risks being flooded.
The Report also identified 86 “Scalers”, scale-ups able to raise over $100M – in Europe, representing 2% of the European scale-ups and raising cumulatively $25B, 43% of the overall capital raised.
Only 14 countries have been able thus far to produce scalers: 29 (34%) are from UK, double the number in Germany (15), which is then followed by France (11). Sweden comes in fourth place with 7 scalers, directly followed by Spain (6 scalers) and Denmark (5). In Luxembourg, scalers accounted for the largest percentage of capital raised by scale-ups (71%), followed by Sweden (62%), Germany (55%), Denmark (50%), and Spain (47%).
E-Commerce, Finance and Hospitality drive the growth, with one scale-up out of five in Europe operating in these sectors. Collectively, they raised $18.1 billion which is almost one third of the total capital made available to European scale-ups.
They are followed by Digital Media, Software Solutions and Enterprise Services. It is worth noting that the highest concentration of scale-ups resides in the Software sector, with more than 460 companies.
*Methodological notes
The current analysis is based on analytical in-depth research for 12 countries (Denmark, Finland, France, Germany, Iceland, Italy, Norway, Poland, Portugal, Spain, Sweden, and the UK) that represent approximately 80% of Europe’s GDP. The data for the other remaining 33 countries has been estimated based on an exploratory analysis of multiple data sources and assumptions. Data are updated as of December 31st, 2016.
The current analysis is limited to ICT companies. Other key areas in the startup ecosystem, such as biotech/life science, hard-tech and cleantech, are currently under investigation and are not included.