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12.1

What We Got Right and Wrong Last Year

In last year's report, we made some predictions about what 2018 would hold for European tech.

It would be a bit cheeky of us not to look back at them and see how we did...

So, er, how did we do?

2017 Prediction #1

Founders will come to see regulation as a source of potential competitive advantage.

The 'move fast and break things' mentality has never sat well with heavily regulated markets. As founders realise they can gain an advantage through regulatory compliance, it will go from being seen as a perceived handcuff to being seen as a potential source of competitive advantage. Think of Natural Cycles, Kry or Babylon in the healthcare market. They are all early examples of companies that have embarked upon - and come out on the other side of - lengthy regulatory approval processes to gain an advantage on their competitors.

We totally got this right!

Mark: 1/1

This trend came through hard and fast in 2018 across numerous industries. Financial services has long since been an industry where venture-backed companies, such as N26 and Monzo, actively leveraged their fully licensed banking status to strengthen their market positions. In the digital health space, messaging-centric applications such as Forward Health and Siilo have overcome barriers to become powerful new services in their local health systems in the UK and Netherlands respectively. Perhaps the strongest example of the change in founder attitudes towards regulation, however, has come in the emerging micro-mobility market. European micro-mobility startups such as VOI and Tier have explicitly pointed to their pro-regulation approach as a key source of competitive advantage as they seek to capture the hearts and minds of European consumers and policymakers and to steal a march on US players entering the European markets.

2017 Prediction #2

A venture-backed European tech startup will exit for a $B+ to a traditional non-tech European giant.

Non-tech European corporates have already made billion-dollar tech acquisitions (Anglo-Dutch Unilever picked up Dollar Shave Club), but acquisitions within Europe have typically been in the hundreds of millions (for example, BNP Paribas and Compte Nickel). This will change in 2018 as European non-tech corporates put some of their combined $1.5 trillion cash holdings to work.

We...sort-of got this maybe half-right

Mark: 0.5/1

In the purest sense, this did not come to pass. There was no single acquisition of a European VC-backed company for more than $1 billion to a traditional non-tech European giant. But that’s not to say that there was not plenty of relevant M&A activity that validated this trend. In fact, the year started in January with Richemont’s acquisition of full control of the European, formerly-VC-backed, but now public company Yoox Net-a-Porter for an implied total enterprise value of around $6 billion. Siemens, the German industrial giant, acquired Mendix, a Netherlands-born, -funded and -raised enterprise software company, for $730 million. In other smaller, but still meaningful transactions, ING Group acquired Payvision for a fee that valued the business at more than $500 million, while Munich Re acquired Berlin’s Relayr for $300 million. All this taken together, we think this deserves a half mark.

2017 Prediction #3

European founders will increase efforts to tap engineering talent pools outside of traditional hubs.

The battle for talent in Europe is intensifying. Not only are there more venture-backed startups that are better funded and hungrier for engineering talent than ever, but global tech giants are also expanding aggressively in the region with inflated salaries on offer for the most talented. At the same time, European corporates are fighting back, ensuring talent flows are not a one-way street into tech. In order to stay competitive in this context, European founders will look for creative ways to best exploit the untapped engineering talent pools in less obvious places. For example, we expect to see more satellite offices opening up across the region in upcoming hubs.

Yeah, we nailed this one too

Mark: 1/1

This trend has certainly taken hold in Europe in 2018, driven by increasing levels of competition for talent in core European tech hubs and a growing awareness of the depth of talent in emerging hubs. According to the more than 1,000 founders that responded to this year’s State of European Tech Survey, more than 50% of companies with more than 100 employees have already opened satellite offices to tap new talent pools and 80% of those founders expressed increased interested in opening additional offices. As one example, N26 has opened its first major office outside of Berlin, choosing Barcelona to build an office that will quickly expand to 100 employees.

2017 Prediction #4

A top tier, established European VC will participate in a token offering/ICO.

In 2017, top tier US funds (including Andreessen Horowitz and Union Square Ventures) actively invested directly in tokens via Initial Coin Offerings. They were joined by some of Europe's newest funds, such as Blueyard. But the region's most established funds have yet to participate. This will change in 2018.

Yeah...no, this didn't happen

Mark: 0/1

This did not happen, at least not publicly. In 2018, making any sort of prediction around the state of the crypto market proved particularly dangerous given the extreme level of volatility in the market and an enduring bear market. The price of crypto assets has inevitably dominated the headlines through the year, but under the surface European teams have continued to make progress and raise funds from top tier European investors, often via traditional equity. Argent, for example, raised capital from Index Ventures and Creandum.

So how did we do overall?

We think 2.5/4 isn't bad going...now onto our predictions for next year...