European Startups Expected to Raise 51 Billion Dollars This Year Down From 2022 Levels

A new report from VC firm Atomico highlights the ongoing venture slowdown as a global phenomenon. The report, based on data from Dealroom and Crunchbase, predicts that if current trends continue, capital invested in European startups this year will be 52% lower than in 2021.

The Numbers Don’t Lie

According to Atomico’s analysis, European tech investment volumes are tracking at around half of 2021 levels, set to reach $51 billion in 2023 compared to $106 billion two years ago. However, this comparison is not entirely useful, given the inflated nature of funding in 2021. A more meaningful benchmark would be comparing 2023 figures to those of previous years when the funding climate was less skewed.

A Bright Spot Amidst the Downturn

Despite the overall decline in investment, Atomico notes that early-stage funding has been relatively consistent throughout the years covered, with a strong emphasis on new European startups being formed and funded. This bodes well for future growth in the region, as a healthy early-stage market can help establish a pipeline of innovative companies.

The Gap Closes Between Europe and the US

Another positive trend observed by Atomico is the narrowing gap between European and American startups when it comes to global capital raised in rounds below $5 million. In H1 2023, 29% of this type of funding went to European startups compared to 36% for American startups.

The Return to First Principles

Atomico’s partner Tom Wehmeier frames the current market conditions as a return to first principles, with investment volumes and valuations now returning to long-term averages. This is not necessarily a bad thing, but it may be challenging for some companies.

Signs of Resilience

Despite the downturn, Atomico identifies "clear signs of resilience" in the data. The primary driver of this hypothesis is that 93% of the decline in investment volume in Europe between H1 2022 and H1 2023 can be attributed to a decline in late-stage funding.

The Future is AI

One area where European startups are showing strength is in artificial intelligence (AI) and machine learning (ML). In H1 2023, European AI and ML startups accounted for 35% of all funding compared to just 5% in 2022.

A Global Phenomenon

The venture slowdown is not unique to Europe or the US. Atomico’s report highlights the global nature of this phenomenon, with many regions experiencing a decline in investment.

The Road Ahead

While it’s impossible to predict exactly how things will play out, there are several factors that may influence the market. Will US VC funds go back to investing in Europe as much as previously? Will the IPO window reopen? Will down rounds become the new norm?

Conclusion

As we navigate this complex and rapidly changing landscape, one thing is clear: innovation and growth will continue, but it’s essential for startups and investors alike to adapt to these shifting market conditions.

Related Topics:

• Atomico
• EC Europe
• EC Market Analysis
• EC Venture Capital
• Fundraising
• Startups
• Venture