Traditionally the US has been the leader in technology ever since the world entered the information age, and the term ‘Silicon Valley’ became a synonym for technological development. The leadership position of the US has been seconded by China and other Asian countries with its emerging tech giants, like Tencent or Alibaba, in the first decades of the 21st century. Europe, on the other hand, has maintained its focus on its traditional industries like energy, pharmaceuticals, and the automotive industries, missing out on the technological revolution of the 2000s and falling behind the US and Asia in this respect. However, the European tech scene is reported to be at an inflection point and we may see an increasing number of tech companies emerging in Europe in the following years.

A company in a more traditional sector is more likely to focus on retaining part of the profit it generates and investing it into the business, and thereby growing organically which is a slower process. On the contrary, the nature of the technology sector is that big companies can be created in a very short period of time by having a game-changing idea and gaining access to funding to accomplish that.

These companies generally also have very few tangible assets, their strength is in the knowledge of their employees and the ideas that they generate. Such an asset composition encounters difficulties when they attempt to channel in traditional sources of funding like bank loans. Therefore young tech companies usually require a specialized sort of financing called venture capital (VC) firms. These specialized companies provide funding to start-ups that in turn can capitalize on their ideas and grow exponentially. VC investments have the potential to generate exceptional returns but also have high rates of failure.

According to a research report written by, a leap occurred between 2015 and 2020 in Europe, and there is a new wave of emerging tech companies that is changing the local ecosystem. Founders of Europe’s largest tech companies such as Spotify or Skype appear as investors for a new generation of startups thereby creating a surge in the number of tech companies. For example, Taavet Hinrikus, Skype’s former director of strategy, founded TransferWise (now Wise) in 2010 which was valued at $5billion in July 2020.

Lately, 38% of the global capital is raised in Europe when it comes to the so-called ‘seed stage’ i.e. very early-stage startup companies, a remarkable achievement when compared to a decade ago. In addition, around 2 million people are employed by European tech and the number of employees is growing by 10% annually, becoming a more and more significant contributor to new jobs.

As the startup matures and improves on its product or service, they generally need additional funding. While VC investors can be ‘seeding’ the startups, what is even more important is that at a later stage, when usually a much bigger lump sum of money is needed, they can step in and fund the potentially profitable ideas. The report found that European startups are struggling to gain funding for these later rounds: even though for example €13 billion was raised by European VC funds in 2019, the European startups required almost 3 times as much funding in total.

The financing gap is filled by various other sources including US VC funds that are increasingly looking at Europe as an investment opportunity. Currently, 60% of the funding with a lump sum of €100 million or more comes from non-EU sources, a large portion of which is from the US. American VC firms say that the quality of startups has increased in the past years and the valuations are not as high as domestically so there are good investment opportunities on this side of the Atlantic.

Europe still has a long way to go to close the gap with the US and Asia in the tech sector however there have been several signs that the European innovation scene is shifting and slowly accelerating. In order for Europe to maintain its economic position on a global scale, an advanced tech sector with a vibrant startup scene is crucial and Malta can play an important role here as well by nurturing the already growing ecosystem on the island.

Disclaimer: This article was issued by Tamas Jozsa, Research Analyst at Calamatta Cuschieri. For more information visit,? The information, view, and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.