European ScaleUp Monitor 2021: European scaleups got knocked down by COVID in 2020, but are up again in 2021
17 December 2021
The COVID-19 pandemic had a severe negative effect on Europe’s young fast-growing companies in 2020 and even the scaleup leaders in Europe, the UK, France, and Germany, did not get out unharmed. However, Europe’s most innovative companies have already shown remarkable resilience and red numbers turn green over 2021. In the European ScaleUp Monitor 2021, we paint a picture of a problematic year in 2020 but a steadfast recovery in 2021. This year’s edition of the Monitor includes international (academic) contributions from Bocconi 4 Innovation, Cambridge University, Carbon Equity, Erasmus School of Economics, Unknown Group, Vlerick Business School, and Startupbusiness.it.
“Scaleup ecosystems are vulnerable to external shocks and crises. Even the ‘’top dogs’’ in the European landscape, the UK and London, have not been exempted by the negative effects brought about by both Brexit and the COVID-19 pandemic. At the same time, though, despite the persistent challenges of the latest months, we see resilience in the scaleup landscape and a promising outlook towards recovery.” – Martin Luxemburg (Managing Director of Erasmus Centre for Entrepreneurship)
Uncovering the secrets behind Europe’s innovation drivers
Last year, we launched the first edition of the European ScaleUp Monitor to map the landscape around Europe’s drivers of innovation and growth. A continental environment where companies successfully mature from startup to scaleup is highly important because the young fast-growing companies play a pivotal role in bringing innovation, creating new jobs, providing hands-on solutions for urgent social and environmental problems, and challenging rusted ‘grownups’. This importance of scaleups is recognised by global investors, who identify it as a profitable investment opportunity, and is reflected in a 2021 boom in MedTech investment. However, although Europe is more interconnected than ever before, in terms of flows of goods, capital, services, and people, the scaleup ecosystem was still just tackled from the national perspective. We identified this lacuna and started the European Scaleup Monitor to uncover the latest insights into scaleups’ growth and impact within the European economy.
Prof. Dr. Justin Jansen (Academic Director of Erasmus Centre for Entrepreneurship) & Prof. Dr. Tom Mom (Senior Fellow at Erasmus Centre for Entrepreneurship) conclude that: “This year’s monitor indicates that funding of scaleups has increased dramatically, yet we recommend taking a holistic, ecosystem approach to assess and improve all building blocks in order to strengthen the context in which scaleups can prosper in the long term.”
The urgent need to better understand and improve the European scaleup ecosystem is shared across borders too. Nico Gatto (Bocconi 4 Innovation) and Emil Abirascid (Startupbusiness.it) stress that it is meaningless to identify national scaleup trends in isolation and pledge for the creation of a proper European innovation ecosystem where investment, partnerships, and hiring are easy and effective. Moreover, what definitely needs improvement in the European ecosystem is the still marginal role played by female entrepreneurs, pre-dominantly because of problems getting solid funding – resulting in a gigantic economic loss and obstructing innovation. Jacqueline van den Ende (Carbon Equity) comes up with three pillars – network, knowledge, and confidence – that have to be boosted to overcome this investment bias, and build an even stronger European scaleup climate.
COVID also spreads across scaleup land
While COVID hit Europe’s young fast-growing companies hard, resulting in a 20% decline in investment in 2020, 2021 is a year of steadfast recovery and investment already doubled the 2020-numbers. Moreover, the influence of the policy measures to tackle COVID resonates in the European ecosystem. Because of the lockdowns and the rise of working from home (WFH), the Computer Software, Business Services, and Communications industries denote rapid growth over the last two years. More than half of all European scaleups can be found in the Computer Software-industry, of which most are in the Web Hosting & Internet-sector. Although the United Kingdom is still Europe’s absolute leader in housing scaleups, Berlin (2020) and Amsterdam (2021) took over from London as the European capital of investment in its’ young fast-growing companies, with a key role for Brexit (next to COVID). Most investment in European scaleups come from the United States (30%) and the United Kingdom – with other remarkable top-10 investor countries being Luxembourg, Israel, Canada, and the Cayman Islands.
Clustering of scaleups in Europe’s “superstar cities”
The European scaleup distribution is heavily scaled towards a few locations, as 97% of all scaleups are found in the top-20 scaleup countries, and has become even more concentrated over the last years. The UK, and its capital London, are the European scaleup leaders, followed by France (Paris) and Germany (Berlin). According to Dr. Keivan Aghasi of Cambridge University, the United Kingdom is fertile soil for scaleups because of the wide availability of financial, human, and social capital, in combination with a proper digital and physical infrastructure – especially railroads and airports.
Prof. Dr. Frank van Oort, Erasmus School of Economics, points to agglomeration economics, and stresses the economic benefits of a proximate labour market, short-distance subcontracting, large demand markets, knowledge spillovers, and valuable indivisibilities available in Europe’s “superstar cities.” In line with this, Dr. Hein Roelfsema, Director Public Domain at Unknown Group, identifies the successful building of entrepreneurial ecosystems, co-created by public and private partners, and the combination of venture engines and capital, as the recipe for the success of these countries and cities. In Belgium, as Dr. Yannick Dillen, Vlerick Business School, explains, there is also a strong concentration of scaleups in the Ghent region, housing about 20% of all European Biotech scaleups, while the central axis is Brussels-Leuven.
Key Takeaways from the European ScaleUp Monitor 2021:
European scaleups got knocked down, but are up again: With respect to 2019, the total value of investment in European scaleups dropped by 20% in 2020. This is in contradiction to the long-run trend that has been going upward over the last 14 years. Although the year is not over yet, investment in European scaleups recovered in 2021, and the 2021 investment level has already doubled the 2020-numbers.
God save the Queen: The United Kingdom is the leader in terms of both the number of scaleups and the total value of investment, followed by France and Germany at a distance. The top three countries attract more than 2/3 of all investment in scaleups.
Amsterdam awakes in 2021: Britain ruled the waves but takes on water now. London is the European capital in terms of total investment in scaleups and the number of deals. However, in 2020, Berlin took over and collected the most funding for its scaleups, with London as the number two. So far, over 2021, Amsterdam is the top city in terms of funding (in euros invested) for its scaleups, followed by London, Paris, and Cambridge.
Digitalisation and Tech dominate the landscape: Most of the scaleups can be found in the Computer Software-industry (57.1%), followed by Banking, Insurance & Financial Services (12%), and Biotechnology and Lifesciences (7.5%). However, in terms of funding, Computer Software received 43% of the total funding, followed by Communications (18%), and Biotechnology, and Life Sciences (16%). Within the Computer Sofware-industry, Web Hosting & Internet is very dominant, followed by Application Software.
Energising the future: The European top scaleup companies are Northvolt (Sweden: Batteries), IVC Evidensia (United Kingdom: Veterinary services for livestock), Delivery Hero (Germany: Home Delivery), Glovo (Spain: Home Delivery), and Messagebird (Netherlands: Web Hosting & Internet).