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Despite structural and ideological drags on growth, European startups are surging.

Fundraising by European startups has skyrocketed this year, according to an article in the Wall Street Journal this week. They claim that the EU startup scene is being dominated by megarounds and rising valuations.

“Europe is making up for lost time,” Tom Wehmeier, head of insights at London venture firm Atomico, told the Journal. For decades European startups lagged behind their international counterparts in ambition and capital, he explained. That proved “expensive when you look at Europe’s share of global market cap creation. But things are changing very quickly.”

The largest-ever financing for a European venture company took place in 2021, according to PitchBook. It included a $2.75 billion round for Stockholm-based battery startup Northvolt AB. Other megarounds this year included $1 billion raised by Stockholm-based payments startup Klarna Bank AB in March at a $31 billion valuation. That amount then went up to $45.6 billion in a subsequent round. Celonis, a business software maker, raised $1 billion at a valuation of more than $11 billion.

Following the trend

The venture market in Europe is following the U.S. trend of more capital being amassed by fewer companies. European startups are also benefiting from the rise of remote deals during the pandemic. This has made capital from the U.S., which has larger funds and a more risk-on mentality, more accessible.

Fueled by this injection of capital, European startups are contending with the pressures of turning record investments and valuations into successful exits. This is of course a concern for startup executives holding stock options, as well as their investors. They are also facing down the challenges of growing fast amid Europe’s infamous regulatory and labor-market constraints.

While median valuations in Europe lag those in the U.S., they are beginning to reach and even exceed U.S. counterparts at some parts of the venture market, PitchBook data shows.

Structural obstacles hinder growth of European startups

There are still constraints on European startups scaling, according to the WSJ article. “Tech’s been flourishing in Europe, but often it’s in spite of the policy and regulatory conditions for operating across Europe, not because of this,” said Atomico’s Wehmeier.

“There are still plenty of challenges, not least the fact that Europe’s coming from a long way behind in a global technology market that has done anything but stand still,” he added.