Tech sector’s ambitions and AI cheer investors

Companies across Europe are continuing to battle a sluggish regional economy weighed down by high inflation and tighter borrowing. But investors say they remain optimistic — and some of their reasons emerge from the latest FT-Statista ranking of Europe’s 1,000 fastest-growing companies.

Now in its eighth year, the research highlights those businesses that have ach­ieved rapid revenue rises while grappling with the effects of Covid-19, war, and an energy crisis.

To qualify for inclusion this year, companies needed a minimum average growth rate of 36.9 per cent between 2019 and 2022, with many demonstrating even longer-term resilience. Some 377 of the businesses featured were ranked in last year’s list, too — up from 334 in 2023, and 262 in 2022.

The IT and software is best represented, with 189 companies, up from 176 in 2023. Tech companies enjoyed record high levels of investment during the pandemic, which helped drive the growth shown in the ranking. Although there was a sharp pullback last year, as companies retrenched from their pandemic exuberance by cutting costs and jobs, the tide seems to be turning again, observers say.

Khaled Helioui, partner at London-based venture capitalist fund Plural, says: “Tech has come back in investors’ appetite. This is where they expect growth to happen. The level of capital investment that you need is limited and you can generate doubling or tripling in size on a year-to-year basis.”

Artificial intelligence is the main driver for investor interest now, says Luciana Lixandru, a partner at US venture capital giant Sequoia Capital. “We’re seeing a lot of companies being created, thanks to everything that’s happening in AI, with products that couldn’t have existed three or four years ago,” she says.

AI’s impact is expected to be felt beyond technology-focused sectors, too. “In every industry, there will be disruption through tech and especially with AI — even in the construction sector,” says Christian Meermann, an investor and founder of Berlin-based venture capital fund Cherry Ventures.

AI technology has already been applied to sectors from agriculture to transport, and experts say its magnifying effects are only set to intensify.

Tech has come back in investors’ appetite. This is where they expect growth to happen

Construction was the second best represented sector in the FT 1000, followed by ecommerce in third place, and fintech and financial services in fourth. Energy and utilities rose one place, to fifth.

Russia’s war in Ukraine has meant “energy consumption and efficiency have been dominating concerns for European businesses”, notes Meermann, adding that “while this has been a clear hurdle for manufacturing and industrial companies, it’s also created — or supported — an environment that’s ripe for innovation.”

This has been the case for Raylyst Solar, a Czech wholesaler of solar panels and leader of this year’s FT 1000 ranking. Launched in 2018, the business posted sales of €111mn in 2022, with average annual growth of 824.4 per cent for 2019-2022.

Raylyst has grown off the back of Chinese suppliers, which dominate the market in Europe, as local manufacturers and providers for solar and wind power buckle under the strain of surging costs.

But investors say there is still momentum in the European energy sector. Russia’s war in Ukraine, says Helioui, was “a clear wake-up call as regards to the precarity of our energy sovereignty as a continent”, which has driven investment.

“Our investments — ranging from fusion energy leader Proxima Fusion to carbon dioxide removal registry Isometric — are a testament to just a few areas where Europe is clearly ahead,” he argues.

While Raylyst tapped into a general move towards renewable energy, digital advertising agencies Adagio and Bidberry benefited as consumers and advertisers migrated online during the pandemic — reaching second and third in the ranking, respectively.

Rising demand for digital marketing services is not just a response to changing behaviours as consumers spend more time online, analysts say. It is also a strategic move by companies to leverage data analytics and AI for more targeted products, services, and ad campaigns.

Meermann describes it as “a natural move as people reduce their spend on all the traditional [outlets] and move everything [digital]”.

Many ecommerce groups experienced rapid growth during the pandemic, but this year’s FT 1000 reflects a recalibration, as the num­bers on the list were lower.

“Europe’s ecommerce sector has not consolidated in the way it has in the US,” says Helioui. “It’s more related to the investment cycle and a lack of ambitious cross-border M&A, rather than being a fundamental European problem,” he suggests. “Ecommerce has a tonne of potential [in the region] and there are no structural reasons that prevent the emergence of a pan-European winner with global ambitions.”

Investors say they are looking to back companies that can show resilience and adaptability — in other words, not just growth but the sustainability and innovation needed to remain corporate leaders. 

Sequoia’s Lixandru says that what many high-growth companies have in common is not revenues but their ambition to build “a generational company”. However, she warns: “Most companies don’t get there because that’s really, really hard. But we have to be able to dream with these founders who really [want to solve] a particular problem.”

More importantly, investors say, the founders must demonstrate an ability to build a business with a novel proposition from scratch, despite the many challenges. “We are going back to the basics of investing” says Helioui. “How hard is it to build what they are building? Can they build a moat [a competitive advantage]?”

He adds that, whatever the obstacles or economic environment, there is “never a bad time to invest. The new behemoths that are going to become the leaders of tomorrow are created every year.” 

Still, Meermann at Cherry Ventures points to the impact of higher interest rates and consequently more expensive financing: “That means capital is not available anymore, as it was three years ago. So founders need to be way more efficient and need to think about profitability. It’s not about just growth anymore.”