European startups on track to raise $85B this year, up from $100B+ in 2021 • TechCrunch
Startups across Europe are on track to raise $85 billion in funding this year – down $15 billion from 2021 levels when funding topped $100 billion, according to a report on the state of European technology. The figures come from London-based venture capital firm Atomico’s annual report on the state of European technology, which has become an indicator of the tech industry in the region, and they underscore the pressure it is under as that the region is grappling with an ongoing war in Ukraine, an economic collapse, and a population reeling to get back on their feet and be productive again after two years of the Covid-19 pandemic. In total, the European tech industry has lost around $400 billion in value, Atomico said: it is now valued at $2.7 trillion.
The report – which includes a survey of VCs and founders, as well as research from third-party companies like Dealroom – also notes that tech layoffs in the region will reach around 14,000 for the year, a giant figure, but still only a 7% of the total number of layoffs in the world, which amounts to around 200,000, he said.
The total figure raised isn’t quite a grim message either when put into context. Atomico noted that funding for the year was actually on track to top 2021 levels until mid-year when activity fell off a cliff – which is not a good sign for 2023. But the $100 billion raised in 2021 was also an outlier year. The 2020 numbers were just $39 billion, a year when all sorts of activity came to a halt with the onset of the pandemic.
Why the fall? Interestingly, respondents said that while the economy – particularly higher interest rates and inflation risk – were the main cooling factors affecting the European tech industry, the second most important factor was a hostile regulatory environment, followed by public market company performance and general public sentiment around technology, with the geopolitical situation in fourth place.
Indeed, some of Atomico’s other big findings confirm what many of us have seen unfold. IPO markets, Atomico notes, are totally closed. There were only three IPOs this year in the region, compared to 86 the previous year, a drop of 30%.
And the number of “unicorns” produced – that is, companies reaching a valuation of more than $1 billion – has also fallen. There were 31 this year, compared to 105 in 2021. But again, as with funding, this seems to indicate that last year was an outlier: 2020 had 25 and 2019 had 35 companies with valuations of one. billion or more.
Likewise, he found that the funding rounds themselves decreased in size as the year progressed. Again, as with overall funding, the first half of the year broke records, with 133 equity funding rounds of $100 million or more (not counting debt or secondary rounds), or more than 2019 and 2020 combined. However, it may have been founders looking to make hay while the sun was still shining: in the second half of the year, that total fell to “just” 37 towers that size. American investors are also traveling less in the region: their participation has decreased by 22% compared to 2021.
Notably, it’s not just those on the growth side of the spectrum who feel the pinch:”82% of founders who responded to the survey believe it is now more difficult to raise venture capital than 12 months ago,” the report notes.
And in tougher times, a push for diversity has been even more overlooked than before. Atomico noted that 87% of all venture capital funding in Europe “is still raised by all-male founding teams.”
Conversely, the proportion of funds raised by women’s teams has fallen from 3% to 1% since 2018: the number of transactions has remained stable at 5-6% but the money going to them has not increased . “Same when all-female teams manage to raise a round, they are likely to receive less – and this trend is going in the wrong direction,” Atomico notes, and you can see just how poorly women are represented in the game below. upper end of the funding spectrum in real terms, although they have increased slightly in some parentheses:
Ethnic minority founders, meanwhile, find it even harder to make an impact. Only 1.4% of funding by number of deals went to entirely minority founding groups; and only 0.7% went to them in value. (Atomico does not detail other categories in DEI.)
Unsurprisingly, all the bad signs add up to a massive devaluation. The wave of private company markdowns and lost market capitalization for public companies resulted in an estimated $400 billion loss for the technology as a whole, Atomico notes. It is now collectively valued at $2.7 trillion, up from $3.1 trillion at the end of 2021.
A silver lining of the trickle down effect on tech – where the biggest companies (those that are publicly traded, or very mature and private) might feel the biggest pinch – is that the early stage is still doing very well in all in Europe, relatively speaking. The region’s young startups account for 51% of investments in “goal-driven” tech companies. (Note: these are startups that either mix science and technology or use technology to solve bigger problems in the world, such as climate change, which is not the same as investments in everything start-up startups.)
And just as we’ve listed a number of venture capital funds in the region raising over $1 billion this year, Atomico is connecting the dots on this to note that there is indeed a lot of “dry powder there – funds ready to be invested when the right opportunities arise.
At the end of 2021 (the latest full period available), InvestEurope estimated there was some $84 billion in uninvested funds across Europe – coincidentally not far off the total amount startups will have raised this year. . That $84 billion includes both venture capital and Given the amount of fundraising collectively in the industry this year, and the subsequent decline in investment, particularly in the second half of this year, Atomico thinks dry powder reserves could be even higher when it all counts. , although currently it seems to be half as much:
“The technology ecosystem as we know it is barely twenty years old and during that time we have matured at an incredible rate. The real success of the sector is built on talent, innovation and long-term business building,” writes Tom Wehmeier, Atomico Partner and Chief Knowledge Officer, and co-author of the report. “The crucial pieces of this puzzle remain in place, with $44 billion of European venture capital funds ready to invest in the right opportunities. In terms of the underlying strength of our ecosystem, much less has changed than we think.
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