Sifted - Tracking venture creation

Good morning there,

Today Zosia Wanat looks into the state of startup creation in Europe. The top line from that? VC-backed company creation in the region is sharply down from the pre-Covid years. Scroll on for the full story.  

Elsewhere:

• Meet six Octopus Energy alumni who started their own companies
• Medtech's H1 2024

— Tom Nugent, newsletter editor

Tracking venture creation

I recently came across a story in the Economist which described a startup boom happening in the US. Across the pond, people’s vim for entrepreneurship is on the up, with many new startups being created than half a decade ago. The average number of applications to form new businesses each month is also 80% higher than it was in the decade before Covid, the piece said.

It got me thinking: what does startup creation look like in Europe? 

The short answer: it’s not that easy to tell here. There’s no single methodology that tracks the number of new tech companies emerging across Europe. Some countries do their own counting — but their methodologies differ. Often they don’t recognise the difference between tech startups and other small and medium enterprises, like a family shop or restaurant. 

The EU wants to standardise the definition of ‘startup' across all its members — which would help track new ventures — but there hasn’t been much progress recently. 

So, for now, we have to rely on data from external providers — for example, VC firm Atomico’s annual State of European Tech report. Its 2023 edition (its latest) says that between 2019 and 2023 the number of first-time and repeat founders starting new companies each year in Europe outstripped the number in the US. That said, the number of first-time founders in Europe has been on a downward trend since a peak in 2020.

Globally, the rate at which founders are launching new companies has also slowed by 30% since record numbers in 2020, the report says. 

Looking at data from startup data platform Dealroom only tracking venture-backed startups headquartered or founded in Europe, the decline is starker. From 2010, the number of new startups grew every year, reaching 24.5k in 2018; that number then dipped drastically, reaching a low of 8.7k in 2022. 

"We all agree that there was a drop off a couple of years ago — both in Europe and the US — that could be attributed to factors like the sharp decrease in VC funding, the rise in interest rates and even repercussions of the war in Ukraine, which has further disrupted global tech trade and supply chains,” says Clark Parsons, the CEO at the European Startup Network, a pan-European association.  

Zach Meyers, an assistant director at the Centre for European Reform, adds that the bigger decrease in the Dealroom data might be a sign not of the tech industry's weakness, but rather that of Europe's VC sector — as the data only shows startups that got some VC funding. 

“European startups tend to rely much more on public funding sources or traditional bank loans,” Meyers says. “Atomico’s [report] also reports that VC and limited partnership funders all have a decreased appetite for investing in Europe. This suggests that we have more and more small startups in Europe, but they are fighting over a pool of increasingly sceptical investors,” he says. 

There is some good news in the Dealroom data: after 2022’s low, startup creation picked up slightly. There were 9,190 VC-backed companies started in 2023. 

Parsons says some of the recent signs are “encouraging”. 

“Given how many emerging tech ecosystems around Europe are seeing strong upticks in capital and startups, I’m convinced that the pan-European numbers will reflect that in the near future,“ he says. 

Readers, I want to know what you think, and what you’re seeing in the market? How do we better track startup creation? Are you seeing the signs that more European ventures are being created? Or are you seeing the opposite? Let me know.

— Zosia Wanat, senior reporter

😯 Healthtech Zoe’s ads featuring Steven Bartlett banned for being ‘misleading’. The UK’s Advertising Standards Authority ruled Zoe’s paid-for Facebook ads featuring testimonials from Bartlett — who is an investor in the company — failed to disclose their commercial relationship. Plant-based meal replacement maker Huel’s ads were also banned for the same reason. 

💰 Swedish grid startup Flower, which helps clients that run battery energy storage infrastructure to feed their stored power into the grid when demand is high, has raised a 290m SEK (€25m) Series A led by European VC Northzone, according to documents in Bolagsverket, Sweden’s company register.

🐙 Meet six Octopus Energy alumni who started their own companies.

🇨🇿 The sleepy Czech town helping Europe compete in the global chip war. (Bloomberg)

• Medtech deal count was up in H1 2024 compared with H2 2023, per our latest Sifted Pro briefing (🔒), published today.
• At the current pace, annual deal value could match or tick higher in 2024 than in 2023.
• The sector has drawn $1.5bn in venture funding this year; the total raised by medtech startups in 2023 was $2.2bn.
• “Surgical robotics startups have been big winners in recent times,” writes reporter Kai Nicol-Schwarz. Three of the four biggest medtech raises since the start of 2023 have gone to robotics companies: UK-based CMR Surgical, Switzerland’s Distalmotion and Italy-based Medical Microinstruments.
• “There’s also buzz around next-gen diagnostics, as founders and VCs look to take advantage of the growing number of people measuring their health with devices like Apple Watches and Oura rings,” Kai writes.

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London-based Fresha, a marketplace for beauty and wellness businesses, raised $31m in debt funding from JPMorgan.

London-based Hexarad, which develops radiology software and provides teleradiology services, raised €13m in funding. MTIP led the round and was joined by investors including Foresight Group.

Reykjavík-based Plaio, which uses AI tools to assist planners and supply chain managers in the pharmaceutical industry with their manufacturing needs, raised €4.3m in funding. Kvika Asset Management led the round and was joined by investors including Frumtak Ventures.

Munich, Germany-based Voiceline, a voice assistant for field sales teams, raised €2.4m in seed funding. Venture Stars and Scalehouse Capital led the round.

Vilnius-based Eany.io, a B2B marketplace connecting buyers and sellers across industries, raised €2m in seed funding from Market One Capital and Practica Capital.

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