Tech investment into Europe is surging — but it's more than just a hedge for the US-China trade war

An image of London's skyline, taken during the evening.

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European tech start-ups have seen a huge surge in the amount of capital coming from investors in the U.S. and Asia this year, but it's not because funds in these regions are simply "hedging" their bets amid the US-China trade war.

So far this year, over 20% of European start-up funding rounds have included a U.S. or Asian investor, up from 10% in 2015, venture capital firm Atomico claimed in its annual State of European Tech report this week.

The U.S.-China trade war makes Europe look like a relatively safe middle-ground, but that's not why North American and Asian investors are choosing to back European start-ups, according to Tom Wehmeier, partner and head of research at Atomico.

"They wouldn't deploy capital if they didn't believe the investments could deliver returns on par and in excess to what they can generate at home," he told CNBC.

"Some of the investors now committing to Europe have been the best in the world at generating returns from tech. They know what makes for a winning formula."

Investment into European tech start-ups for 2019 surged to over $34 billion, up 40% from the previous year. While overall investment into U.S. and Asian start-ups still surpasses that of Europe, the gap is getting smaller. Atomico's report revealed that the U.S. and Asia saw a dip in the overall amount of investment flowing into their own start-ups.

American investors have backed European start-ups with almost $10 billion this year, up from $5.8 billion in 2018, while Asian investors have pledged $4 billion, up from $1.7 billion. The money isn't necessarily being distributed evenly, however, as 92% of the money invested into European start-ups went to companies with all-male founding teams.

In June, mobile banking app Monzo announced that it had raised a $145 million funding round that was led by Y Combinator, a California-based start-up backer that's also invested in Airbnb and Dropbox.

One month prior, food delivery service Deliveroo was backed by Amazon in a $575 million funding round. Other U.S. investors such as Greenoaks, Fidelity Investments, and T. Rowe Price also contributed to the round.

Japan's SoftBank, which has the world's largest tech investment fund, made two bets on European fintech start-ups this year. In February, it led a $440 million round into London-based OakNorth, and a $1 billion round into Munich's WireCard in April.

"European tech has quietly increased its number of external believers," the report says. "We see this everywhere, from the increased time top U.S. investors are spending on the ground here to the fact that a fifth of European rounds this year had at least one U.S. or Asian investor participating — a proportion which grows as the deal size increases."

The report continues: "(European) VCs are reporting increasing interest from global LPs (limited partners), while previously unconvinced European Institutional Investors are now fully engaged. We're also seeing valuations and pre-emptive term sheets on the increase in Europe — always a sign that competition to invest in the best tech companies is accelerating, as well as a reflection on the quality of the opportunity."


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