You might be familiar with Delivery Hero, the Berlin-based food service that recently went public at a more than $5 billion valuation. But it's less likely that you've heard of Alfa Financial Software--which, when it went public in May, became London's largest tech IPO in two years. Similarly, you probably aren't familiar with Zur Rose, the Swiss e-commerce pharmacy that recently raised $237 million in its public market debut.
In recent months, several venture-backed companies across Europe have made successful public offerings, even as tech IPOs in the U.S. seem to falter. While American investors were initially bullish on Snap, the social media giant has seen shares dip by more than 25 percent since March, as competition with Facebook continues to mount. Meanwhile, in June, New York City's Blue Apron was forced to revise its initial share price, following news that Amazon intended to enter the sector just after its $13.7 billion purchase of Whole Foods. Since listing later that month, the meal kit maker's shares have tumbled by nearly half (45 percent.)
By contrast, E.U. tech firms are up roughly 11 percent compared with their offer prices, while American IPOs are down by nearly 2 percent, according to data tabulated by the London-based venture capital firm Atomico. It's worth noting, however, that if the two largest exits--Snap and Delivery Hero--are stripped from the data, these percentages become roughly the same: a 29 percent increase in share price for the E.U., and 30 percent increase in share price for the U.S.
"We continue to have an incredible pipeline of great companies, many of which are completely under the radar," said Tom Wehmeier, Atomico's head of research, in an interview with Inc. Atomico has invested in E.U. companies including Klarna, the Swedish payments processor, and Finnish game developer Supercell.
Breaking From Tradition
Part of what may be contributing to this trend is the fact that public offerings in Europe are, on average, smaller than they are in the U.S. Consider that 18 of the companies to go public in the region this year have a market cap of less than $100 million, the Atomico research found. "Companies in the E.U. of different sizes have a perfectly viable path towards the public markets, and there is investor acceptance," Wehmeier notes. These firms tend to have more realistic valuations, he adds--under the $1 billion "unicorn" mark--and many are already profitable. This helps them to either meet or exceed investor expectations on the public markets.
Although European investors have, historically, been more risk-averse than Americans, that perception may be changing as more high-profile companies see successful exits, and their founders reinvest in the local startup ecosystem. These have included King, the Irish developer of the mobile game Candy Crush, in 2014, as well as Estonia's Skype, which in 2011 sold to Microsoft for a massive $8.5 billion. (Skype co-founder Niklas Zennstrom is the founding partner and CEO of Atomico, who recently announced that his firm would be investing $765 million in E.U. startups.) Earlier this week, the Finnish maker of Angry Birds, Rovio, also said that it aimed to go public as soon as next month targeting a more than $1 billion valuation.
American businesses have taken notice, too. Consider that Facebook recently launched its first-ever startup accelerator in Paris, as part of Station F, the world's largest startup campus that's home to thousands of entrepreneurs. "France is home to some of the most innovative technology companies in the world," noted Sheryl Sandberg, Facebook's COO, in a statement earlier this year. "We're excited to support a new generation of French startups with enormous potential to grow the economy and create jobs." Meanwhile, high profile investors such as Peter Thiel are also making prescient bets on European startups, such as the Berlin-based financial technology business N26.
To be sure, the European startup ecosystem is no Silicon Valley, but analysts seem to think it can get there. "We're onto our third generation of companies exiting in Europe," Atomico's Wehmeier says. "That's the flywheel that Silicon Valley has been built on, and it's been brewing for quite some time."