A recent JRC report compares unicorns and lower-valued startups in Europe, highlighting factors beyond venture capital that influence their growth and success.
As unicorns (startup companies valued at over $1 billion) contribute to the growth of the European startup landscape, the EU and member state governments have adopted policies and launched initiatives to boost venture capital (VC) supply with the aim of increasing the unicorn population in Europe (such as through the EIC Scaling Club, a network that seeks to grow the companies’ value by facilitating access to growth funding). However, the recent report, published by the Joint Research Centre (JRC), challenges the assumption that VC alone can support the growth of unicorns. The authors offer an exploratory comparison between unicorns and lower-valued startups to examine the diverse characteristics and growth patterns of startups and find the various factors beyond capital that contribute to high-capitalisation startups.
The analysis is based on a sample of 16’004 venture-backed companies, which were divided into five valuation categories and eight industrial clusters. The study reveals that only 1.8% of the startups in the sample successfully achieved unicorn status. The main findings on the characteristics of unicorns are the following: Future-unicorn startups require, on average, eight years and 3.2 rounds of equity financing to become a unicorn. European unicorns require more investors and receive less equity funding than their counterparts in the US or China. The study also found that unicorns are predominantly found in the UK, Germany and France or within capital cities’ economic and technology hubs and that national industrial structures influence how many years a startup takes to become unicorns. For instance, Swiss startups take on average, 10.1 years due to a higher proportion of deep-tech startups, which are more research and development intensive. The growth of startups towards unicorns also depends on which industry they belong to. Startups in the energy sector reach unicorn status in 6.3 years on average, compared to 9.3 years for information and communications technology ventures and 7.7 years for healthcare startups. This accelerated growth in the energy sector can be attributed to government policies supporting clean tech and low-carbon economy.
In their comparison between unicorns and lower-valued startups (valuation between $10 million and $99.9 million), the authors find that higher valuation categories require more rounds of equity funding, raise larger sums and secure higher exit valuations. This suggests that lower-valued startups may struggle to access the necessary resources to grow rapidly, while higher-valued startups can leverage more financial support to accelerate growth, creating a feedback loop where access to capital becomes both a critical requirement and a barrier to entry for startups aiming to become unicorns. Additionally, the authors find that 8 out of the top 20 VC investors of lower-valued startups have their headquarters in the EU. However, this shifts for higher-valued startups (between $700 million and $999.9 million), where only 3 out of the top 20 investors are EU-based. This disparity highlights the dominance of US and UK investors in high-capitalisation startups, driven by their prestigious reputation, larger capital pools, better deal flow and more due diligence experience and resources. Meanwhile, investments in lower-value startups are dominated by public sector institutions such as Bpifrance and the European Innovation Council Fund. This leads to a significant gap for new and emerging VC firms in Europe.
Based on the findings, the report concludes that the success of unicorn firms is not only dependent on VC but also on other factors, including their location, the industries they operate in and the features of their investors. Thus, the report suggests that policymakers should take a multifaceted approach to supporting the startup ecosystem by taking these factors into account. The authors also push for the development of a cohesive EU internal innovation framework and call for further research to replicate successful innovation models in underperforming areas in Europe.