Since IPO activity dropped off a cliff in early 2022, we’ve seen no shortage of speculation and anticipation about when the window will reopen. While much attention has been focused on when companies will start entering public markets again, we’ve been looking closely at where revenue comes from for the most successful IPOs and late-stage private companies.
One critical characteristic they share, which few people realize, is that they are nearly always global businesses before going public—and Europe is the primary driver of their international revenue.
Prevailing memes in the tech echo chamber often paint Europe as inferior to the U.S. in terms of work ethic and innovation, with a population of risk-averse, regulation-loving holidaymakers. Recent elections and fears of political instability add to these concerns. As a result, many U.S. founders and board members dismiss the importance of Europe and de-prioritize expansion efforts.
Actually, these perceptions of Europe are irrelevant to capturing market share and shouldn't matter to the U.S. CEOs. The only thing that matters is Europe's buying power, for which gross domestic product and software spend are a good proxy. Europe is the largest addressable market outside the U.S., representing 27% of software spend and a GDP of over $20 trillion. An even more telling metric of Europe’s importance is its contribution to global revenue. Multi-billion dollar companies—both recently public and those on the verge of an IPO—recognize this, and CEOs earlier in their journey should take note.
Our analysis of recent software IPOs reveals the importance of European revenue. Klavyio, which went public last September, reports 20% of its revenue coming from Europe, while Rubrik, which went public in April, reports 25%. Both companies generate just over 30% of their total revenue from outside the U.S. Looking further back, Freshworks, which went public in September 2021, reports 42% of its revenue from Europe, highlighting an even greater revenue contribution.
These companies didn’t wait until going public to build global businesses—they invested in international expansion early on. Of the top 50 private companies by valuation, all but two have expanded into Europe, according to LinkedIn data. Some of the highest-valued companies, and most anticipated IPOs lined up for 2024 or 2025 are truly global businesses with significant European investments. US payments company Stripe has 14% of its employees in Europe, Databricks has 14% as well, and Figma has over 20%.
What does it mean for early and growth-stage startups?
Despite the tech ecosystem’s passive attitudes toward Europe, it’s essential to recognize the pivotal role that European expansion plays in building IPO-ready companies. First, it’s essential to recalibrate your perspective on Europe and recognize its strategic importance in building a global, IPO-ready company.
In an earlier analysis, we studied the IPOs of nearly 200 software startups over the past 20 years and found that while most startups can grow European revenue to around 10% organically, Europe contributes over 30% of global revenues for top-performing B2B software companies at IPO.
This doesn’t happen by accident. It takes years of investment and focus to achieve scale, just as it does in the U.S. As venture capitalists, we’ve spent years working closely with category-leading companies, helping leadership navigate the earliest expansion decisions, such as timing, resource investment, market prioritization, and evolving the company’s organizational design with overseas scale.
If you’re the CEO of a growth-stage startup at Series B or beyond and haven’t started thinking about Europe, you’re behind. If you’re a Series A CEO, pay close attention to customer signals from Europe, as well as the regional competitive landscape. Timing for expansion is one of the most critical decisions, and waiting too long can lead to lost market share.
In all our research and experience, the importance of European markets for IPO-ready companies is clear. So, as we await the next wave of IPOs to hit public markets, it's imperative that CEOs factor in Europe’s significance in their business plans and investment decisions. Overlooking Europe means leaving significant market share and revenue potential on the table, ultimately weakening enterprise value and attractiveness to public market investors.
So, please: Don’t underestimate Europe.
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