Hello, 

Welcome to the twenty-second edition of Dealroom News, the weekly newsletter where we bring the data to cover and analyse some of the most important global technology developments.

This week, let's take a deep dive in the world of European unicorns — which, as it turns out, are fewer than we might think. According to a recent report that leverages Dealroom data, more than a quarter of them have lost their horns by now, as their valuations fallen below the $1 billion threshold. 

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Now, let's dive into this week's edition. 

Andrii Degeler,

Head of News at Dealroom.co

A land full of unicorns

We often measure ecosystems by the number of unicorns — that is, startups with a valuation of over $1 billion — they produce. This has become an easy way of benchmarking geographies, industries, and even timeframes. What's often missing, however, is a long, close look at what happens to those unicorns further down the line — and what it can tell about the ecosystem. 

This week, Mighty Nine published a report that aims to close this gap. Based on Dealroom data combined with a proprietary pricing methodology for unicorns without recent funding rounds, it looks at a cohort of 199 unicorns from 25 countries founded since 2015 to establish how much they're currently worth and what it means for the investors. 

The headline number doesn't sound great for the European ecosystem: 60 out of the 199 unicorns have fallen below the $1 billion valuation, erasing €123 billion in enterprise value, albeit existing only on paper. But beyond the headline, there's an important and nuanced story the numbers are telling, where a rebound is still possible — if the ecosystem deals with the fragmentation and duplication issues. 

First of all — and that's something that's noticeable across all different data representations — the European unicorn landscape is rather top-heavy. Three top countries represent almost two-thirds of all capital deployed in this cohort. 

From the industry standpoint, fintech and enterprise SaaS account for just under a half of all invested money. 

“This concentration means that the health of the entire European unicorn ecosystem depends heavily on the outcomes of a few dozen companies in two sectors, concentrated in three countries,” writes Julien Petit, the author of the report and founder of Mighty Nine. “If Revolut stumbles, the UK ecosystem loses its crown jewel. If fintech multiples compress further, 29% of all capital deployed is exposed.”

All in all, the report finds the aggregate mark-to-market (MTM) to last round ratio for the unicorn ecosystem to stand at 0.78x. That is due to 87 companies being valued below their last round, resulting in €143.5 billion in markdowns. The net value gap is lower at €122.7 billion, offset by the unicorns valued above the last round.

Once again, significant concentration can be seen also in where most of the money gets lost.

“Fintech is the epicenter of value destruction,” Petit writes. “With 52 unicorns and €64.8 billion in aggregate markdowns, the fintech sector alone accounts for 53% of all value destruction in the ecosystem. Many fintech unicorns raised at SaaS-like multiples 15–30x revenue) for what are fundamentally financial services businesses that should be valued at 5–8x revenue.”

Another important angle to look at the European unicorn ecosystem is the timeframe when they first raised money at a $1-billion-or-higher valuation, which shows what the report calls "three eras of European venture capital".

The funding boom of 2021–2022 created a disproportionate number of unicorns in Europe — however, their performance so far has been far from optimal. 

“This is not a story about bad companies,” Petit explains in the report. “Many of these businesses are operationally sound, growing, and serving real markets. The problem is pricing. The last investors paid prices that assumed perpetual hypergrowth, limitless capital, and a multiple environment that has since evaporated. The gap between what they paid and what the market will pay today was created by the conditions of 2021, not by the execution of 2025.”

In aggregate, it is still possible that the European unicorn ecosystem would create enough exit value to provide late-stage VC investors a return of at least 2x. That, however, would require more mega-exits to happen in the region in the next few years than through the previous decade.

In this sense, time is working against European unicorns, as the same exit valuation that materialises a year or two later than expected can mean a make-or-break difference in the internal rate of return (IRR). 

“A €100B Revolut IPO would create €31.8B in incremental value above current MTM — a single event that would offset 26% of the entire €122.7B in markdowns across Under Pressure and Distressed companies,” Petit writes. “Yet even at €100B, last-round investors would achieve only 1.5x. The most valuable company in European venture history still struggles to deliver outsized returns for its most recent backers.” 

Looking at the bigger picture, the report identifies an important difference in the unicorn ecosystems in Europe and the US. While Stateside most major industries tend to produce one or two dominant players, Europe counts four to seven of them per vertical. Usually they serve their own regional markets and raise funding, while not achieving pan-European scale (and the expected VC-grade returns). 

Petit identifies regulatory fragmentation as the most important cause of the "duplication trap", further exacerbated by language and cultural friction, as well as the general ecosystem bias towards growing national champions. 

“When regulation is not the barrier, Europe can produce winners,” Petit concludes. “When it is, fragmentation prevails.”

The report comes just in time for the upcoming "28th regime" proposal that the European Commission is expected to publish on March 18. The new regulation aims at reducing regulatory fragmentation and making it easier for companies to work across jurisdictions.

However, the draft proposal leaked to Euractiv this week was not seen as satisfactory by ecosystem organisations. The unicorn ecosystem proves the importance of such regulations being done right — building the environment needed for European unicorns to thrive and produce expected returns. 

This week's Dealroom Exchange

We love data, and last year at Slush we interviewed another data lover — Henrik Landgren from Gilion, who also worked on Spotify's analytics and EQT Ventures & Growth' Motherbrain. 

By leveraging data, Gilion is able to offer growing startups a way to secure non-dilutive funding outside of the VC territory — something that used to be very difficult to do before. 

Check out the full conversation on YouTube — and let us know what you think!

Past week's 10 unmissable stories

This is all for the twenty-second edition of Dealroom News — we hope you found it useful! Once again, please do reply to this email and let us know what you think. 

Until next week!