Europe has seen 10 highly successful startups join the list of companies valued at $1 billion+, so-called unicorns. The majority of European unicorns are customer focused businesses, and have an average value of $2.8 billion. Spotify, Skype and Zalando lead the blessing.
New research by investment bank GP Bullhound shows that Europe has nearly 50 unicorns. The firm analysed the landscape to identify the largest current crop, and found that 36 of the 47 European unicorns are consumer focused and 11 are enterprise focused. 26% of unicorns are active in the software business, 19% of unicorns are e-commerce players, another 19% of unicorns serve as a marketplace, while 13% of unicorns are Fintechs (an industry that received $19 billion in investments last year).
Top European unicorns
Spotify and Skype are the unicorns that have created the most value so far across Europe, at $8.5 billion apiece. In particular Spotify has seen strong growth in recent years – revenues were up 45% on last year, with revenues expected to break through the barrier of $10 billion in the coming period. In total around 7 of the 47 unicorns are valued at more than $5 billion while 11 come in at $1 billion in value.
The top five is completed by Rocket Internet owned Zalando, which comes in third with its valuation standing at $8.1 billion; Markit Group, a London-headquartered provider of financial information services, which is valued at $6.2 billion; and King Digital, a social and online entertainment company, which comes in at $5.6 billion. The ten newcomers to the list include HelloFresh (a grocery delivery firm), valued at $2.9 billion, Blippar (a specialist in augmented reality and artificial intelligence), valued at $1.5 billion, Mobu (telecom player), valued at $1 billion, and MindMaze (virtual reality provider), also valued at around $1 billion.
In terms of the regions generating the largest number of unicorns, the United Kingdom takes the number one spot, boasting 18 of them – with a total valuation of $39.6 billion. Sweden comes in second, generating 7 unicorns with a total value of $31.1 billion, followed by Germany (6 unicorns; $20.8 billion) and France (3 unicorns; $7.2 billion).
The research further finds that there is a significant difference in the average level of capital raised by European and US-based unicorns, at $260 million and $558 million respectively. US companies are considerably better at reeling in big financing deals – 45% pull in more than $300 million, while 12% raise capital between $250 million and $300 million. Only 16% of European companies manage to raise more than $300 million, while a further 16% manages between $250 million and $300 million. Around 14% of companies raise between $50 and $100 million, well below the US where only 2% of unicorns raise such low sums.
The key question is: how is value of the unicorn based on real financials? Much has been said in recent months – in light of a number of startup scandals in the US – about the disconnect between the book value of unicorns and their real market value. Particularly US-based investors have become weary of the high valuation, often based on potential, over traditionally key business indicators, such as revenue and profitability. A report by KPMG released last month for instance found that the value of investments into early stage startups has dropped to the lowest point in two years, reflecting the growing concerns from investors, with the consultants hinting at the fact that a shot of reality has befallen the venture capital backed startup market.
European unicorns score considerably better in terms of average revenues compared to US counterparts, at $315 million and $129 million respectively. The analysis suggests the difference demonstrates differences in outlook, in part due to the funding availability between the US and Europe. As a result, there are more unicorns in the US, but they are valued, on average, at 46 times their revenue. In Europe, unicorns are valued, on average, at 18 times their revenue – suggesting, according to the authors, that European investors are taking a more evidence based approach.
Contrary to US-based unicorn, where the majority of $1 billion+ ‘giant startups’ do not / barely generate a profit, the majority of European unicorns are profitable. Some of the biggest in Europe, including Markit, Skyscanner (online airline comparison website), Rightmove (a UK-based an online real estate portal) and Yandex (the Russian ‘Google’) are among the 60% of unicorns that are profitable. Currently unprofitable companies, mainly due to investment into growth, include leader Spotify, Home24 (an online seller of design furniture) and Wonga (fast little loan provider).
“Profitability however, sometimes comes at an expense to growth. In Europe for instance, the average Compound Annual Growth Rate of unprofitable unicorns (CAGR) was 141%, compared to just over 49% for those making a profit”, find the researchers.
How many unicorns?
Important to keep in mind is that the definition used for ‘unicorn’ is key, with some debate on the barriers and thresholds used, and hence on the number of unicorns that make the European list. Skype for instance, was sold to Microsoft in 2011, while a number of other unicorns in the GP Bullhound list have gone public. According to the authors, the reason for their inclusion is that it highlights the strength of the European unicorn forming landscape, as well as the valuation of companies prior to their exit. Critics however believe that the list of unicorns should only contain startups in private hands.