European tech investment is predicted to hit record levels in 2020, despite the disruption caused by the Covid-19 pandemic.

This is according to venture capital firm Atomico’s State of European Tech report, an annual deep-dive into the world of European tech.

In 2019 a record $38.6bn was invested in the European tech sector. But this year there were fears that the events of 2020 would hamper further growth in the sector.

However, Atomico noted that the European technology ecosystem has “more than survived”, benefitting from the shift to digital prompted by the pandemic.

In 2020, total investment in the European tech sector is predicted to exceed a record $41bn, driven in part by “mega-rounds” of $100m or more. Atomico noted that “international investment has not dried up as some feared it might this year”.

This trend is backed up by a new report produced by Dealroom for Index Ventures, which shows that Europe’s tech sector is worth four times what it was five years ago.

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Success stories include Romanian robotic process automation company UIPath and Swedish banking company Klarna, which both reached $10bn valuations while private.

There are now 115 venture capital-backed unicorns, startups valued at over $1bn, in Europe, with 18 new unicorns in the last 12 months.

Companies such as Spotify and payments platform Adyen also reached valuations of $50bn in 2020, with Atomico noting that $100bn valuations could soon be “inevitable”.

European tech investment grows in challenging circumstances

Despite this cause for optimism, the report also found that there are concerns in the sector over attracting investment. According to Atomico, almost half of those it surveyed said they have found it harder to get funding this year, as well as facing challenges in pivoting their products in response to the pandemic. Respondents also cited they had struggled with a decline in sales.

The year was not without its challenges for the sector. According to Atomico, there has been a shortage of funding at Series B level, the second round of funding for a company, and has also seen fewer $250m+ funding rounds than 2019.

However, the company remains optimistic that the European tech market could be an “engine for recovery”, with continued growth on the horizon providing a number of actions are taken.

It highlighted that more leading tech companies must “find paths to liquidity that benefit European builders and investors while retaining our world-class talent”. It also noted that improving diversity and inclusion in the sector is key. It is also important for European startups to be “front and centre” in the fight against climate change. Lastly, the industry must be supported by supportive regulation and government action.

Commenting on the report, Russ Shaw, founder of Tech London Advocates & Global Tech Advocates said:

“This year’s encouraging Atomico Report is undoubtedly a testament to the resilience of the UK’s tech ecosystem. Regardless of the pandemic, the tech sector continues to lead as Europe’s tech powerhouse – attracting more capital than France and Germany.

“Yet, now is not the time for complacency. There are big challenges that lay ahead with the true economic impact of the virus still to be seen, and the looming prospect of a no-deal Brexit ever prominent as this week the Prime Minister heads to Brussels in a last-ditch attempt to salvage an agreement.

“The report highlights the depth of capital in our markets and the abundance of world-class tech talent in the UK. Whilst I remain hopeful that this sector will continue to exceed expectations in the years to come – an agreement on data flows with the EU and a concerted effort to increase the provision of digital skills across Britain would only strengthen its position at this pivotal moment.”

Read More: European Commission to “rewrite rulebook” on Big Tech regulation.