Atomico's report released on Tuesday demonstrated that overall financing for European businesses that have been backed by venture capital is predicted to decrease by 45% from last year by 2023. American and Asian venture capital firms that had poured money into European tech during the previous two years have withdrawn in the past year due to macroeconomic headwinds. Artificial intelligence was an encouraging exception, with 11 AI enterprises obtaining enormous funding rounds surpassing $100 million.
Venture capital investment into Europe's tech industry plummeted to half in 2023 amid investors' continued struggle with the soaring interest rates, as per Atomico's data. Nevertheless, AI was an area that continued to be backed up by mega funding rounds. Atomico's "State of European Tech" report, released on Tuesday, suggested that overall venture funding for tech companies in Europe is anticipated to decrease 45% in 2023 compared to the previous year. Atomico envisages that European tech firms will receive $45 billion in venture funds this year, a huge dip from the $82 billion in 2022 and $100 billion in 2021.Atomico noted that this year has brought about a much needed correction and a shift back to the pre-pandemic years, which had witnessed a mad rise in valuations and funding levels as the tech sector reeled in historical amounts of capital.Tom Wehmeier, head of data insights at Atomico, informed CNBC that Europe is buoyed by the past three years when compared to its U.S., Chinese, and other international competitors. "There has been this reset after an overheated and excessive growth period in 2021 and early 2022," Wehmeier said to CNBC. "Now that the new reality has been implemented and initial growth has started to surface."
U.S. and Asian institutional investments into European tech decreased drastically, according to Wehmeier. Tourist funds such as Tiger Global and Coatue, who had heavily invested during 2020 and 2021, pulled out due to macroeconomic issues that caused them to hesitate. In comparison to the 8% decrease in the U.S. and the 9% drop in China for overall venture funding since 2020, Europe has experienced a 19% increase in investment during the same time period, demonstrating its resilience.
The tech industry has flourished due to the surge of enthusiasm in artificial intelligence. Companies such as Aleph Alpha, Mistral, and DeepL have gained immense amounts of capital from investors due to the OpenAI-driven hype surrounding the widely-used ChatGPT chatbot. As noted by Atomico, AI has been the core motivator behind fundraising rounds totaling $100 million or more, with 11 AI companies having successfully accomplished these "megarounds." Simultaneously, AI has been the hot topic at the seed stage, acquiring 11% of all funding rounds that are worth $5 million or less. In addition, Europe is the premier source for global AI expertise, with the number of skilled AI workers increasing tenfold in the last 10 years in comparison with the U.S. Moreover, climate tech was also a standout sector, with 27% of all capital invested in European tech last year being directed toward carbon and energy companies, which is three times more than in 2021. Atomico reported that the total worth of private and publicly listed tech businesses in Europe crossed $3 trillion in 2023, restoring this figure to its pre-2022 levels after dropping significantly below it. To sum up, the European tech sector experienced a $400 billion cut in its overall market capitalization in 2023.
This year, there have been nearly no major IPOs in Europe, which could explain why the stock performance of firms like Arm, Instacart and Klaviyo since their debut has been lacklustre. In spite of this, there is now an extensive list of companies interested in tapping public markets, such as Klarna, Revolut and Monzo, which are closer to going public than ever before. On the other hand, mergers and acquisitions activity has been reduced compared to previous years, with the total transaction value of deals coming in at $36 billion in 2023, and most exits being of modest size (less than $100 million).
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