European tech startups are expected to experience a 38% decrease in investment in 2023 when compared to 2022, according to a report by Atomico. Although Europe is not alone in this trend, as the US and China are also facing a 49% investment decrease in 2023 compared to 2021, the global retraction in funding is having a significant impact on the flow of capital between regions. This will particularly hit companies raising larger later-stage rounds. The UK is projected to experience the biggest fall, followed by France and Germany, with layoffs being accelerated in the first quarter of this year, while valuations are dropping and down rounds are increasing.
Nevertheless, the European tech ecosystem’s total value is estimated to reach $1tn this year, climbing back to 2021 levels, even though the funding slowdown is visible across all European countries. Startups in the continent also continue to lead in purpose-driven tech that meets the UN’s sustainability goals, while investments in climate and purpose have hit an all-time high. The region is also levelling with the US in terms of startup creation while, at the same time, accounting for 29% of the global funding going to early-stage companies — almost at parity with the US (at 36%).
The flow of capital in generative AI is also increasing, with companies developing the technology securing 35% of all funding going to AI/ML this year, jumping from 5% in 2022. Tom Wehmeier, Partner and Head of Insights at Atomico, said: We should think about this period as a return to first principles. From this cycle we have the opportunity to build an even healthier ecosystem, with a clearer focus on quality. In the short-term, there will be fewer companies started, but the ones that break through will more likely be winners, with a strong foundation of senior talent and greater share of the region’s resources.
