European unicorn growth outpaces US and Asia

Unicorns are being created at a faster rate in Europe than anywhere else in the world. Private markets investment platform Titanbay takes a look at the structural changes driving this acceleration.

Europe has been breeding unicorns at a record pace. The number of startups valued at $1 billion or more hit at least 78 last year, up from 17 in 2020, according to PitchBook data [1]. That pace of growth was higher than in the US and Asia, where the venture capital ecosystem is more established.

In total, Europe had 128 unicorns at the start of this year, worth roughly €330 billion combined. Pitchbook data shows that’s almost triple the value of Europe’s unicorns at the end of 2020.

The same data shows that by the end of June this year, 30 more European startups had become newly minted unicorns – still outpacing growth rates in the US and Asia (even though the US and Asia have both minted more new unicorns in total) [2].

What’s behind the surge?
McKinsey says there are a range of explanations as to why Europe’s unicorn growth rate has lagged the US and Asia in the past. These included regulatory constraints, a risk-averse culture and a less developed VC ecosystem [3].

The evolution of the European VC ecosystem has been spectacular, fed by a virtuous cycle of rapid growth, high-visibility company success stories that have encouraged risk-taking, repeat entrepreneurs and a developing VC financing network. Inflows from outside the region (predominantly from the US) have helped improve the capital available to support assets.

According to i5invest’s European Unicorn and Soonicorn report, almost half of investors (48%) backing European unicorns are from outside Europe. US investors make up more than three-quarters of those (76%), followed by investors in China and Russia, with roughly a 3% stake each [4].

Among the European startups that reached unicorn status last year were UK insurtech firm Marshmallow, French biotech firm Owkin and UK peer-to-peer lender Zopa. Joining them this year include the likes of UK edtech company Multiverse and payments platform GoCardless.

Where are Europe’s unicorns hiding?
At a tally of 41, i5invest data shows the UK is home to the highest number of European unicorns, i5invest data shows. However, Germany has been responsible for creating some of the fastest-growing unicorns to date. Four of the top-five fastest unicorns – those that grew from $0 to $1 billion+ valuations in the shortest space of time – came from Berlin. Grocery delivery service Gorillas, for example, took just ten months from its inception to achieve unicorn status.

The top-five sectors for European unicorns (by volume and valuation) are IT, media and telecoms; fintech and ecommerce; future mobility and supply chain; AI and big data; and life sciences, healthtech and beauty, according to i5invest data.

Happy hunting ground
While the current macroeconomic backdrop might dampen funding rounds during the remainder of this year, PitchBook says Europe held up better than the US and Asia in the first half of 2022. By mid-June, capital invested in European startups had reached €54.4 billion, more than 50% of last year’s total and on course to exceed €100 billion for the second year in a row. By contrast, the US was at 42% of last year’s total deal value, with Asia languishing at just 30%.

So for investors seeking to find the next batch of unicorns, Europe is likely to remain their fastest-growing breeding ground.
 

Footnotes
[1] Pitchbook
[2] Pitchbook
[3] McKinsey
[4] European Unicorn Map
 

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