Back in 2013, when Aileen Lee first popularized the term “Unicorn” for software based companies valued at over $1 billion, she had in mind the US market. Historically, in Europe unicorn status was reserved to a select few that had managed to develop strongly within the private capital markets. However, expanding deal sizes, fund sizes, and investor breadth have redefined European venture capital in recent years, and, as a result, unicorns have emerged en masse, with 72 new unicorns recorded in Europe in 2021, according to Dealroom.
Eighteen months into the pandemic, the European venture capital ecosystem broke several annual records as venture deal value, exit value, and the aggregate valuation of unicorns in Europe smashed previous bests. The influx of capital into venture rounds, married with the outflow of capital produced by exits, has been remarkable. Alongside the record flow of capital into the European ecosystem, valuations across each financing stage and quartile have been pacing to set records in H1 2021, according to the latest data available on Pitchbook.
Since 2018, cumulative unicorn numbers in Europe have roughly tripled, and the aggregate value has increased six fold. In Q2, deal sizes across all financing stages and quartiles were up and to the right. As more capital has entered venture capital, larger rounds have been completed, especially at the late stage, wherein unicorns typically close deals.
It is noteworthy that nontraditional investors, including financial institutions such as private equity firms, hedge funds, investment banks, and CVC investors, have increased their exposure to venture capital and it looks as if nontraditional investment has been driving both the emergence of unicorns and shattering European records.
The UK, France, and Germany have been Europe’s main unicorn-producing nations. However, unicorns are also appearing in emerging ecosystems. In terms of size and wide-ranging investor participation, European unicorn venture capital funding rounds are becoming more similar to US venture rounds, and this has boosted awareness of European unicorns.
A healthy unicorn market enables more capital to trickle down into the ecosystem and accelerate the maturation of venture capital clusters. Successful founders often become serial founders or investors, and their early employees can often be either hired to help startups grow or move into venture-related roles such as LPs or GPs. Employee shareholder schemes, which are unique to venture-backed companies, can spread capital across venture networks and aid further investment.
Private market opacity has caused stakeholders in venture capital to question claims of enormous valuation step-ups during funding rounds. Unicorns’ financial statements are not subject to the quarterly scrutiny faced by publicly listed companies, so estimations and rounding up can lead to inflationary inaccuracies. Nonetheless, several European unicorns are valued among the largest companies in their respective global sectors and are riding the wave of increased enterprise value-to-sales ratios logged by fast-growing tech companies.
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