This article was co-authored with my colleagues Richard Kotite and Will Sheldon. The Accel 2022 Euroscape was unveiled on 15 October, 2022 at SaaStock EMEA and you can view the full presentation set on top of a stylized topographical map of Europe" width="auto" height="auto" loading="auto" id="">Cloud migration is not losing its momentum; only 40% of workloads have moved to the cloud.With hybrid work, distributed cloud environments, increasing geopolitical instability, cybersecurity remains at the top of CIO agenda.On the public side, $1.6T of market capitalization has been lost in the global here.That said, cloud providers have raised an unprecedented amount of capital over the past couple of years - around $230B across Europe, Israel and the US. A good part of this capital is still sitting on company balance sheets today. In addition, the secular trends which have fueled the emergence and growth of the cloud ecosystem remain very strong:Are public markets overcorrected? with the average forward revenue multiples plunging from 17x in 2021, to 6x in 2022. On the private side, cloud funding in Europe, Israel and the US is down 42% in Q3 2022. From data analytics to security and collaboration, no sector has been immune.As inflation drove interest rates up at the end of last year, public cloud valuations started to correct sharply, driving the value of global Euroscape Index down from $2.8T at its peak down to $1.2T today. The value of the Index is back to where it was pre-covid, but at the time, the index included only 69 companies instead of today’s 122. This translates into a decline of the average forward revenue multiple from 9.0x to 5.7x today. How are the public market dynamics impacting venture funding? To shed some light on these questions, let’s take a closer look at what happened in the global software and cloud market over the last year.The need for automation and digital transformation is stronger than ever, with companies pressured to increase efficiency. Spending is expected to increase from $1.8T in 2022 to $2.8T by 2025.Which top 100 companies have been selected for the Accel 2022 Euroscape? Are we overcorrected? If you look at the historical growth from the index in the past six years prior to COVID, it was very linear with a c.30% CAGR. If you dismiss 2020 and 2021, and extrapolate this line, the value of the index should be around 500 instead of 300, implying 9x revenue multiple and a gap in value of $800B. If you think about it, a secular 30% CAGR is not unreasonable given that we’re not seeing any slowdown in the migration of workloads to the cloud. AWS and GCP growth rates are in the mid 30s and Azure is closer to 40%+. Will we see a flurry of down rounds for the 120+ cloud unicorns created in Europe and Israel over the past few years?***************************Euroscape Cloud IndexSo what does this mean for the cloud ecosystem globally and, at a regional level, for Europe and Israel? Crypto ecosystem continues to progress, with BTC up 100% and USDC market cap reaching $50B, up 100x since Dec 2019.The world has reset.What happened on the public market sides: are we over-corrected?
A bar chart showing that revenue multiples for SaaS companies have fallen below 10-year pre-covid average levels.*************************).This year, we’ve screened 2200+ companies across more than 25 countries to build the list of what we think are the most promising early stage cloud companies across Europe and Israel. These companies have more than $1m in ARR, but are not yet unicorns. Combined, they represent 20,000 employees, have raised $8B and their employee growth rate has been above 115% in the past year. You can see the full list of companies in the digital transformation cyber security and crypto.What continues to excite us is that cloud momentum continues to grow all over the world. Yes, there’s a reset currently, but we remain strong believers in the secular trends that have fueled the ecosystem’s growth over the past decades and are confident that the long term momentum will continue. A different way to ask the question would be: “Will the $44B raised by EU/IL Unicorns in the past couple of years be enough to help them grow into their valuation?” In other words, what efficiency level do these unicorns need to reach in order to avoid a down round. If this level of efficiency is reasonable, then we should expect these companies to avoid a down round. If it’s challenging, then it’s likely that these down rounds will happen.Proliferation of embedded financeRegarding unicorns, it’s been interesting to see that out of the 33 new unicorns created this year in Europe and Israel, 11 have come from smaller hubs including Ireland (FlipDish, TransferMate), Switzerland (Sonar, Scandit), Belgium (Deliverect) and Estonia ( in Romania, in Israel, and CrowdStrike in the US. We can’t wait to see what the next decade will bring. and With increasing pressure from the macro environment, roughly a third of the companies in the index missed their consensus revenue estimates in Q1, compounding the decline. No one has been immune, but the more efficient companies - meeting the “Rule of 40” - have been less affected with multiples divided by 2.2 vs. 3.5 for the rest of the companies. In this context, the cloud IPO market is experiencing its biggest drought since the 2008 crisis, but M&A activity remains high, driven in particular by funds taking public companies private (e.g. AthenaHealth, Anaplan, Zendesk and Avalara), paying on average a 33% premium to the stock price. We see this trend continuing if valuations remain at this level: there's around $770B available to buy cloud companies, with $440B of cash sitting on the balance sheets of strategics and $330B of dry powder from tech-focused private equity funds.What is happening in the private cloud financing world?How does the volatility we’re seeing on the public side impact the private market? If you look at the total capital raised by cloud companies in Europe, Israel and the US this year to date, there’s not been a drastic change with total cloud funding reaching $74B, just 12% lower than last year. However, if you zoom in on Q3, the numbers show a very different picture with a sharp 42% decline. The financing data for 2022 reflects the lag between financings and announcements. In our view, the market really started to inflect in Q2, with late stage financings being the first to be impacted. This is very clear when you look at the data of new cloud unicorns, with 51 in Q1, 40 in Q2 and only 3 in Q3 2022.On the early stage side, the activity has declined but the seed and series A size has not reduced yet. We’re just starting to see the series B size declining from $39m last year to $36m this year. If we compare the US vs. Europe and Israeli cloud ecosystems, it’s striking to see that they’ve become very similar:Europe/IL is stabilising at c.60% of the US marketObserved decline is similar in both regionsRound sizes are following the same trends, both for large rounds and early stage roundsOn the unicorn front, Europe and Israel have generated 122, which is around a third of the US number, but you’d expect this gap given that the ecosystem is more recent. It’s interesting to note though that EU/IL unicorns have attracted 55% of the $82B invested in the past couple of years in cloud companies, a concentration similar to what we’ve observed in the US.Web3/crypto developer, data and security tooling levelling upWe’ve bucketed the 122 European and Israeli cloud unicorns by revenue range and the analysis shown below shows that, outside of the $0-50m ARR bucket, most companies should be able to grow their valuation and avoid a down round. However, getting to a 2x up-round will be challenging.Infrastructure and tooling for the hybrid workforcethe full reportWe’ve deployed more than $8B across 350+ companies in the past three decades and have been fortunate to partner with many exceptional cloud founders globally. It’s inspiring to see that the world of cloud is now flat and any region can generate a category defining company, from 2022 Accel EuroscapeYou can read more about these trends in in spite of the reset." width="auto" height="auto" loading="auto" id="">What’s next?full presentationWe’re excited to see that innovation continues to come from everywhere in Europe. VeriffTo do this analysis, we have assumed a 10x average revenue multiple for the next round of financing and calculated the revenue gap. Then we compare this revenue gap with the capital remaining on their balance sheet to calculate how much they can invest to generate $1 of incremental revenue. In our experience, investing around $1.5+ for every incremental $1 of ARR is something relatively achievable. Getting to sub $1 for every incremental $1 of ARR is challenging (while maintaining a high growth rate).Are we going to see down rounds for the European and Israeli unicorns?To conclude our report this year, we’ve highlighted six trends, which we think have a strong chance of generating the future champions of the European and Israeli cloud ecosystem:We often get asked whether we should expect down rounds for cloud unicorns in the coming months in Europe, with people referencing Klarna as an example. It’s a difficult question to answer. .Personalised commerce becoming a reality in Germany, Rise of the developer driven data stackCloud security turning to the application and cloud layers
Three graphs showing the geographical diversity of SaaS unicorns in Europe and Israel.
A prediction table for European and Israeli Unicorns, predicting that flat funding rounds are likely, and up rounds will be challenging.
Bar graphs showing strong secular trends of increasing spend in shifting to the cloud</figure><p id=
Line graph showing the performance of Accel's Euroscape Index vs the NASDAQ index in Australia to over time.
A banner promoting Accel's 2022 Euroscape event</figure><p id=
