Orrick's take on SOET

The number of unique investors actively deploying into European tech companies has risen consistently over the past decade, unsurprisingly spiking during the peak period of 2021 and the first half of 2022. This period was characterised by a significant ramp in the number of investors from outside the region deploying into Europe, growing especially quickly from North America.

While the full-year numbers for 2023 will end up higher than the year-to-date numbers shown in the chart, the reset in the market has seen the number of active investors retreat, driven by a significantly reduced level of participation from non-European investors.

But despite the slowdown in 2023, and even without taking into account full-year numbers, the base of active investors is still more than double the level of just a decade ago.

This commitment to embrace the perceived risk of investing through market cycles is a critical foundation to ensure the European tech ecosystem continues to benefit from a significant and stable base of local investors.

Even in the face of challenges in the capital markets and concerning indicators such as layoffs that may impact the perceived attractiveness of joining the industry, European tech has not seen an exodus of talent. In fact, new positions are constantly being created, and talent from outside tech continues to look past any perceived risk to place significant bets on the European tech sector.

Although there has been a levelling off in the rate of increase of net new joiners into the tech industry over the past three quarters, and a very small overall decline in total headcount in Q3 2023, it's remarkable that in just five short years, European tech has expanded its workforce from slightly over one million employees to more than 2.3 million today.

It is not just talent that is being drawn to the hardest problems - capital is flowing in the same direction too. Here, we look at investment volumes are broken out by sector. Remarkably, the Carbon & Energy sector, which encompasses climate tech, accounts for 27% of all capital invested in European tech in 2023, more than doubling its share of investment since 2021.

Carbon & Energy has soundly overtaken Finance & Insurance and Software as the single largest sector by capital raised. This not only represents a dramatic increase in the scale of capital invested behind the green transition, but also a clear slowdown in fintech investment volumes since the peak of the market.

There has been no shortage of perspectives on Europe's position in the AI race. Amidst the noise, it is easy to overlook the fact that the AI theme has actually hit a stride in Europe in recent years, with European AI companies consistently securing mega-rounds of $100M or more. In fact, this year will come close to matching the record set in 2021, despite the huge headwind of a steep drop in overall investment levels in Europe in 2023.

As of the end of Q3 2023, European AI companies had raised 11 rounds of $100M or more, compared to 37 rounds by US AI companies over the same period. So far, however, European AI companies have not yet raised the type of billion-dollar or multi-billion-dollar rounds that have become crucial sources of firepower for the most important and fastest-growing US AI companies, like OpenAI or Anthropic. The multi-$100M+ rounds, however, are certainly beginning to appear in Europe.

The story of Skype is far from unique in Europe today. In fact, the European tech ecosystem has witnessed an industry-wide surge in the number of new companies launched by individuals that have spun out of Europe's billion-dollar companies. In doing so, they benefit significantly from the established knowledge and networks they take with them.

Remarkably, nearly 9,000 companies have been initiated by alumni of European exited unicorns that were founded during the 2000s. To put this into perspective, it is nearly a staggering 50% increase compared to the unicorns founded in the 1990s.

It is not difficult to imagine how this network effect will significantly influence Europe's path in the next ten years.