Klarna IPO & ASML/Mistral Investment Spark European Tech Revival Hopes

LONDON — The European technology landscape is witnessing a flurry of activity this week, signaling a potential shift in its competitive standing against the established dominance of the U.S. and Asian markets.

ElevenLabs, the London-based artificial intelligence startup, made headlines Tuesday by enabling employees to sell their shares in a secondary offering, effectively doubling the company’s valuation to a substantial $6.6 billion. This move highlights the growing confidence in European AI ventures and their ability to attract significant investment.

Adding to the momentum, Dutch semiconductor giant ASML confirmed Wednesday its leading role in French AI firm Mistral’s 1.7 billion-euro Series C funding round. This investment values Mistral at an impressive 11.7 billion euros ($13.7 billion), a significant jump from its 5.8 billion-euro valuation last year. Mistral, positioned as a potential rival to AI heavyweights like OpenAI and Anthropic, benefits from the infusion of capital and ASML’s deep industry expertise. ASML’s strategic investment underscores the increasing convergence of the semiconductor and AI sectors, recognizing the crucial role of advanced chip technology in powering cutting-edge AI applications. The implications extend beyond mere financial backing; it signifies a strategic alignment that could give Mistral a technological edge in the rapidly evolving AI landscape.

Culminating the week’s activity, Swedish fintech giant Klarna made its debut on the New York Stock Exchange (NYSE) on Thursday following a much-anticipated initial public offering (IPO). Klarna shares concluded the day at $45.82, resulting in a market capitalization exceeding $17 billion. This IPO marks a pivotal moment for Klarna, validating its “buy now, pay later” business model and providing access to significant capital for future expansion and innovation.

Collectively, these developments have reignited discussions about Europe’s capacity to foster a competitive technology industry, one capable of challenging the established ecosystems in the U.S. and Asia. For years, investors have emphasized Europe’s untapped potential, pushing back against the notion that Silicon Valley holds a monopoly on innovative ventures.

However, the envisioned “golden era” of European tech has faced headwinds. The 2022 Russian invasion of Ukraine triggered inflationary pressures, leading global central banks to raise interest rates. These higher rates pose challenges for capital-intensive tech companies that often rely on raising capital to fuel their growth strategies.

Ironically, in the same year, Klarna, once valued at $45.6 billion in a SoftBank-led funding round, experienced an 85% reduction in its market value, plummeting to $6.7 billion. This sharp correction highlights the vulnerability of high-growth tech firms to changing macroeconomic conditions and investor sentiment.

Amidst recent activity in Europe, venture capital investors adopt a measured perspective, characterizing the resurgence of European tech companies as progress rather than a full-scale transformation.

“This started 25 years ago when we saw the first signs of a European tech ecosystem inspired by the original dotcom boom that was very much a Silicon Valley affair,” Suranga Chandratillake, partner at Balderton Capital, told CNBC.

Balderton has backed a number of notable European tech names including fintech firm Revolut and self-driving vehicle tech developer Wayve.

“There have been temporary setbacks: the 2008 financial crisis, the post-Covid tech slump, but the ecosystem has bounced back stronger each time,” Chandratillake said.

“Right now, the confluence of a huge new technological opportunity in the form of generative AI, as well as a community that has done it before and has access to the capital required, is, unsurprisingly, yielding a huge number of sector-defining companies,” he added.

Investors supporting European tech startups see significant opportunities, particularly given the economic uncertainties created by international trade policies. The perception of a valuation discount on European tech assets is further incentivizing investment.

Atomico’s recent “State of European Tech” report valued the European tech ecosystem at $3 trillion, projecting an increase to $8 trillion by 2034. In contrast, the largest megacap tech stocks in the U.S. collectively are valued in excess of $20 trillion, emphasizing the difference in scale between the two markets.

“Ten years ago, there wasn’t a single European startup valued at over $50 billion; today, there are several,” Jan Hammer, partner at Index Ventures, told CNBC.

“Tens of thousands of people now have firsthand experience building and scaling global companies from companies such as Revolut, Alan, Mistral and Adyen,” Hammer added. “Crucially, European startups are no longer simply expanding abroad — they are born global from day one.” This “born global” mentality signifies a shift in approach, enabling European companies to compete effectively on the global stage from their inception.

Amy Nauiokas, founder and CEO of fintech investor Anthemis, suggested that investors may be viewing Europe as a relatively stable investment destination amid heightened geopolitical risks and broader macroeconomic instability.

“This is an investing opportunity for sure,” Nauikas told CNBC. “Macroeconomic dislocation always favors early-stage entrepreneurial disruption and innovation.”

“This time around, trends in family office, capital shifts … and the general constipation of the U.S. institutional allocation market suggest that there should be a lot more money flowing from … global investors to U.K. [and] European private markets.” The implication is that economic factors could divert capital flows towards European markets and their private sector, a lucrative opportunity for investors.

Despite the growing optimism surrounding the European tech sector, several structural challenges remain that impede the growth and scale of regional tech companies in comparison to their U.S. and Asian counterparts.

Startup investors have been advocating for increased contributions from pension funds into European venture capital funds for some time. Furthermore, the fragmentation of the European market, marked by varied regulations across different nations, adds complexity to the challenge.

“There’s really nothing that stops European tech companies to scale, to become huge,” Niklas Zennström. CEO and founding partner of early Klarna investor Atomico, told CNBC.

“However, there’s some conditions that make it harder,” he added. “We still don’t have a single market.” Zennström’s remark reflects the difficulties that many European tech businesses encounter when attempting to function throughout the larger European Union, in contrast to the more consolidated marketplaces in the United States and Asia.

Recognizing these challenges, several tech entrepreneurs and investors have endorsed “EU Inc.,” a recently established initiative aiming to bolster the EU’s tech sector by advocating for a “28th regime.” This proposed pan-European regulatory framework intends to streamline the intricate web of regulations that currently diverge across individual EU member states, reducing the roadblocks for European companies looking to grow and work across borders.

“Europe is in a bad headspace at the moment for quite obvious reasons, but I don’t think a lot of the founders who are there really are,” Bede Moore, chief commercial officer of early-stage investment firm Antler, told CNBC. His perspective suggests a sense of resilience and determination within the European entrepreneur community.

“At best, what you can say is that there’s this secondary tailwind, which is that people are feeling galvanized by the need for Europe to … be a bit more self-standing.” The desire for Europe to foster its own standing in the global tech arena fuels a kind of ambition for many European leaders in a way that could possibly open up new avenues for innovation and success.