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The author is a partner of Thoma Bravo and head of the company’s European operations.
Many global software investors still treat Europe as an afterthought to their core strategy. I think this represents a serious misallocation of investment attention.
Gartner research reveals the numbers that reveal growing ecosystems hidden in obvious vision. In 2024 alone, software spending in Europe rose 11%. The company expects this to slow down below 9% this year, but the increase is far surpassing EU economic growth.
And much of this software is provided by local businesses. According to data from CrunchBase, it is hosted by over $10 million software companies in Europe, generating more than $10 million in annual revenue.
Many of these European software companies are revenue-focused scaling-up companies that have learned to grow sustainably under different constraints than their Silicon Valley counterparts.
This does not deny the very real challenges that have long hindered innovation in Europe. The regulatory deficit remains, productivity is slower, and risk appetite is relatively modest in several ways. However, obstacles often obscure opportunities targeted by one of my company’s funds – for full disclosure.
What drives software development in Europe? Three convergence forces create the important tailbone.
First, the transition of the clouds is picking up steam. 68% of European organizations still run less than half of their workload in the cloud, McKinsey estimates. For example, consider Germany, where cloud adoption is rapidly increasing. Currently, 46.5% of companies use the technology, and an additional 11.1% are planning to consolidate, according to Inkwood Research. This magnitude of change is expected to lead to tens of millions of software spending and increase visible productivity gains across the economy.
Second, geopolitical tensions are accelerating the demand for greater technological sovereignty, from cloud requirements to data localization mandates, to local support and partnership preferences. European companies are increasingly supportive of local software providers who can navigate local regulations, provide hosting national data and provide proximity to critical business applications.
Third, the funding situation is changing. While European software has attracted significant early stage venture capital investments over the past decade, the world of acquisitions has often overlooked mature companies in the region. For decades, the software company has learned to build robust businesses under constraints, to be profitable faster and focus on sustainable growth rather than pursuing scale at any cost. Now they need capital to accelerate organic growth and drive mergers and acquisitions.
It’s far from the investment environment in Silicon Valley. European software companies operate in a variety of regulatory environments, serve customers with different procurement cycles, and build business models that are rapidly expanding and optimized for profitability. These are not inferior properties – individual value creation levers that require a special approach.
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Consider the regulatory situation. Critics refer to compliance costs from frameworks such as the EU’s new laws regulating artificial intelligence, but regulations create competitive advantages for businesses that acquire complex requirements early. If similar rules are spreading worldwide, European companies practiced in navigating the complexities of regulations should have a major head start in new markets.
The actual test is not whether Europe can replicate Silicon Valley’s rapid iteration and risk-taking culture. It is whether investors can recognize that different innovation models benefit from different capital strategies, and whether they can deploy resources accordingly. European software companies can move more intentionally than many Silicon Valley startups, but often they build more durable businesses with stronger unit economics and a clearer path to sustainable profitability.
In pursuit of stable interest rates and the so-called “dry powder” – commit capital to private equity funds – European software offers opportunities for what institutional investors need. For global software investors, Europe is no longer a great diversification play. It is an essential growth engine.
