European tech firms suffered more than their American counterparts after the global financial crisis of 2007-09. They may weather the storm better this time around, however
Save time by listening to our audio articles as you multitaskThe story was much the same in 2008 as a result of the global financial crisis. European technology firms again suffered more than their American counterparts. Fears that the looming downturn andWall Street Journal
To understand why, start by considering the boom. Last year was a smasher in Europe even by frenetic global standards. For the first time, venture-capital investments on the old continent exceeded €100bn in a single year, reports PitchBook, a data provider. Startup valuations rocketed accordingly, pushing the number of European “unicorns”, private firms worth more than $1bn, to nearly 150 today, about 13% of the world’s total.
Capital is being accumulated and fed back into the industry, too. According to PitchBook, nearly €100bn inwas raised by European funds over the past five years. Almost half of that has yet to be deployed, leaving Europe’s venture capitalists with plenty of “dry powder” to tide over startups even if the crisis drags on. European investors also tend to plough a lot of cash into early-stage startups.
On top of more home-grown experience and capital, as well as a hardier structure, European firms boast certain comparative advantages that will come in handy in a leaner, post-pandemic era. One is their relative thriftiness. Although private companies are not required to disclose such numbers, indications are that their “burn rate”, the speed at which they spend money they have raised, is lower, at least at younger startups.
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