Business software companies buck trend with downturn-busting investment

Business software companies bucked a trend in the overall technology economy and, despite a wider downturn, had a 7.4% increase in investment to over $40 billion in 2022. Meanwhile, the European technology sector as a whole saw a drop of nearly 19% in the same period.

These are the key findings of research by Notion Capital on the European business software ecosystem. The venture capital firm’s analysis shows that business software start-ups and scale-ups have performed well, with their value jumping from $1.2 trillion in 2022, from $712 billion in 2021.

Dr George Windsor, Director of Research and Intelligence at Notion Capital and lead author on the report, said: “There has been a clear downturn-busting trend, and the business software sector has performed very well compared to the rest of European tech. This signals how these companies are maturing and coming into their own, taking a more important place in the wider European tech sector.”

Business software companies have evolved from the B2B SaaS [business to business software as a service] sector and encompasses startups and scaleups that focus on emerging technologies – such as artificial intelligence, quantum computing and blockchain – with applications across a range of industries. The research drew on data from Notion Capital and Dealroom and is the first research of its kind that analyses the business software category across the European continent.

Jos White, General Partner at Notion Capital, “As SaaS investors in exceptional SaaS and cloud companies, we have seen first-hand the rapid growth of many companies with a good product-market fit. What we already knew to be the case is backed up by this research: that the European business software sector is one to watch.”

The business software companies are taking a growing portion of the overall technology sector in Europe, comprising 30% of the value of European tech in 2022. Business software start-ups and scale-ups had a value of $1.1 trillion out of a total tech value of $3.7 trillion, an increase from 18% of the total the year before.

The research also showed that European business software companies have been steadily employing people, with employment levels holding at 2.8 million from 2022 to 2023, which followed an increase of 27% in 2021.

Also, European business software companies are attracting more investment from overseas, with US and Asian investors playing an increasingly important role. In 2021, over 40% of the total investment in these companies was made by US-based investors, who tend to invest in later-stage deals.