Investment in European tech firms falls 45% to $45bn

Total capital invested into European technology start-ups firms in 2023 is on track to reach around $45 billion — 45% less than in 2022 and down 55% from the record year of 2021.

That’s according to the 2023 “State of European Tech” report from London venture capital group Atomico.

“The decline is not surprising given the dual effect of many later-stage companies delaying fundraising, as well as materially slower deployment pacing by investors, which have both served to drive the large decline in the prevalence of outsized, late-stage investment rounds — the biggest factor in the lower amounts of capital invested,” said the report.

“While the decline from the peak in 2021 is large, it’s worth highlighting that 2023 is on track to be the third-largest year on record by total capital invested, and is on track to come in at four times the volume seen 10 years ago in 2014.

“In fact, the resetting of investment levels appears to reflect a correction to the long-term upwards trajectory, following two outlier years of overheated activity …

“The decrease in investment since 2021 is mainly due to a slowdown at the growth stages. However, after a sharp drop right after the peak, there has been a stable total investment volume for the past five quarters.

“There are two important things to note. First, early stage investment has stayed stable despite the turbulence in investment volume since 2021, reflecting the vibrancy of Europe’s early stage startup scene.

“Second, if we exclude the overheated 18-month period from Q1 2021 to Q2 2022, we get a clearer view of the trajectory of consistent, long-term growth in investment in the European tech ecosystem …

“The combination of the withdrawal of crossover investors and the general slowdown in late-stage investment activity is unsurprisingly reflected in a huge decline in the number of so-called mega-rounds, meaning round sizes of $100M or more.

“In the peak of 2021, there were almost 200 rounds of this magnitude, including more than 50 rounds greater than $250M.

“While this number declined slightly in 2022 to 163 rounds of $100M or more (of which 38 were greater than $250M), the first nine months of 2023 saw a far more significant decrease.

“In the first nine months of 2023, there have been 36 rounds of $100M or more, of which only seven have been sized in excess of $250M …

“Predictably, a reduction in late-stage funding round volume and a major reset in the valuation environment has led to a huge drop in the number of companies surpassing the billion-dollar valuation milestone for the first time in 2023.

“2023 is on track to see the lowest number of new $B+ companies emerge from Europe in the last decade, with just seven as of the publication deadline at the end of October 2023. This is, of course, in stark contrast to 2021’s record-breaking total when 107 new companies hit a billion-dollar valuation.

“In last year’s report we first introduced the concept of de-horned unicorns, $B+ companies whose valuation has dropped below this milestone since first hitting it. In 2022, we mapped 58 dehorned unicorns.

“This year, that number has reduced slightly, with 50, meaning some companies have seen their valuation lifted back up above the billion-dollar level in 2023. For clarity, when referring to $B+ companies, we have in mind tech companies that command that valuation today.”