We are approaching the end of the year 2021 with great news for the European tech sector. According to the latest Atomico report on the State of European Tech 2021, Europe is solidly positioned as a global tech player in 2021, with a record $100 billion in capital invested, 98 new unicorns, and the greatest start-up pipeline in history, now on par with the US.
The report also showed that European tech ecosystem is expanding faster and producing more value than ever before, contributing $1 trillion of value in the first 8 months of 2021, achieving an accumulated worth of $3T, and triplicating its value in less than three years.
This year we can also see a shot of optimism' from investors following a dull 2019 and a drop in 2020. When asked how they felt about the future of European tech compared to a year ago, 75% stated they feel more optimistic. A similar figure can be found in techUK's Digital Economy Monitor Q3 2021, with 77% of techUK members believing that the outlook for companies in the tech sector will improve over the following year.
Atomico's report also shows that there is a new generation of entrepreneurs that place social and environmental impact at the heart of their mission. Consequently, Planet Positive' tech is on track to raise $10 billion in 2021, capturing 11% of total funding this year and at a rate six times faster than in 2017.
However, there is still work to be done for European tech. Difficulties in accessing the right talent for tech roles, obstacles for raising capital for some tech companies, and a substantial gender funding gap remain harsh realities for the European tech ecosystem.
How did the UK's tech ecosystem perform in 2021?
The findings of Atomico's report are consistent with the findings of both Tech Nation report 2021 and techUK's Digital Economy Monitor Q3 2021, showing that the UK tech sector had a strong year in 2021, and has positioned itself as Europe's leading tech ecosystem.
Capital invested in UK tech companies: Over the last five years, the total amount of capital invested in UK tech companies has nearly reached $75 billion. This is more than double the amount invested in Germany and France, the second and third largest countries. Projections show that the UK tech sector will raise nearly $27 billion in 2021, doubling what was raised in 2020.
The UK is the leading European nation in unicorn creation: European unicorn firms increased from 223 at the end of 2020 to 321 at the time of the release of the report. The United Kingdom remains Europe's greatest unicorn producer, with now having 100 unicorns in total (a third of total European unicorns).
UK mega rounds are generating a record amount of funding: In the first nine months of 2021, there were 68 rounds of $100 million or more in the UK, accounting for a third of all rounds in Europe. Moreover, London's status as the leading European tech hub in terms of total capital invested was further confirmed in 2021. In the first nine months of 2021, the city raised $18.4 billion, which is 2.6 times more than Berlin, which came in second position.
UK companies benefit from disproportionate access to VC investors: Despite generating only 14% of European GDP and having only 12% of Europe's population, the UK raised 30% of Europe's venture capital funds. This translates into more local funding available for companies in the UK compared with other European countries.
London is not the only UK tech Hub leading in Europe: According to the report, Cambridge has the greatest unicorn density of any small city in Europe (cities with less than 500,000 residents), due to a high concentration of talent.
Challenges for the future of European tech ecosystem
The report also highlighted some of the obstacles that tech businesses are facing, which may jeopardise the sector's ability to growth in the next years.
Despite the unprecedent increase of capital invested in the European digital sector, the hurdles of raising capital should not be overlooked, with almost one-fifth of founders saying it has become harder to raise capital in 2021; this figure is higher (26 percent) among women and non-white founders.
The large gender funding gap is still a stark reality in the European tech sector. Since 2017, female entrepreneurs have raised the smallest share of total funding, falling from 2.4 percent last year to 1.1 percent this year, and with 49 percent of female founders believing that being a woman hampered their ability to get funding.
The report also highlighted the challenges that businesses face when it comes to recruiting tech roles with the right talent. Companies reported that at least 37% of tech jobs in the UK are very difficult to fill, 37% of UK-based founders feel that the depth of the talent pool is lower than a year ago, and 61% of founders say that it has become more difficult to attract fresh talent in the UK in the last year.
Getting these challenges right, while maximising the opportunities will be vital to ensure the tech sector can play its fullest part in the recovery from COVID-19. Building on these successes will require smart policy making and regulation to foster further growth and the expansion of the benefits of the digital economy to other sectors in Europe and the UK.
Read Atomico's full report, the State of European tech 2021 here.