European B2B Start-ups as New Hidden Champions

How the European B2B Start-up Ecosystem Tackles the Issue of Receiving Comparably Low Funding in Comparison to their US Peers

ByteDance, AirBnB, About You, or GetYourGuide are commonly known and among the most valuable start-ups in their country. All of them are part of the unicorn club and are therefore valued at more than 1 billion US-$ each. We could list numerous of these unicorns and you probably would recognize most of them. Indeed, the mentioned ones have something else in common: they are active within the B2C (business-2-consumer) sector. 

If we take a closer look on the unicorn club, we do also find unicorns being active in the B2B (business-2-business) sector. One of them is Celonis, a company using data mining to uncover process-related inefficiencies of companies. Having been valued at 2.5 billion US-$ in November 2019 when its Series C round has been raised, it is one of the twelve German unicorns. Though being highly successful, many B2B unicorns are generally less known to the public compared to unicorns directly dealing with end consumers, as we do often not face them directly in our daily life. However, 61% of the total number of start-ups which have been founded in Europe and the US within the recent ten years are attributable to the B2B sector – which stresses the B2B sector’s importance.

Additionally, a 2021-published McKinsey study reveals, that particularly B2B start-ups make a significant contribution to narrow the financing gap between the European and the US-American start-up ecosystem

The mentioned financing gap refers to the delta between the amount of money US-American start-ups received from equity investors in comparison to their German peers. Based on the investments made in 2020, European start-ups receive less than one third of the equity funding compared to their US-American peers. Now one might say that the amount of capital raised by the US-American ecosystem needs to be higher, since the US-American start-up scene is much bigger than the European one. However, European start-ups still lack behind their US-American peers when setting the raised amount of capital in proportion to the generated revenue of the ecosystem.  Therefore, it is much more difficult for European start-ups to receive funding than it is for their US-American counterparts, which increases the need for European ventures to fight for every euro. This is also expressed by the much higher survival rate of US-American B2B start-ups in the early life-cycle phases: while 46% of the US-American B2B start-ups overcome the seed phase, only 27% of their European peers yet survive at least until the subsequent phase.