Investing in the champions of Europe

On a recent visit to Berlin, Lawrence Burns spent a busy day shuttling among the head offices of some of the city’s leading online disrupters – fashion platform Zalando, quick-commerce pioneer Delivery Hero and meal kit provider HelloFresh.

A visit like that would have been impossible 10 years ago, when ‘European innovation’ still struck many money managers as an oxymoron. Today, though, no one in search of the next big thing can afford to ignore what’s happening in Berlin and elsewhere on the continent, says Burns.

“It’s been harder in Europe to find American or Chinese levels of company creation,” Burns notes. “What matters is ambition and mindset, and in the US and China people believe they can build companies that they’re convinced can succeed, even if they only have a one in 20 chance. You might say that’s bravado or arrogance, but the atmosphere it creates can be helpful because people need to believe in themselves.

“Now there are European cities where you’re seeing that culture develop, and Berlin is one of them.”

Burns hunts for what he calls “outlier companies” capable of growing to global scale, and he is seeing more and more of these potential world changers pop up in Europe. They range from service-based networks such as HelloFresh and cutting-edge manufacturers such as Netherlands-based chip technology specialist ASML to green-tech pioneers such as Climeworks, a Swiss company that is building industrial-scale contraptions to suck greenhouse gases out of the atmosphere.

Thanks to companies of this sort, the market value of Europe’s innovation sector has swelled fivefold over the past five years, Burns estimates. He expects more gains to come. “It’s like a snowball effect,” he says, as one success builds on another.

A group of European disrupters is proving that large-scale innovation isn’t limited to the west coast of the US or the east coast of China. The group includes Daniel Ek of Swedish-based music-streamer Spotify, Tim Steiner of UK online grocer Ocado, and Niklas Östberg and Robert Gentz of Germany-based food delivery service Delivery Hero and ecommerce company Zalando respectively. They are thinking big and inspiring others to do the same.

Steiner, for example, is pioneering the use of advanced robotic technology in food distribution. The London-born entrepreneur has secured commitments from customers around the globe for about 60 of Ocado’s automated grocery warehouses. He is planning for many times that number.

Similarly, Dominik Richter, founder of HelloFresh, has always had a vision that extends beyond his local German market. HelloFresh’s not-so-modest goal is to “change the way people eat forever” by building a global platform capable of delivering scores of specialised food options. With more than a billion meals delivered in 2021, HelloFresh is already the most popular meal kit company in the world.

Institutional investors are taking note of these big ambitions, according to Burns. Europe is attracting a growing share of the world’s venture funding. Prominent backers of early-stage companies include Ek, who is reinvesting some of his Spotify fortune in European tech startups, and Kinnevik, the holding company controlled by Sweden’s Stenbeck family, whose board is now chaired by former Scottish Mortgage manager James Anderson.

Burns argues that Europe has a deep pool of technical expertise that is often unjustly neglected.

He offers ASML as a case in point. Headquartered near Eindhoven, the Dutch giant dominates the global market for sophisticated microchip-making machines. Using ‘extreme ultraviolet lithography’, they lead the world in supercharging chips by enabling the addition of billions of transistors with microscopic precision, improving power, speed and energy efficiency. Each of its flagship units sells for upwards of €300m and is so massive that it requires fleets of planes and trucks to transport. Yet ASML garners scant attention despite its key role in the global tech industry and its building of what many academics regard as the world’s most complicated machines.

The company’s relative anonymity leaves Burns shaking his head. “Europe does have one truly utterly world-leading tech company,” he drily observes. “We just never talk about it.”

As galling as that may be, ASML demonstrates what may prove to be Europe’s hidden strength – an ability to mesh high technology with the continent’s legacy of manufacturing excellence. Sure, Silicon Valley may excel at rolling out clever apps for your smartphone. But Europe shines when it comes to building complex machines.

“Many of the problems in the world today are deeply rooted in the physical world,” Burns says. When it comes to tackling issues such as climate change, European companies take a back seat to no one.