There are more billion-dollar-valued tech firms in the UK than anywhere else in Europe, technology investment bank GP Bullhound says in its annual review this week. But, with one in three ‘unicorns’ unprofitable – how important are these valuations in reality?
Never mind unicorns and dragons – the myth-inspired business classification of the moment is titan – a technology company worth no less than 50 billion dollars. While startups struggle to make themselves viable, digital dealmaker GP Bullhound has named the three European businesses it sees as most likely to break in to titan mega-status.
GP Bullhound, which advises on mergers and acquisitions alongside capital raising for entrepreneurs and investors, sets out a bullish assessment of the state of the top Euro firms in its annual research into tech business across Europe.
Titans of Tech: Europe’s Flagship Companies says the UK is Europe’s billion-dollar company leader, adding four in the past 12 months to reach 22 billion-dollar firms, with a cumulative value of $49.9bn. This is ahead of Germany, with seven, cumulatively valued at $27.3bn, and Sweden, also with seven.
GPB says the growth and strength of Europe’s leading tech firms demonstrate the potential of the ecosystem to build its first $50bn business, to match the six post-2000 titans – Facebook, Uber and Tesla in the US and three lesser-known Chinese giants Baidu, Ant Financial and Didi Chuxing.
The review shows the “rise and resilience” of Europe’s billion-dollar businesses through:
- greater funding
- scaled revenues
- increased profitability.
But the review also shows that valuations can mean little in reality. Nearly one in three (28%) of the billion-dollar valued companies – including Deliveroo, Blippar, FanDuel, Funding Circle and even discredited Wonga – are unprofitable. Valuations come not from revenues, but primarily from the equity generated by investments into businesses. Uber, a somewhat tainted titan, posted losses of $2.8bn in 2016.
GPB predicts that the first $50bn titan will be one of fashion platform Zalando, music streamer Spotify or food logistics business Delivery Hero. Which unicorn gains titan status will depend, says GPB, on how fast revenues grow year on year.
If revenues fail to grow as projected, these firms could find themselves going the way of the mythical titans – overthrown by the new gods rising from below.
The GPB review finds that 36 billion-dollar firms – nearly two thirds of the 57 – come from the UK, Germany and Sweden alone, with the three countries alone continuing as Europe’s leading hubs for scaling digital businesses. But, adds GPB, another 10 countries are now also home to billion-dollar businesses, with six giving rise to no fewer than two businesses valued at $1bn+.
In a statement, managing partner Manish Madhvani and director Alessandro Casartelli said: “European tech has a thriving cohort of ambitious entrepreneurs, but there is still ground to make up. Europe’s leading tech firms have on average raised a fifth of the capital raised by global titans such as Facebook, Tesla and Baidu.
“This report shows that Europe’s pioneering entrepreneurs now have the collective vision, ambition and execution to bridge this gap and build global leaders.”
GP Bullhound also canvassed the opinion of its network of Europe’s investors for the five firms they believe could reach a billion-dollar valuation in the next two years. The five included two UK firms – cyber security scaleup Darktrace and retail platform The Hut Group.