Europe and Israel’s software startups are raising ballooning amounts of cash and eating into established US funding dominance of the sector, according to analysis by venture capital firm Accel.
Software-as-a-service startups in the two regions have raised record funding in 2021 to date, in keeping with an overall explosion in startup funding activity.
Software-as-a-service, or SaaS, businesses offer cloud-based applications, usually to corporate clients, and usually for a monthly fee. You can read more about the SaaS business model here.
Europe and Israel have created 43 new unicorns in the sector during the first 9 months of 2021, up 84% year on year, versus 74 for the US, up 67% year on year.
And according to the venture capital firm’s analysis, the amount being raised by European and Israeli software startups is outpacing growth in the US, albeit starting from a lower base.
In the first 9 months of 2020, software firms in the two markets raised $9 billion in funding. That grew more than three-fold in the same period in 2021 to $29 billion.
In the US, startups raised $20 billion over the equivalent period in 2020. The figure more than doubled to $48 billion for 2021.
The US has conventionally dominated cloud software, with publicly-listed giants such as Salesforce and Dropbox. Europe boasts fewer public competitors but software has grown to become the second-biggest startup sector by funding, behind fintech.
Accel’s bullishness stems from the speed at which startups in the two geographies are attaining multibillion-dollar valuations.
Israel’s Wiz, a cloud security startup which became a unicorn in the space of 14 months. UK virtual events startup Hopin is only 16 months old and is now valued at $7.75 billion. France boasts the highest number of software-as-a-service unicorns in Europe at ten, with three — Shift Technology, Aircall, and Contentsquare — only becoming $1 billion-valued firms in 2021.
Accel also backed UiPath, which went public in April at a $36 billion valuation.
“We’re now seeing the European and Israeli cloud ecosystem being supersized and moving out of the US’ SaaS shadow,” Philippe Botteri, partner at the firm said. “Europe and Israel are producing more SaaS unicorns than ever before and they’re growing far bigger and faster than we’ve seen over the last five years.”
Nonetheless, industry skeptics question Hopin’s 75x valuation multiple at such an early stage. UiPath’s market cap currently sits at a lower-than-IPO $25 billion.
Accel’s Botteri said fundraising and valuations were being driven by businesses continuing to shift to cloud infrastructure, growing demand for automation of some processes, more sophisticated threats to online security, and growing use of data.