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Europe’s tech unicorns are beating the US on this one key metric

Europe created fewer unicorns – technology start-ups with valuations of $1 billion or more – in last 12 months compared to the year before, but the companies are much stronger at generating revenues than their U.S. counterparts, a new study shows.

In the 12 months, 10 new unicorns have been produced in Europe, down from the 13 created in the previous year, according to a report by British investment bank GP Bullhound. This brings the total number of tech start-ups valued at over $1 billion to 47 in Europe, up from the 40 last year, after 3 start-ups dropped out of the club.


Revenues and profit

A look under the hood of Europe's unicorns shows that they are in a much more financially viable state than U.S. start-ups. While U.S. start-ups are able to raise much more capital, they are not making as much revenue, according to the report.

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Karl-Josef Hildenbrand | AFP | Getty Images

The average revenue of European unicorns is almost three times as high as their U.S. counterparts - $315 million compared to $129 million.

And U.S. unicorns are valued, on average, 46 times their revenue, compared to 18 times in Europe. In addition, 60 percent of Europe's unicorns are profitable.

"It's really hard to sell to investors a very high burn story in Europe. You could say U.S. investors are smarter because they look much further ahead and prepared to take bigger losses. Or you could say U.S. investors are fools, pushing bubble and bust cycles by hype investing," Alessandro Casartelli, vice president at GP Bullhound, told CNBC in a phone interview.

"I think if you take each story it's very different but the bottom line is that the bar is higher to get higher valuations in Europe."


Spotify now most valuable

Spotify has now taken the crown as the most valuable start-up in Europe with an $8.5 billion valuation, ahead of Skype. And GP Bullhound suggests that Europe is now on its way to its first "decacorn" – a tech start-up valued at $10 billion.

Across the European continent, the U.K. is home to the most unicorns with 18 out of the 47 residing in the country. Sweden is next, followed by Germany and France.


Looking ahead, GP Bullhound has flagged up companies that could potentially join the unicorn club soon, including on-demand food delivery platform Deliveroo, payments provider iZettle, and music streaming site SoundCloud.

The ten new unicorns are:

  • Anaplan – a cloud-based planning and modelling platform for businesses
  • Auto1 Group – an online trading platform for used cars
  • Blippar – an augmented reality app that lets you point your smartphone and an object and surface relevant information
  • Evolution Gaming – a company that builds live online casinos for companies
  • Global Fashion Group – the operator a number of online clothing stores
  • Hello Fresh – a grocery delivery service
  • IronSource – a suite of tools for app developers
  • Mindmaze – a company that makes virtual reality to help patients recover from strokes
  • Mobli – a start-up that creates social networks and crowdsourcing tools for companies
  • Sitecore – a marketing and customer management platform

Three unicorns fell out of the club. They are:

  • Powa – a payments company that became insolvent earlier this year
  • Qiwi – a publically-traded Russian payments service provider which saw the price of its shares decline amid broader worries in the Russian stock market
  • Ulmart – a Russian online retailer that reportedly took a down round – a funding round at a lower valuation

The average valuation of the 10 new unicorns is $1.3 billion. Among the 47 European unicorns in total, the average valuation is $2.8 billion, slightly down from the $3 billion in the previous year because of the addition of younger, less valuable start-ups.

And Luxembourg, Denmark and Switzerland have joined the list of countries producing unicorns for the first time.