Listen to this article
Facebook may have a lot to answer for when it comes to the future regulation of digital services, a key component of this year’s list of the 1,000 fastest growing European companies.
Continuing scrutiny of the US social media group’s use of data is seen by many analysts as the sharpest end of a wider regulatory backlash. This is starting to worry executives who have seen growth aided in recent years by a generally relaxed view over privacy, tax and employment practices.
In the second year of the FT’s ranking of the fastest growing companies in Europe, compiled with research company Statista and judged by revenue growth between 2013 and 2016, it is clear that this has yet to affect some of Europe’s most innovative firms.
While tech remains the largest component of the ranking (see graphic), the breadth of other businesses represented suggests a backdrop of economic strength supporting growth.
Record amounts of cash are being raised from investors to back new companies as well as support more established groups ahead of expected initial public offerings. In Germany, investors as diverse as Naspers, the South African media group, Asian state funds and Japan’s SoftBank have helped develop the market for later-stage funding, according to advisory firm EY.
The public markets remain a popular way for founders and early-stage investors to raise cash and exit businesses — as seen by the successful flotations of Swedish music streaming service Spotify and Berlin-based unicorns Delivery Hero and HelloFresh. The latter topped last year’s FT 1000 ranking.
The number-one spot in this year’s list was taken by London-based food delivery company Deliveroo. As the UK’s exit from the EU looms, London continues to flourish, accounting for 74 companies in the ranking.
Julian David, chief executive of industry body TechUK, says the UK retains the “most vibrant ecosystem, strongest access to funding and world-leading academic institutions that power innovation”.
The UK’s tech start-ups drew almost £3bn of venture capital funding in 2017, twice the level of 2016 and four times more than Germany, according to TechUK figures.
The booming French tech sector is reflected in the results: the number of fast growing companies has risen to 62 in Paris, from 45 last year, leaving other centres of innovation such as Milan and Berlin in its wake.
For entrepreneurs in Paris, this suggests the “Macron effect” is real. Generating a broader economic optimism, the French president has also unveiled specific measures to boost the tech sector.
“There is undoubtedly talent and capital available in the city, and Macron and his team have been aggressive in making the city appealing to founders,” says Toby Coppel, co-founder and partner at early-stage venture capital firm Mosaic Ventures.
Local investors point to the success of Showroomprive — an online retailer that floated in 2015 — and the development of companies in areas such as ecommerce, transportation and software services.
But a city focus disguises how successful Germany has been in creating nationwide conditions for fast growing companies. The country accounted for more than a quarter of the companies in the FT 1000.
This suggests that while Berlin gets the headlines as the tech sector magnet — Mr Coppel describes the city as “edgy, high energy, culture-filled” with an “ever-expanding talent pool of software engineers and founders” — the growth is more widely spread.
Local entrepreneurs point to success among the ranks of Germany’s Mittelstand — its small and medium-sized businesses — to convert their industrial knowledge into innovative technologies, as well as the variety of its fast-growing companies across different sectors.
“Germany, especially in recent years, has yielded many large companies such as Zalando, Check24 and Delivery Hero,” says Harry Nelis, partner at Accel, a venture capital firm. He highlights a new wave of software companies including Celonis, which “mines” big data, and Instana, which provides automatic monitoring for a customer’s applications.
But there are worries for the future as regulators seek to tighten regulation in areas such as data privacy — including the General Data Protection Regulation (GDPR) which comes into effect next month — taxation and employment in the so-called “gig” economy.
The high-profile attacks on Facebook are representative of a changing mood around digital businesses especially.
Patrick Hansen, project manager for start-ups at Bitkom, Germany’s digital industry association, says it is no surprise that food companies and marketplaces in general have topped the FT 1000 list, given traditionally high growth rates. A key part of this growth has been a reliance on “gig” employment — flexible working contracts that keep costs low and help companies scale up. Such contracts are being questioned over the limited rights given to workers.
Mr Hansen hopes this system will “be regulated in a reasonable way in order to protect the workers on the one hand and [so that regulators] don’t hamper the fast growth of tech companies on the other”.
The UK’s exit from the EU is starting to worry domestic businesses, with any barriers erected expected to damage London’s start-up scene. “Brexit is certainly a threat, if a deep and comprehensive deal isn’t reached soon,” says TechUK’s Mr David.
From 2009 to 2015, 45 per cent of net employment growth in digital sectors was from foreign-born workers, of which EU-born people made up 17 percentage points, according to TechUK.
“If the UK is seen to be less open and welcoming to people from other countries, it makes it harder for firms to attract the best and brightest talent,” says Mr David.
He also raises worries over the future free flow of data. Companies are clear that they want to stay aligned and retain UK influence in EU regulatory bodies, he says.
Others are confident European regulators will not to do anything that curtails the competitiveness of fast growing companies. “I am quite optimistic that the backdrop will remain as benign if not be even more favourable to start-ups in future,” says Mr Hansen.
“The needs and importance of high-growth companies for the economy of a country are more and more acknowledged by politicians and the society as a whole, which is demonstrated by the ever increasing number of public start-up programmes.”
Get alerts on Tech start-ups when a new story is published