Europe’s Tech Sector Shrugs Off Regional Uncertainty


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Niklas Zennstrom, a founder of Skype who now runs Atomico, a venture capital firm, in December. On Thursday, he announced a new $765 million tech fund that will primarily be used to find fledgling European companies that can eventually compete on a global stage.

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John Phillips/Getty Images

There are plenty of reasons to avoid doing business in Europe: sluggish economic growth, concerns over security and terrorism, as well as political uncertainty.

But venture capitalists and tech start-ups across the region have considered those risks and met them with a collective shrug.

Funds have continued to raise large amounts of money to finance start-ups from Berlin to Bratislava, despite the rise of populist parties ahead of elections in France and Germany this year, questions over Britain’s exit from the European Union and terrorist attacks that have left many on edge.

In another sign of that sentiment, Niklas Zennstrom, a founder of Skype who now runs Atomico, a venture capital firm, on Thursday announced a new $765 million fund, one of Europe’s largest-ever tech venture capital fund-raisings. The money will primarily be used to find fledgling European companies that can eventually compete on a global stage still dominated by Silicon Valley.

“We’ve had some political headwinds, but the underlying European tech ecosystem remains strong,” Mr. Zennstrom, 51, said in an interview.

“Success of tech companies is very binary: They will work or they will not,” he added. “Some macroeconomic ups-and-downs are not going to make a big difference.”

European tech start-ups received a combined $17.1 billion in venture funding last year, an 11 percent rise over 2015 and more than four times the amount that start-ups pocketed in 2012, according to Tech.eu, a website that tracks regional fund-raising.

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A commuter on his cellphone during rush hour in London. Entrepreneurs are questioning whether the city will remain an attractive place to start a tech company after Britain leaves the European Union.

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Stefan Wermuth/Reuters

Despite the bullish growth, Europe’s fund-raising efforts were still dwarfed by those in the United States, where tech companies raised a combined $40.9 billion in 2016, according to CB Insights, a research firm.

“Going forward, Silicon Valley won’t be as important if you’re an entrepreneur building a start-up,” said Jeppe Zink, a partner at Northzone, a Scandinavian venture firm that raised a new $316 million fund last year and was an early backer of Spotify, the Swedish music streaming service. “But right now, it’s still the place to beat when growing a company.”

Analysts say that Europe’s smaller pool of venture capital may have helped the region’s start-ups to avoid some of the excesses of Silicon Valley, where many new companies have received millions, if not billions, of dollars — often at eye-watering valuations — only for their business ideas to fall flat.

Some privately held companies like Uber and Airbnb have become global giants through such venture backing. And while fears of a major downturn in United States venture capital failed to emerge last year, several prominent start-ups like Theranos, the blood-testing company, imploded after the technology was found wanting.

Ciaran O’Leary, a partner at BlueYard Capital, a Berlin-based venture firm, said most European start-ups still did not have the luxury of burning through their fund-raising at record speeds. Instead, he said, they must focus on generating revenues at an early stage, even if that hurts their global expansion plans.

“There hasn’t been a chilling effect on funding, but start-ups really have to focus on getting their operations right,” he said.

For Mr. Zennstrom, who moved to London in 2002, before the creation of Skype, the drastic fall in the cost of technology and an increasingly global talent pool of engineers mean that it has never been easier to start a company in the region.

But Europe’s tech sector still faces significant difficulties in its attempt to keep pace with Silicon Valley. Entrepreneurs are now questioning whether London, Europe’s largest tech hub, will remain an attractive place to start a tech company after Britain leaves the European Union. The region’s venture funding is also still significantly smaller than what is available in the United States.

“In Europe, we don’t have the luxury of endless amounts of money,” Mr. Zennstrom said. “We’ve had to work in a smarter way.”

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