Is Europe the next digital innovation powerhouse?

For the past three weeks I’ve been in Wrocław, Berlin, Hamburg and London — all major centers of digital innovation in Europe. My job is to stay up on digital innovation trends on both sides of the Atlantic and so I’ve been attending conferences, delivering lectures at a couple universities, talking to executives, and hanging out in bars with VC’s and startup CEO’s (hey, that’s the fun part!).

There’s a lot going on in Europe right now. And there’s a strong feeling on the continent that Europe is finally becoming the technology innovation powerhouse that it deserves to be. For many years Europe’s R&D reputation has been that they are much better at the “R” than at the “D”. The research that has come out of Europe has been enormously impactful across the globe (the World Wide Web was developed at CERN, for example), but the commercialization of that research has largely been done in Silicon Valley and elsewhere. That’s about to change, according to many of the people I spoke with. There’s a strong consensus here that Europe finally has the ecosystem in place to become a global powerhouse in digital innovation.

Partly this is because there is now a much more robust risk capital industry in Europe. In the past five years over 16,000 European startups have received venture capital investments, and last year European VC firms raised a record €6.4 billion in new funds, according to the World Economic Forum. The European Commission is jumping into the game as well, recently announcing they are providing €400 million in seed money for a €2 billion public-private funding operation whose goal is to help small European tech firms gain the scale needed to compete internationally.

On the regulatory front there are also changes brewing that will make it easier to startups to launch pan-European digital products. Even though the population here is 1.5x that of the United States, launching a new mass-market digital product in Europe has historically been more difficult than launching one in the US because of the fragmented regulatory situation in Europe (specifically with regard to digital).

This has meant that many of the most promising European startups of the past few years have moved their headquarters to the US where they have better access to a unified market and multi-stage capital (The red-hot Unity Technologies is a perfect example, founded in Denmark and then moved to San Francisco where it now has 1,500 employees and over 1.3 million developers on the platform. By all rights, Unity should be a European company. Similarly, Stripe — the highly-successful payments startup — was conceived in Ireland and then moved to Silicon Valley for growth).

But the digital regulatory situation in Europe is changing, and changing quickly. In May of 2018 three significant pieces of EU legislation go into effect, all aimed at creating a single-market digital strategy for Europe. The (awkwardly-named) General Data Protection Regulation (GDPR), the Directive on Security of Network and Information Systems, and the new ePrivacy Regulation are all designed to to open up digital opportunities for people and business and create a single-market digital economy in Europe (it should also be noted that there are components in this legislation which some tech companies hate (mostly because of way personal data is protected), but once they get over that the single digital market in Europe should be a big benefit both companies and consumers).

FinTech, of course, is one area where Europe is already leading the world. Transferwisefrom Estonia has raised $117M in venture capital and is now valued at over $1B. Native digital banks such as N26 from Germany and Monzo from the UK are light-years ahead of any of the American FinTech players. The PSD2 regulation in Europe (going into effect in early 2018) finally breaks the monopoly that traditional banks have had on user data, requiring all banks to provide open API’s to third-party providers, spawning enormous new competition in financial services.

Another area where Europe is leading the pack is transportation innovation. Volkswagen AG in Berlin has backed MOIA, a new startup developing ”IT-based on-demand offerings such as ride hailing and ride pooling services.” At TechCrunch Disrupt Berlin last week they revealed a new vehicle, an all-electric microbus purpose-built for ride pooling in dense urban areas. Meanwhile GoEuro is a startup run by a Harvard MBA in Berlin. They have raised $145M in venture capital and have developed a native-digital platform that unifies shopping for train, bus, and air travel across Europe into a single mobile experience. The founder’s “aha moment” was traveling in Europe and watching people use Google for figuring out travel options. It struck him as odd that Europeans were using a Mountain View company to buy European transit tickets.

The last point is the perhaps most important: there’s a broad social/cultural trend in Europe today toward innovation and entrepreneurship. Even France, which has sometimes had a reputation for a culture at odds with innovation, has a new PM who is currently pushing a legislative slate focused on improving innovation and entrepreneurship.

Yes, the European economy still faces some questions in 2018. Brexit is the big question looming over everything — Britain is viewed as being like the odd cousin who inexplicably leaves just when the party is getting good. But my overall impression is that Europe has a spring in her step right now, with economic growth that is currently outpacing the US. Innovation always happens at the intersection of active capital, deep talent, and ready markets. Europe has all three right now, in spades.