The European startup ecosystem has been experiencing an acceleration in its development, despite the systemic challenges that still exist, particularly those of a regulatory and cultural nature.
The study “Winning formula: How Europe's top tech start-ups get it right”, developed by McKinsey & Company, reveals a perspective on the success formula of the top one thousand European startups, founded after the year 2000, in 33 countries. The study's results reveal that the European startups surveyed are worth, on average, €890 million and, collectively, have already received more than €140 billion in funding. These companies have almost half a million employees and work mainly in the areas of biotechnology and health (24%), B2B Software as a Service (18%), fintechs (16%), e-commerce and consumer (11%), and hardware (11%), among others.
One of the main conclusions of the report highlights that the most successful startups in Europe follow one of four strategic paths: product-based, deep tech, scale, or network. McKinsey's analysis suggests that each of these strategies requires different factors to ensure success.
Strategic paths
Most startups adopt a product-focused strategy (45%) and are typically fintechs or B2B SaaS companies. These companies require the least funding (€145 million, compared to an average of €164 million) and focus on the rapid adoption of a well-defined initial product, emphasizing a strong customer experience. Research and development, engineering, product management, and information technology functions gain increased relevance compared to companies that adopt other strategic paths.
30% of the companies surveyed employ a "deep tech"-centric strategy. These players tend to work in the areas of artificial intelligence, biotechnology and healthcare, or hardware, focusing on research and development. They are characterized by having, on average, a smaller number of employees (211 versus an average of about 488) than other startups, but they stand out for their strong commitment to talent acquisition, with 27% of their workforce coming from the top 1,000 international universities.
14% of startups follow a strategy based on scale, meaning they seek rapid sales growth. They are often e-commerce, consumer, or media companies. They tend to have a larger number of employees (an average of 890), and sales functions are more important (42% of employees, compared to an average of 33%) than product development functions. As a result, they end up with higher revenues (€826 million compared to an average of €277 million).
11% of the startups studied use a network-based strategy and are frequently marketplace, mobility, and social media companies. On average, they have more employees (982) and require more funding (€243 million). In most cases, they rely heavily on mergers and acquisitions to internationalize and reach a significant market. For these companies, conquering local markets one by one is fundamental, rather than trying to grow globally all at once.
Challenging environment
“ We know that, historically, Europe has been a more challenging environment with more obstacles to the success of startups. Even so, we are witnessing a rapid change in this landscape, with more and more startups being created and growing at an unprecedented rate ,” comments José Pimenta da Gama, senior partner leading the Telecommunications and Technology area at McKinsey in the Iberian Peninsula. “ In Portugal, although the ecosystem is still in its early stages, the growth of these types of companies has been noticeable over the last few years. Portugal presents excellent conditions to become a 'fertile ground' for startups, and could even assume a leading role in Europe in terms of entrepreneurship. It has young talent, offers policies open to international investment, and has strongly invested in the digital transition. We also have several examples of Portuguese startups with international success that are attracting the interest of investors. There is much room for growth and the prospects are positive ,” concludes José Pimenta da Gama.
Unicorn status
Most of the startups studied achieved unicorn status within 10 years of their founding. The study reveals that companies that follow strategies based on "network" and "deep tech" tend to reach this milestone sooner, while a significant portion of the players that focus on scaling (24%) and product (31%) strategies take more than 10 years.
Regarding funding, to reach a valuation of one billion euros, the companies surveyed needed, on average, between 100 million and 200 million euros. However, this number differs significantly depending on the strategies adopted. Startups that focus on "network" and "deep tech" strategies require a higher funding amount, approximately 200 million euros. Scale and product-focused players require less funding (approximately 80 million euros and 160 million euros, respectively).
The revenue needed to reach unicorn status also varies according to the strategic path of the startups. The study reveals that companies that focus on a scalability strategy achieved approximately €200 million in revenue, followed by those that focus on product and network, with approximately €50 million to €90 million in profit. Startups that follow a strategic path focused on deep tech show the most discrepant values, with around €8 million in revenue.
