The European investment and technology industry trends to expect in 2016

Another year is upon us and with it the next instalment of the annual World Economic Forum in Davos – a chance to focus on the agenda for the global economy over the next 12 months. 

And as the world looks to the future, those involved in the tech space will feel the world’s eyes pointing squarely at them. 

The theme for this year’s forum is the fourth industrial revolution – the digital revolution – and highlights the continued excitement and anticipation around a sector where the feeling is that anything could happen. So, with this in mind, what do we think we’ll bare witness to in 2016?

Hype cycles

In the tech space of investors, entrepreneurs, journalists and the like, we can be prone to following and maybe even overestimating the importance of certain sector trends.

These “hype cycles” can mean that there is a flurry of activity, experimentation and innovation before a wild fire tears through the brush to leave just the strongest in a position to truly thrive. 

Tech is a game of survival of the fittest – take the cryptocurrency sector as an example: 12 months ago there was a lot of noise around emerging startups but the moment may only now be right for some impressive block chain technology to really thrive.

By comparison, the hype cycle around drones is currently in full swing but only time will tell who of the huge number of companies in this space will emerge as the real winners, and truly solve the growing challenges of local delivery networks. 

Another theme that is coming of age is the Internet of Things and everything that surrounds it. Take security as an example – the more we immerse our home and work life in smart sensors, the greater the security challenge will be – as such we expect to see a wave of security innovation coming our way. Sectors like fintech will continue to mature and again we expect to see very significant winners emerge.

The ten biggest UK venture capital deals in Q3 2015

Geography

In the height of the financial crisis we were used to seeing entrepreneurs from across Europe leave their home countries to set up a seed business in the UK. As the economic situation has stabilised I expect we will see more founders developing their offerings at home to prove the principle in their domestic market before taking the leap to build their business and raise finance in the UK.

We here at Octopus are expecting to see many more businesses in the coming months, which were founded from any part of Europe, with a view to expand across the continent. 

This will be helped by the fact that entrepreneurship is a theme that governments across Europe are keen to promote and, in particular, we expect to continue to see great businesses coming out of Berlin and the Nordics. 

France is another area to pay attention to – 2015 was a good year for French tech entrepreneurship and with a strong engineering and software skill base, the French are in a great position to ride the wave of innovation in areas like the Internet of things.

Cultural

The greatest trend will be a maturing of the entrepreneurial culture in the UK and Europe. Over the last year we have seen a number of larger growth capital funds open around Europe, including Octopus’s $140m Opportunities Fund launched in October last year, as well as growth funds from Highland Europe and Lakestar, the firm behind Facebook and Airbnb which launched a €350m pot. 

Zopa, Secret Escapes and Deliveroo helped UK tech sector win record $3.6bn in 2015

Unsurprisingly then, we expect to see more European funds investing greater sums in order to keep building genuinely global businesses.

We also see further developments in the angel investment market, which continues to professionalise with organisations like the Angel CoFund now seeing average round sizes of £1.4m – a clear sign that we are moving away from the chronic underfunding that has often plagued angel-backed businesses.

With this development of the wider technology community, we should note that many incubators are now beyond their first few intakes and have had the opportunity to refine their models and provide effective support aligned with both investors and entrepreneurs. 

Entrepreneur First, for example, has become a real UK success story and through its access to world-class talent from the UK’s top universities it is now consistently developing ground breaking businesses.

Furthermore, ensuring that UK government remains supportive of entrepreneurship are groups like the UK’s Scale-Up Institute, which promises to keep these issues high on the government’s agenda. 

As a result, I expect a continuation of supportive policy to continue to prioritise backing young businesses and ensuring they continue to grow, create new jobs and drive national economies in a positive direction.

2015 was a record-breaking year for European and UK venture capital investment, and it can certainly be argued that the technology space has now come of age. The venture market, the culture for entrepreneurship and the availability of talent across Europe is all aligning to make 2016 look like a great year. 

George Whitehead, venture partner manager at Octopus Ventures

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