Investors See New Sparkle in Europe’s Tech Scene

The region has never had its answer to the likes of Apple Inc., Microsoft Corp. and Netflix Inc. to the west, or Alibaba Group Holding Ltd. and Tencent Holdings Ltd. to the east. But European investors and founders say there has never been a more hospitable climate for their burgeoning tech companies. 

Paris-based Back Market, an online marketplace that sells refurbished iPhones and other electronic devices, said this month a recent funding round boosted its valuation to $5.7 billion.

Grocery-delivery company Gorillas Technologies Ltd., based in Berlin, raised nearly $1 billion in October from investors including Coatue Management, Tencent and DST Global. U.K. online payments business Revolut Ltd. brought in $800 million last July from the likes of SoftBank Group Corp. ’s Vision Fund 2 and others, valuing the company at $33 billion.

“People have doubted whether Europe can create really big companies because it’s more fragmented and it’s more complicated,” said Zoé Fabian, who oversees growth equity investments in several European countries at private-equity firm Eurazeo. But the recent surge of funding seems to have changed the narrative, she said. 

Part of the frenzy is driven by envy of Silicon Valley in European capitals, where governments have created programs to jump-start tech fundraising. 

French President Emmanuel Macron last year signed off on an initiative aiming for 10 European tech champions each worth more than €100 billion, equivalent to $113 billion, by 2030. France also unveiled an initiative in 2020, under which institutional investors pledged to invest €6 billion over three years to finance tech companies through private funds. Capital has been doled out to companies including iziwork, which matches temp workers with employers, and PayFit, which offers automated payroll software.

In Germany, the government last year launched a so-called Future Fund, using €10 billion of government money and €30 billion in total with private and public partners to provide funding for startups. The first investments were made into venture-capital funds last year, which will deploy the money into companies. 

Ms. Fabian said it can be cheaper to set up certain companies and hire for them in Europe than in Silicon Valley, with its high cost of living. Her team raised $2 billion in July for its third fund. Last year, her team doubled its number of investment professionals to 16 and looked at 300 deals, up from 200 in 2020.

Nazim Cetin, chief executive of Allianz X, the digital investments arm of German insurance company Allianz SE, said European companies have matured. Many have moved beyond their early growth stage, which means investors are deploying larger sums into them. Allianz X is an investor in N26 Bank GmbH, a Berlin-based digital bank that last October raised $900 million in new funding that valued it at more than $9 billion.

The number of European tech IPOs has jumped, even if they remain small compared with U.S. tech giants. And because valuations of European tech companies haven’t yet reached those of the U.S., they present a bargain for investors and a chance to juice returns from a company’s IPO. According to CB Insights, there were 185 European tech IPOs in 2021, including U.K. fintech Wise PLC, up from 85 in 2020.

Companies have the advantage in raising money right now, said Spencer Crawley, co-founder of firstminute capital, which has just over $300 million in assets under management, and invests in seed rounds globally with a focus on the U.S. and Europe. 

Companies are commanding valuations now that they will grow into in three to five years, not one to two years as it was a couple of years ago, Mr. Crawley said—evidence of faith from investors. Mr. Crawley said his firm is raising the size of the checks it writes to try to beat the upsurge in investors crowing the space. 

Christian Wiens, chief executive of Getsafe, which sells digital insurance products through an app in Germany and the U.K., said his company could have raised more than the $93 million it did in its last funding round, which had already been expanded. 

Mr. Wiens said he had received interest from global investors but saw it as a positive sign that European investors, who comprised the round, were interested in plowing money into later-stage startups.

Write to Julie Steinberg at julie.steinberg@wsj.com