Funding for European Tech Startups Expected to Drop by 39%
According to venture capital firm Atomico, there is a projected 39% decline in investment for European tech startups this year, with funding anticipated to decrease from $83 billion in 2022 to $51 billion in 2023.
Retreat of US Investors Contribute to Funding Decline
The drop in funding for European startups is largely attributed to a retreat from US investors, who have been significant drivers of funding activity in the region. Several notable VC funds from the US have established a presence in London to increase their investments in Europe.
Recovery Challenges Following a Challenging Year
The decline in funding follows a brutal year for the technology industry in 2022, with investment for private tech startups in Europe declining by 22% to $83 billion. However, there are signs of resilience, as the overall value of public and private tech companies in Europe has regained the $3 trillion mark.
Varied Impact on Funding for Different Stages of Startups
Early-stage firms have experienced less reduction in funding compared to later stage counterparts. During the first half of 2023, funding for companies raising sub-$15 million rounds experienced a decrease from $10.3 billion in the corresponding period of 2022 to $8.2 billion.
Later stage firms are expected to account for the majority of the overall investment loss between 2022 and 2023.
Tech Industry Struggles Amid Global Factors
Technology firms have faced significant strain due to global factors such as geopolitical tensions and tighter monetary policies. This has led to downward revisions in share prices and compression in valuation multiples for tech companies in Europe.
AI Provides a Glimmer of Hope
Despite the challenges, artificial intelligence (AI) has emerged as a promising area within the industry. Generative AI startups have seen increased investor interest, accounting for 35% of total investment into AI and machine learning firms in 2022.
The potential of AI in driving innovation presents an opportunity for European talent to contribute to the next wave of technological advancement.