To get a better sense of what lies ahead for the European startup ecosystem, we spoke to several investors and entrepreneurs in the region about their impressions and lessons learned from 2019, along with their predictions for 2020.
We asked for blunt responses, and we weren’t disappointed.
These responses have been edited for clarity and length.
Kenny Ewan, founder/CEO, Wefarm (London)
I’ve often been faced with questions around how we can generate revenue in markets like Africa. There has historically been a view that you can do something good or you can generate revenue. Companies that talk about developing markets usually get squarely lumped into the former. While mission-led companies achieving tremendous growth has been talked about for a while, 2019 has been a year I have felt conversations with investors and others really begin to shift to the reality of that and it’s thanks to more and more proof points being delivered by startups across the board.
As more and more businesses begin to realize they don’t need to wait for the internet to descend from the sky for these markets to become hubs of commerce and innovation — and see that it’s already happening — I believe 2020 will continue to witness more and more historic tech companies shifting their focus to markets like Africa and that there will be more coverage and discussion as a result.
We’re already seeing some tech giants generating recent headlines with their talk of the importance of the region and how more time and energy has to be spent there going forward. As such, I expect more of a spotlight to be shone on the industry-leading work already being done there; as the saying goes, “necessity is the mother of innovation.” What we’ll begin to see is that a lot of the things we’ve typically felt are barriers to technology have actually been inspiring some of its best work in fields like machine learning and mobile payments.
Yoni Assia, Founder/CEO, eToro (London)
Across the space, I think we’ve seen a change in attitude to profitability. While we have continued to see some bumper fundraising in the fintech space, we have not seen any significant fintech IPOs [last] year. Beyond fintech, we have also seen some lackluster listings and that people are perhaps beginning to rethink valuations.
I think we will hear less startups proudly stating that they are “not yet even targeting profitability.” This year, more players joined eToro to offer commission-free stocks trading and I’d expect this trend to continue next year as companies race to the bottom to attract a new generation of investors. Like we saw with the crypto boom, both asset classes are an interesting way to get people interested in financial markets. We found that 10 percent of customers who came to eToro to trade crypto last year, then went on to diversify into stock trading.
However, this new trend of attracting customers has challenged traditional revenue models for brokerages. I expect now these companies will be looking to diversify income streams in order to remain competitive in this new landscape.
The decade just ending was about an unbundled world. We saw a proliferation of startups — particularly in the fintech space — giving consumers choice. With the realization that many people still want an all-in-one solution — or not to have too many apps — we have seen fintechs try to launch new lines. The challenge will be whether they can do this. If they get this right then they may well solve the challenge of retention. However, will they have the resources and internal capabilities to do this?
Philip Rürup, founder/managing director, troy (Lippstadt, Germany)
2019 was a turbulent year for the fintech industry, marked by a certain market adjustment and major financing rounds in later phases. At the same time, the subject of B2B seems to be more in focus, as is business process as a service (BPaaS).
However, it also seems that VCs are having a hard time evaluating B2B and especially BPaaS businesses. If you have to judge thousands of deals a year, abstractions are indispensable. But the “templates” from the SaaS business are not fully applicable to BPaaS models. Leading VCs will need to take more than three minutes to review these deals until they have developed new valuation patterns. If they do not succeed, new VCs will prevail in these domains.
As the unbroken startup hype continues, the buzzword bingo becomes even more exhausting. Already today, a large part of startups featuring AI, blockchain, etc., tries to solve problems that have already been solved. They are well-advised to take the time to analyze in detail their technological niche and focus on the topics in which they can achieve a long-term USP. And investors will be required not to dismiss every startup that uses buzzwords. Perhaps the approaches are really suitable to change the world — especially when they thoughtfully combine their application with conventional solutions until the tipping point is proved.
I also expect that the topic of customer experience in financial processes will become more critical. Over the past 20 years, customer experience improvement has been reduced to marketing, sales and CRM processes only. Financial processes, such as settlements, reminders, dispute management or debt collection have remained at the same level during this time. In this area, we will prevail with troy and help corporates to achieve a consistent, digital experience, so as not to lose against digital newcomers.
Cristina Vila, CEO/founder, Cledara (London)
Being in fintech, the number-one topic that resonated with us at Cledara is how the barriers to entry in fintech have been lowered and how everyone (Uber, Robinhood, Chime, Betterment, SoFi, etc., etc.) seems to want to add a card.
This is interesting for us, because we also have a card, but we’re starting to see that simple use cases like mobile-first bank accounts for consumers and SMEs are becoming very crowded. The challenge will be for new entrants and incumbents alike to combine financial capabilities in other user journeys that helps people achieve something they want or need, not just store their money and make payments.
In 2020, I think there will be a neobank shakeout that will lead to consolidation or companies leaving the market. On the consumer side, it’s becoming increasingly clear who the winners are (e.g. in the U.K.: Monzo, Revolut, Monese). The others will find it harder to raise capital or will have to pivot to be something other than a traditional bank account that comes in an app.
Brexit will probably have an impact on fintech in 2020 as there will be a dislocation between where the majority of capital is (U.K.) and where the majority of customers are (EU). Passporting of licenses made it easy for U.K. fintech to operate across Europe, but unless an accommodation is reached for this to continue, two things will happen:
- It will become harder and more costly for U.K. fintech to operate, as they will require two licenses rather than one. This means that new U.K. fintech will have to make a business case on a much smaller addressable market or need to raise more money to start, probably slowing the rate of creation of new fintech startups in the U.K.
- Fintech will be a little more fragmented, creating the opportunity for domestic fintech to win market share in places like Spain, France, Italy and Germany.
Omri Geller, co-founder/CEO, Run:ai (Tel Aviv, Israel)
In 2019, we saw the explosion of AI continue as more European startups rushed to launch or announce AI-based products and VC firms backed these ideas with hundreds of millions in funding. Maturing deep-learning-based AI applications — like computer vision and natural language processing — are being applied to new problems and greater challenges.
However, machine-learning development has advanced so quickly that the computing infrastructure underpinning these developments has not kept pace. This creates both inefficiencies and headaches for IT teams. Deep learning in particular has become an arms race in GPU speed, quantity of compute and size of models. Startups whose core business is based on deep learning have found both training speed and costs to be particular challenges.
The pressure to race to market sometimes means pouring money into hardware without having any clear idea of how all this expensive computing power is being used. In the long run, this isn’t sustainable. Every question in deep learning at the moment is being answered by throwing more compute power at the challenge.
[In 2020], startups will run out of computing power for deep learning, whether this is physically running out of on-prem capacity or being unable to afford more compute in the cloud. Instead of just throwing more resources at the problem, efficient use of existing computing assets will be more valuable. That means finding ways to increase utilization, reducing downtime when the hardware isn’t being used and finding optimizations that let you do more with less.
Mads Fosselius, CEO/co-founder, Dixa (Copenhagen)
One of the biggest challenges facing European startups is talent acquisition. It’s a problem in the U.S. too, but not nearly as much as it is in Europe. Building a business in Europe requires localization from a pretty early stage, whereas in the U.S., you can create quite a large business before you have to expand to other countries and adapt to different markets, languages, cultures, etc.
I believe being able to bring in the right talent at the right time will continue to be a challenge for European tech startups in 2020.
Jason Trost, founder/CEO, Smarkets (London)
I really think that Brexit has been one of the biggest issues for those in fintech and startups in general. Although I’m an ardent Remainer and believe that staying in the EU would be the best thing for the industry, I think anyone would agree that the government’s handling of the situation has just been a total shitshow.
People are really pumped up by the numbers showing growth in the U.K. fintech scene, but all of that is being propped up by chief capital investment in the likes of Monzo, Revolut and OakNorth. It’s not that London fintech is totally resilient to Brexit, we are just in a capital investment spree right now and that money is going to dry up at some point.
We have worked hard over the years expanding across three different countries, and we are glad that we have done that as it softens the effects of Brexit for us.
Due to the dire state of the pound, it’s now a less appealing offer for tech talent from outside the U.K. to come and work in London, as previously working here meant earning a lot more proportionally to what they could at home.
At Smarkets, we are a very European company, with two-thirds of our workforce coming from the EU. Now, more than ever, fintech companies like ours need to have enticing offers for people coming from outside the U.K., due to the negative image it has, along with the currency damage as a result of Brexit.
With that said, I think external factors such as this highlight how versatile and adaptable those in the fintech and startup industries can be, compared to rigid companies who outsource their own tech. It could turn into a regulatory minefield with companies having to jump through new hoops that didn’t exist before, but those in our industry are the best, smartest and fastest at doing that.
I know that we’re not alone in preparing for the potential mess to come, by looking at potential regulation and various other issues, and engineering some pretty awesome solutions as a response to that. I think that’s something that startups and those in fintech can be proud of.
Fredrik Hjelm, co-founder/CEO, Voi Technology (London)
Taking a scooter across town is a simple way both to complete a journey and to get joy in your life, yet regulation and legislation have not caught up with peoples’ new priorities and their concern for the environment. Consumers are demanding that businesses use resources carefully and Europeans are more worried about climate crisis than economy, crime and immigration.
Both WeWork and the lackluster IPOs of Lyft and Uber have concentrated minds. It’s not enough to simply make a land-grab and spend without restriction to acquire customers. We have seen investors and industry commentators question the prevailing approach to scaling a startup. We couldn’t be happier with this because it’s the approach that we have taken from the start, and profitability within two years is our goal.
Regulators certainly flexed their muscles in transport in 2019, and we are absolutely happy with that. We don’t think that tech companies should be exempt from regulation or legislation of any sort and as responsible operators in the transport space we are keen to show how we can work closely with city authorities to develop transport solutions that work for our riders and for the city.
Time is up for the car, particularly for gas-guzzling 4x4s. We predict that short car trips will soon be as frowned upon as smoking. Diesel cars are already being banned from city centers across Europe. We expect that several cities will ban all cars from their centers before 2022.
Sharing is caring. New forms of transport will serve many people in one community. Whether it’s e-scooters or carpools, people are enthusiastically sharing and the younger generation in particular are unimpressed by ownership as a status symbol.
Electric mobility will soar in 2020. Just look at what has been achieved in 2019. We are approaching a tipping point that will see the way we get around cities change fundamentally in the next five years.
Profitability will be the new mantra of responsible tech. Efficiency and strong unit economics will create winners and losers in 2020.
Mark Littlewood, CEO, Business of Software (Cambridge/London)
For several years, the overriding narrative in European tech has been about funding, venture funding, IPOs and M&A. The obsession with unicorn creation has spread from the U.S. and has become an obsession in the European tech media, too.
Success has become measured by the size of an exit, often with very little thought or consideration to the outcomes for early investors (often washed out by the time a liquidity event happens) [or] the founders (there are plenty of founders with company exits of hundreds of millions, or billion-dollar headline exits that leave with very little, or in some cases, nothing).
Leaving aside the lack of financial success in many cases for both founders and the teams they have built, there is increasingly more talk of the effects that driving or riding the rocket ship can have of relationships, mental health and quality of life. There will be more focus and thoughtful content around different ways of doing things.
Mental health/work-life balance: Beyond the sticking plaster of mindful exercises and counseling in the workplace, (often the cause of so much angst, stress and personal disruption in the first place), there will be an increasing realization that for many people it doesn’t have to be that way. Founders and employees can find their own path and pursue a career and a life that works for them.
Always-on: There will be more tools that challenge the dominance of Slack, which encourages people to keep plugged in. Asynchronous group communication tools, Twist from Doist, will become more accepted and acceptable. There will be a realization that people don’t do their best work if they are always working.
Remote working: Not just for “lifestyle” businesses, remote working is being talked about, but there are still lots of issues in the way it is positioned and viewed within high-growth companies. This is changing. Large companies — Stripe, HubSpot — are doubling down on remote working. Others — Automattic, Zapier — have reached a size where they can no longer be dismissed as the outliers. They can offer a working environment and a career that is not possible for many when they have to be office-based. They’re also increasingly hiring people in locations that are not traditionally considered to be the usual source of remote workers — places where labor is viewed as cheap. San Francisco-based Zapier, for example, has made multiple hires from tech behemoths in London, where they consider the talent to be cheap compared to SF!
Part-time working: Other tech companies are pushing back against the 24/7/365 always-on, go-big-or-go-home culture by exploring different working hours. Wildbit moved from a five-day to a four-day week in 2018 and their employees get more time to do other things and their profits are up.
Impact: Every startup is on a mission to change the world. People are getting increasingly savvy about whether this is really true. Mission-driven businesses, businesses that can truly have an impact on the world, will become more visible.
Maybe this is my Xmas letter to Santa. 2020 may not be the year when every tech headline is dominated by these themes in the same way that every headline for the past 15 years has been a combination of $£ x New Thing. (X raises Y for SaaS/ICO/AI/ML). Hopefully, we will see more of it and the world will be a better and smarter place because of it.
Alicia Navarro, president/co-founder, Skimlinks (London)
Unfortunately, I think Brexit will happen and Trump will be re-elected, which means more instability for some time. This means companies will need to focus more on raising either larger rounds of funding or really focus on revenue generation.
Considering a crash is probably on its way, companies with solid business fundamentals (or who have raised a ton of cash and manage it well) will survive the storm.
Cedric Giorgi, founder, French Startupers Network (Toulouse, France)
Impact tech, impact investing has been a topic at all major tech events, more VC funds, more entrepreneurs embracing the movement. France is still looking to have more unicorns (especially because despite a big hunk of all money raised in Europe it still lags behind other European countries when you count unicorns). But some voices start to show that European tech could be something else, could be not just looking for unicorns but looking for impact. Especially with climate change concern growing.
The Parisian tech scene is getting stronger and more and more startups are also starting or opening offices in other French cities, such as Toulouse, Montpellier, Lyon or Marseille. But because of country centralization, France is not able to create secondary international hubs like Berlin/Munich or Madrid/Barcelona.
Big rounds of funding happen in France with international and local investors, but exits are still lacking and French corporates are still better at exhibiting at VivaTech and doing PoC with startups than having M&A strategies.
Brexit and [the] place of London in [the] European tech landscape might still be the major source of changes — will more big tech corporates from the U.S. or China be looking to open European subsidiaries outside of London?