A research by venture capital company Atomico predicts that the overall amount of money invested in European tech startups will drop to $45 billion this year.
A research by venture capital company Atomico predicts that the overall amount of money invested in European tech startups will drop to $45 billion this year, a notable 55% dip from the record $100 billion invested in the sector last year. Compared to the tech investment boom of 2021, this is a significant change.
The primary contributors to this sharp downturn are cited as later-stage companies delaying fundraising efforts and a more cautious approach by investors in deploying capital. In 2022, the capital invested in European tech reached $82 billion, reflecting a continued deceleration.
Tom Wehmeier, a partner at Atomico, highlighted that some startups that secured substantial funding in 2021 and early 2022 to achieve billion-dollar valuations may witness a drop below the billion-dollar mark. He anticipates a trend where such companies, facing runway constraints, will need to return to the market in 2024 or 2025 to ensure their survival.
Over the five-year period from 2018 to 2022, a total of 257 European tech companies achieved billion-dollar valuations, with more than 150 attaining this status in the dynamic years of 2021 and 2022.
Despite the anticipated dip in overall capital investment, European funding rounds are still projected to be 18% higher than 2020 levels, the year preceding the tech investment surge in 2021. In contrast, the United States, China, and other countries are expected to record investment figures either flat or below those of 2020, as outlined in the Atomico report.
Wehmeier noted that considering the overheated nature of the tech investment landscape in 2021 and 2022, the fact that Europe is poised to surpass 2020 figures suggests a positive trajectory. Notably, Europe is the only global region expected to surpass 2020 investment levels.
Looking ahead, Atomico envisions substantial growth in the European tech startup landscape. The report forecasts European early-stage startups to surge from 41,000 to over 66,000 in the next five years. Simultaneously, growth-stage startups, defined as firms that have raised at least $20 million, are expected to double to 8,000 during the same period.
While the current year reflects a cooling-off period for European tech investments, the optimistic projections for the growth of startups in the coming years indicate the resilience and potential of the European tech ecosystem. The evolving landscape, characterized by a shift in investor sentiment and strategies, suggests a maturation of the market and a focus on sustainable growth in the tech sector.