The strength of the European tech startup industry lies in its availability of talents and its ability to attract these talents

The year 2018 is a “record-breaking” year for investment in the European tech sector, and the sector is “powering growth” in the continent’s stagnant economy, according to the State of European Tech report by London-based venture capital (VC) firm Atomico.

Published in partnership with startup conference SLUSH and legal firm Orrick, the report detailed that a total of US$23 billion had been invested into the sector in 2018, up from just US$5 billion in 2013.

Europe also contributed three of the top 10 largest tech IPOs globally in 2018.

Apart from the impressive number of startup investment and IPOs, the strength of the European tech startup industry lies in its availability of talents and its ability to attract these talents.

There are 5.7 million professional developers available in Europe in 2018, compared to 4.4 million in the US.

Europe is home to at least 30 different hubs with 50,000 or more professional developers in each hub. Its three largest hubs for developers –London, Paris, and Amsterdam– are home to about 15 per cent of the region’s total developers.

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There are many factors that contributed to Europe’s strength in attracting and developing talents, but two stood out in the report: Talent migration and competitiveness building.

In Europe, 28 per cent of founders and employees of private European tech startups are working outside of their home countries.

Migration of talents happen not only within the continent itself, with Germany and the UK being the top destinations for intra-Europe talent migration. But the continent is also a destination for local talents returning from work or study in the US as well as for foreign, non-European talents.

For foreign and non-European talents, India and the US made up more than 50 per cent of their origins, followed by Brazil, Tunisia, and Australia.

In fact, Europe is dubbed as a “destination of choice” for US software engineers who are looking for opportunities overseas.

Of all the existing tech hubs in the continent, London and Berlin are two of the most dependent on migrant talents. In these two tech hubs, 44 per cent of tech talents are immigrants.

With the great influx of talents, startups found themselves competing with global tech companies for these talents, with 54 per cent of founders experiencing an “increase or significant increase” in competition.

“The effect of increased competition for talent plays out in different ways, including salary inflation, greater employee churn, and more difficulty in filling roles. On the last point, for example, the number of job postings for ‘software engineer’ roles that prove hard to fill has increased in every European country for which data is available, except Denmark,” the report stated.

The report also added 56 per cent of founders claimed an increasing awareness among employees of stock options as a form of compensation.

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Lessons for Asia

Published on the first day of SLUSH Helsinki 2018, the report provided several lessons that can be taken by the Asian startup ecosystem, particularly Southeast Asia.

Lack of talents have often been dubbed as the main challenge that startups are facing in expanding and growing their business in the region; the numbers and trends presented in the State of European Tech report may serve as an inspiration on what the region needs to focus on.

For example, the report mentioned Germany as “the most distributed country for professional developer talent.” It explained that only 19 per cent of the country’s professional developers are based in its largest developer hub Cologne; the rest are concentrated in other countries such as Belgium, Denmark, and Ireland.

It might be a wise move for startup industry players to expand beyond tier-one cities and seek for talents in emerging tech hubs, instead of the more established ones.

Bandung and Jogjakarta in Indonesia are examples of such tech hubs. Instead of looking for talents in Jakarta, where living costs tend to be higher, many high profile local startups are setting up offices in one of these two cities. Bukalapak has recently opened an R&D centre in Bandung, while Sale Stock also has a presence in Jogjakarta. Even French gaming company Gameloft set up its base in Jogjakarta when expanding to the market.

Migration of talent is also big theme in the report. In Asia, this is one of the sectors where governments can contribute in order to support its tech industry: By making talent and knowledge exchange more feasible through ease of visa and work permit application.

The report also mentioned about returning talents from other global tech hub such as Silicon Valley –a phenomenon that is known in China as “sea turtle.”

Sea turtles are startup founders or tech professionals who had been spending years studying and working abroad, but chose to return to their home countries to build or join a startup there. VC firms such as Intudo Ventures included networking with sea turtles as part of their investment strategy; cities in China have also taken active steps in luring the sea turtles home by hosting job fairs in countries such as the US.

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