The hottest sector for late stage tech investing in Europe is non-tech.


Europe is much further behind the US in late stage tech investing than it appears, according to analysis by Magister Advisors. Late stage tech funding is far behind the US, and surprisingly over a third of funding rounds in Europe target non-tech e-commerce or marketplace businesses.

Magister Advisors identified 171 Series C, D and E funding rounds across Europe since 201 I, using PitchBook. We categorised the companies by activity, into e-commerce, fin-tech, ad-tech, software, entertainment. communications hardware, other hardware, and telecoms.

It paints a stark picture.

* 61 of the 170+ late stage companies were e-commerce or online marketplace businesses, the biggest category at 35% of the total.

* Software was the next biggest group at 42, and this includes ALL of the 'hot' sectors like security, artificial intelligence, analytics, and applications for vertical markets.

* Fin-tech, perhaps the most hyped tech category in Europe, saw only 20 such rounds.

* Ad-tech, another recently 'hot' European sector registered only II rounds.

* E-commerce is 'non tech'.

In our view e-commerce or online marketplace businesses are retail businesses first, technology companies second. Most software powering e-commerce can be bought off the shelf, and there is little if any underlying intellectual property (IP). For example, Uber and Lyft's apps do basically the same thing, and Etsy and eBay operate the same type of marketplace. They use tech, but scale, not core IP. is the differentiator. And to companies like DeliveryHero and Deliveroo, logistics know-how is far more valuable than coding skills.

Only 20 'real tech' companies get crucial late stage money each year.

Subtracting e-commerce investments leaves just over 100 financings over five years, or only 20 a year. Let that sink in for a second. Across 27 European countries, 700m+ people and spanning the last five years, barely 20 'real tech' companies a year get serious money to really scale. The late stage tech funding market is functionally non-existent.

No wonder so many European real tech companies get acquired before raising a Series C round. And those that don't want to sell early often have to shift to the US, with the best evolving into US businesses. The value destroyed for the European tech industry is incalculable.

Late stage European money is funding digital consumer activity, not the next Microsoft.

What is happening is late stage money is helping digitise European consumer activity...

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