Tech Ecosystems in Europe

Author: Mattias Ljungman

As I prepare to board a flight to the growing tech ecosystem in the picturesque Bavarian city of Munich for the annual DLD conference, I was reminded of a time late last year when I found myself in Paris meeting a number of companies. I took the opportunity to make my first visit to Xavier Niel’s ambitious new venture Station F -- the largest startup campus in the world. I was struck by the fact that Station F is right in the heart of a city that has not traditionally been known as a vibrant European start-up ecosystem.

In 2017 that perception changed forever.  

As I watched Paris’ startup renaissance unfold at an extraordinary pace last year, I started thinking more seriously about how tech ecosystems have developed -- especially here in Europe. My colleague Evgenia has published an excellent analysis of the 15 year backstory to Paris’ seemingly “overnight success story” here.  

Becoming global leaders.

Building a vibrant tech ecosystem is, simply, fundamental, for any economy that is serious about becoming a global leader. Tech is a critical growth-driver, creating jobs 3x faster than other industries. Understanding how tech can transform an economy should become an obsession for all governments and sadly it has not been. However, transforming the economy with tech has been a goal for new French President Emmanuel Macron.

Governments and municipalities that have cottoned on to this are now deeply engaged and incentivised to promote the positive development of nascent tech communities. We now see international city-level competition to attract founders, tech companies and talent with aspirant tech hubs using proactive regulation to attract investment in specific fields. Artificial Intelligence (AI). autonomous vehicles, and engaging  government agencies help businesses find office space and make personal connections to help accelerate a move.

The growing tech industry.

There has been a long search for the key constituents that form a vibrant and growing tech scene, with many theories modeled to try and recreate Silicon Valley -- the very birthplace of the concept of a “tech ecosystem."

However, a strong and working tech ecosystem is at the very heart of a vast learning machine that enjoys continuous improvement. Each new generation of entrepreneurs develops and improves bringing a more refined set of capabilities than the last ones. Of course this is mainly due to the recycling of knowledge and experience and the accelerated pace at which information can be obtained and ingested today.

Viable tech transformations.

The more that technology transforms every industry’s vertical, the more people from traditional industries are joining forces with local technical talent to start companies. This talent thereby, is the key to helping kickstart local tech communities in a new set of cities.

If we look across to France’s neighbor Germany, for example, we see how Munich is developing specialisms in applying tech to traditional industries of strength. This tech scene will continue to erupt as tech talent is applied in such areas as manufacturing and automotive/mobility.

Distribution of European technical talent.

Raw technical engineering talent is already naturally distributed, thanks to the geographic decentralisation of our formal academic system. In keeping with our brief spotlight on Germany, technical talent there comes not only from Berlin but from smaller cities with big technical universities such as Munich (TUM), Aachen (RWTH Aachen University) and Tubingen (University of Tübingen).

Similarly, the more that basic software engineering is colliding with other fields of engineering the more geographic diversity we see due to the inherent distribution of specialist organisations in those fields across Europe. We witness agile growth in cryptography, computational neuroscience, natural language processing, and more. Europe has 32 of the top 100 AI research institutes in the world (more than any other region) and they come from 27 different European cities and 14 countries.

Identifying potential tech ecosystems and their impact.   

To identify new potential ecosystems we need to look beyond our European deep tech competency alone. We must foster a density of talent and networks that are sharing, swapping and learning from each others’ varied experiences in order to catapult us to our highest growth hacking potential.

A small group of successful entrepreneurs can have tremendous impact on a nascent tech community. It only requires four or five successful entrepreneurs setting up a variety of basic building blocks, to become powerful conduits for knowledge. A transfer of key tech “tidbits” through sharing deals, comparing notes and explaining what is globally best in class can strengthen and prosper an entire tech community.

For example, think of the impact that Skype, Lastminute, Lovefilm, MessageLabs, Betfair or Zoopla have had on the London tech scene. Likewise, Rocket Internet, Zalando or Soundcloud in Berlin; mySQL, Avito, King, Klarna, Tradedoubler or Spotify in Stockholm and Iliad, Blablacar or Criteo in Paris. This type of success can be garnered by all entrepreneurs through shared tech experience.

Sharing: the key to future growth-hacking.

Other significant components of advancement and expansion include accelerators, shared workspaces and meeting places. These become talent magnets help form healthy competition between each new generation of entrepreneurs, resulting in a surge of even more impactful products and businesses. By sharing, the ecosystem is up-to-date on new best-in-class business models, execution efficiency and talent scouting.

At the same time, there is also an increased willingness to build in a distributed way across Europe so as to tap talent pools in emerging tech communities. Several leading European tech companies are now building out their teams using a distributed model across multiple cities. Examples include: Transferwise, Farfetch, Pipedrive, Mapillary, Zalando and Spotify. Each of these are helping to build-out local ecosystems whilst also instituting cross-border sharing practices for mutual symbiotic benefit.

The natural placement and expansion of tech communities.

It’s extremely impressive how quickly a powerful ecosystem can form. With the right ingredients and talent, plus an inherent culture of sharing, potential can be realized within a few years rather than decades. Data already shows that there are meaningfully-sized and engaged active tech communities in well over 160 European cities -- and this number is growing.

Data also clearly demonstrates that within any single European country, there are now active, growing and engaged tech communities in more and more cities. For example the UK now has 24 uniquely identifiable tech communities. Cultivating and  expanding outside of London and Cambridge, viable tech expansion is now included in Manchester, Bristol, Oxford, Edinburgh and Brighton among others.

Paris -- a positive model of bolstering tech.  

Paris is a great example of how tech hubs can emerge quickly and with force. From humble startup beginnings, in 2017 Paris saw the most VC deals by volume in the last three quarters out of all European cities. In 2014, Paris saw 215 VC deals vs 693 in the UK. But in the first half of 2017, France had 369 deals vs 288 in the UK. How times are changing -- and fast.

I previously mentioned Xavier Neil as a key catalyst in helping Paris scale up. Neil created Kima Ventures, which invests in one or two new companies at seed stage every week. Neil then started Station F which is the largest start up campus in the world. The Station F accelerator, co-working space and meeting spot in the heart of Paris is where experience, knowledge and ambition spill out through the walls.

Xavier, and other key catalyst figures thought big and invested together to create sizable institutions. These noted investors include Pierre Kosciusko-Morizet (PriceMinister.com), Jacques Antoine Granjon (Vente Privé), Marc Simoncini (Meetic) or Jean-Baptiste Rudelle (Criteo).

Raising the bar with Station F, one of Neil’s other ventures is housed there -- the non-profit and tuition-free coding school simply called “42.” This “42” became a conduit to knowledge, experience and what is best in class. Thus this movement has become Paris’ continuously improving entrepreneur machine, accelerating people’s ambitions to tackle some of the world’s most difficult problems.

Complacency -- the enemy to augmentation.

Yet big cities can not become complacent. Where founders would have once moved to one of the big European cities for the talent to build their companies, these days competition for that talent has driven up costs. As a result, many founders who might previously have chosen to relocate are instead choosing to stay where they are or to build distributed teams.

This inherent trade-off is something of an incentive to city authorities to continue coming up with ways to try and tip the balance in favor of their city over rival international neighbors. This is ultimately one factor that is driving places like London to use regulation as a lever to attract founders. The cost of operating in one city is balanced against the relative advantages of going elsewhere. Making their city accessible and feasible is something Paris is taking full advantage of over London today.

VC is invigorating tech.

We also see that companies that have raised VC in Europe come from a wider range of cities than ever, and that there is a meaningful level of capital investment now happening in a greater number of hubs than ever before. This is supported by the establishment of more and more local early stage seed investors in places such as Tallinn, Helsinki or Lisbon. More capital is being raised by VCs outside of the UK than ever and VC fund raising overall is at an all-time high in Europe as a whole.   

Capital is inherently mobile, in any case, so European founders don’t need to worry about access. If you’re doing something great, words spreads quickly and the investors will find you. 33% of all investments are cross border within Europe, which equates to more than a thousand investments each year.

Tech ecosystems.

I am obsessed with tech ecosystems because I believe that they are the natural reflection, on a macro scale, of the innovation happening everyday at the individual entrepreneur level. They lift up the next generation of entrepreneurs to become international business leaders, and ensure regions have the ability to remain globally competitive. That is the impact that excites me and the reason why I get up every morning to come and work at Atomico.

Please let me know what YOU think we can do to take our European ecosystem to the next level? I am still learning and curious to hear what you think we as an ecosystem could be doing better to foster even stronger world class technology companies here in Europe.