In a marked retreat from the heady days of 2021 and early 2022, venture capital investment in Europe’s tech industry is poised to plummet by half in 2023, reveals data from venture capital firm Atomico.
The primary culprit? Lingering effects of soaring interest rates. Atomico’s “State of European Tech” report, released on Tuesday, underscores the correction underway after overheating growth. The anticipated overall funding drop for European venture-backed companies stands at a significant 45%, with total funding projected to hit $45 billion this year, down from $82 billion in 2022.
Despite the downturn, the report highlights an encouraging trend: Europe has demonstrated resilience compared to the U.S., China, and other international counterparts, with a 19% growth in investment levels since 2020. Tom Wehmeier, head of data insights at Atomico, notes that Europe is rebounding after the euphoria of 2021 and early 2022, with green shoots of recovery starting to emerge.
One sector standing out amidst the downturn is artificial intelligence (AI). While overall funding sees a decline, AI experiences continued mega-funding rounds, with companies like Aleph Alpha, Mistral, and DeepL securing substantial investments. AI is the leading category for fundraising rounds exceeding $100 million, with 11 AI companies securing these “mega-rounds.”
AI also attracts attention at the seed stage, capturing 11% of all funding rounds under $5 million. The report identifies Europe as the top global hub for AI talent, with the number of highly-skilled AI roles increasing tenfold over the past decade. Surpassing the U.S. Climate tech is another bright spot, with funding into carbon and energy-focused companies constituting 27% of all capital invested in European tech in 2023, a threefold increase from 2021.
While IPO activity remains sluggish in Europe, with Arm—the British chip designer—opting for a U.S. listing, a healthy pipeline of companies, including Klarna, Revolut, and Monzo, signals potential future listings. Mergers and acquisitions activity is also subdued compared to previous years, with deal transaction value reaching $36 billion in 2023, primarily driven by smaller, sub-$100 million value deals, according to Atomico.
