The State of European tech – techUK reviews the 2019 report

29 Nov 2019 12:55 PM

What can the state of European tech report tell us about future for UK and european tech?

Atomico’s recent report on the State of European tech provides a deep dive into the tech landscape across Europe in 2019. The report points to encouraging new investment and growth figures, however also key challenges for policy makers that need to be met to ensure the growth of Europe’s tech sector.

In our analysis techUK look at these investments, and the challenges European policy makers face in order to ensure the continued success of European tech.

2019 has shown promising results for tech investment in Europe, as despite the economic slowdowns in the UK and EU, European tech continues to break records. In the last five years, capital invested in European tech has increased by 124%, with a 39% increase between 2018 and 2019 alone, reaching $34.3bn of capital investment for 2019. This compares to reductions in capital investment in both the US and Asia between 2018 and 2019.

However despite this growth, investment in European tech remains significantly smaller than its rival sectors in the US and Asia, with US tech investment still 3.4 times higher than EU tech investment ($116.7bn) in 2019, while investment in Asia, is just under 2 times larger ($62.5bn). In spite of this the clear trajectory for the EU tech sector is up, with the long term trend showing a trajectory of increasing capital invested in the region, along with significant growth in key industries such as FinTech and Enterprise software, Europe’s two fastest growing tech industries.

Within this mix the UK remains the EU’s largest tech sector, across Europe’s five largest tech industries, fintech, enterprise software, health, energy and transport, the UK was the number one destination in terms of the share of capital invested in each of these industries in 2018-2019 (tying only with Sweden for capital investment in energy tech). In fintech in particular the UK has established a strong lead, accounting for 50% of capital investment in European fintech in 2018-19, while London remains the EU’s largest tech hub both in terms of investment and numbers of uniquely funded companies.

techUK’s members have consistently recognised the UK’s position as integrated into EU markets as one of its core strengths as a destination for tech investment. While good connections between the UK’s tech and financial services sector and those of the rest of the EU have helped create an ecosystem that is mutually beneficial and has supported the growth of the sector across the region. If the UK is to leave the EU then this relationship will change and one of the UK’s core strengths will be put into question, with the associated benefits potentially put at risk.

In order to ensure that this strength is preserved in the event of EU exit, the UK Government and EU must approach any exit talks in a spirit of co-operation on tech, with a maximalist position when it comes to ensuring UK/EU tech co-operation can continue. Achieving this is in the interests of both the UK, which must seek to preserve its tech sector, a UK modern success story and key driver of economic growth, and the EU whose ambition to build up its tech sector to compete with those of Asia and the US will not be well served by erecting barriers between the EU27 and Europe’s largest tech sector.

Beyond Brexit European policy makers face a number of challenges to building effective policy and regulation for the tech sector. The State of European tech report shows an increasing rift between the tech sector and the policymakers in what the right regulation for the future of this innovative sector looks like. This is a worrying trend, as without constant and constructive discussions with all stakeholders, regulation is unlikely to be able to succeed in addressing market issues while encouraging growth and innovation.

In particular, while the EU is pursuing a ‘European path’ in its industrial, tech and data policy, as per the words of the new Commission chief Ursula von der Leyen, making sure that the European continent is a home for investment, innovation, research and development will be key for the success of the policy framework in the next five years.

We encourage policymakers on both sides of the Channel to see the opportunities of a continued close relationship as well as the benefits of policies meant to encourage trade, competition and investment, as we move into the new era of EU-UK relations.