Early-stage funding performed the best of the three stages (though funding was still down 7%), while late-stage startups saw the worst funding pullback year over year.
As American investors reduced their investments, European startups raised $10.6 billion in funding, a decrease of 18% from one quarter to the next and a startling 66% from a year ago, according to Crunchbase data.
European startups funding crunch is similar to that of most of the rest of the world. Global funding decreased 53% from the previous year, according to Crunchbase data, indicating that the tech industry is still having trouble adapting to the high interest rates and general economic unpredictability that will become effective in 2022.
However, the long-term effects of this uncertainty are already becoming apparent. Last quarter, there was a sharp 25% decline in European seed funding, indicating that venture capitalists aren’t yet comfortable making long-term commitments.
Early-stage funding performed the best of the three stages (though funding was still down 7%), while late-stage startups saw the worst funding pullback year over year.
Europe is still getting used to a new funding environment that will require fewer foreign investments. Deal counts are at their lowest points in three years as a result, and businesses are developing plans to enter the American market.
Many of the most renowned venture firms in the United States began searching outside of the country for deals when venture funding peaked in 2021.
According to Francois Veron, managing partner at the French venture capital firm Newfund, in 2022, venture capital firms in the U.S. will be responsible for about 40% of startup funding in France.
He predicts that it will be only 5% in the first quarter of 2023. There is a sense that things are returning to normal, but Veron warned that this will hurt the industry severely. “Investing in startups means that two years after receiving funding, these startups will ask for more money.”
In fact, overall startup funding in Europe is rising towards pre-pandemic levels. Deal counts are at their lowest point in three years, and Europe received $10.6 billion in funding, which is the least amount since Q1 2020, when the continent received $9.9 billion.
For the first time since Q4 2020, funding for European early-stage startups has exceeded that of late-stage businesses by $600 million. That’s a fascinating point, especially given how late-stage startups traditionally use the majority of venture capital funding due to their high capital requirements. The last few quarters have been very difficult for late-stage funding.
The amount of funding in Q1 was $4.3 billion, which was down 77% year over year, in part because the inflation of the pandemic era made it difficult to value companies. It’s still too difficult to determine how much major startups like Klarna and Stripe are actually worth, despite the fact that valuations for many of them have been reduced dramatically over time.
This, along with worries about holding a down round, has prevented funding in this area from moving forward. The funding cutback’s seismic effects have managed to trickle down to seed-stage startups, which have suffered the most from it quarter over quarter. The deal count fell by 28% during the same time period, while funding fell by 25% from one quarter to the next.
The seed-stage hit could be interpreted as a sign of declining investor confidence, with venture firms prioritising their portfolio companies over new investments in order to avoid having to provide them with additional funding in the future (however small it may be).
Quarter to quarter, early-stage startups have experienced very little variation; between Q4 2022 and Q1 2023, funding decreased by only 7%. That’s a strong indication that venture firms are giving it top priority. investment in their currently operating businesses, which may still be in the early stages and without any revenue.
However, as they develop, they may run into some of the issues late-stage startups have with private market funding. To change that, many are turning to the west.
According to Veron, venture capitalists (VCs) are advising their startups to hasten go-to-market plans in the United States, where venture funding is more plentiful.
Veron stated, “We’re not just advising [our startups].” We are also keeping with our plan to establish a presence in the US and expand our network to support the growth of our companies. This report’s data is based on reported data and was obtained directly from Crunchbase. The information given is as of April 3, 2023.
The earliest stages of venture activity are where data lags are most noticeable, with seed funding amounts rising sharply after the end of a quarter or year.
From the date funding rounds, acquisitions, IPOs, and other financial events are reported, Crunchbase converts foreign currencies to US dollars at the current spot rate. Foreign currency transactions are converted at the historic spot price, even though those events were added to Crunchbase a long time after they were first announced.
As of January 2023, we will be reporting corporate funding rounds in a different way. Corporate funding rounds are only counted if a business has raised equity funding at the seed stage via a venture series funding round. Rounds for seed and angel include seed, pre-seed, and angel rounds.
Additionally, Crunchbase includes equity crowdfunding, venture rounds with ambiguous series, and convertible notes with a value of no more than $3 million (in USD or its equivalent in other currencies).
Early-stage consists of Series A, Series B, Series C, Series D, Series E, and later-lettered venture rounds. Crunchbase includes venture rounds of unknown series, corporate venture, and other rounds above $3 million and those less than or equal to $15 million. Technology growth is a private-equity round raised by a company that has previously raised a “venture” round.