The final yr within the European tech sector can virtually be cut up down the center. The primary half of the yr continued the bumper progress of 2021, with robust funding flowing into the market regardless of the struggle in Ukraine and rising inflation.
By the point July rolled round, tightening financial coverage, heightened geopolitical tensions, and a declining market sentiment dynamically modified the funding panorama.
Because the yr involves an finish, European tech firms are going through a major slowdown in dealmaking, more durable fundraising cycles, and fewer buyers prepared to decide to late-stage, large-round investments.
That’s the conclusion of an annual survey of the state of Europe’s expertise market from Atomico, the enterprise capital agency began by billionaire co-founder of Skype Niklas Zennström.
VCs conserving money of their pockets
The report finds that the dealmaking frenzy of 2022 began to chill off round July, and by August and September month-to-month funding had dropped to ranges not seen since 2018 – a 40% drop in comparison with the third quarter of final yr.
In a survey despatched to founders, round 82% stated they believed it was tougher to lift enterprise capital than it was 12 months in the past – the most important change in founder sentiment for the reason that report first began surveying the European tech sector 5 years in the past.
Layoffs beginning to hit
As money dries up, extra tech firms have needed to lean down their operations drastically.
Globally, greater than 200,000 tech staff have been laid off previously yr, in line with Layoffs Tracker. Europe accounted for 7% of those layoffs with over 14,000 tech workers shedding their jobs within the final yr.
“We’ve gone from a interval in 2021 the place capital was ample and low-cost, to 1 the place the price of capital has elevated and the place capital is much less available and it’s tougher to fundraise,” Tom Wehmeier, Head of Insights at Atomico & co-author of the report informed Fortune.
“You consider European tech, it’s barely 20 years previous. And now we’re seeing its resilience put to the take a look at.”
U.S. buyers turnings away from Europe
The slowdown in progress has left American buyers shying away from the European market.
Whereas over the course of 2022, the variety of European buyers in rounds of $100 million or extra grew barely, the variety of energetic U.S. buyers declined by 22%.
A lot of this may be chalked as much as the lower, and in some circumstances the entire withdrawal, of “crossover buyers” or funds that actively make investments throughout each the private and non-private markets.
Unicorns changing into rarer
As fundraising slows down, so has the variety of unicorns which have come to the market in 2022.
Whereas 2021 noticed a document variety of new unicorns emerge in Europe, with 105 firms attaining billion-dollar milestones, solely 31 unicorns have come to market this yr by the point of the report’s publication.
IPO window ‘slammed shut’
And as anticipated, the IPO window has additionally been “slammed shut,” the report says.
With extremely unsure and risky public markets, solely three tech IPOs reached a market cap of over $1 billion, in comparison with the 86 introduced onto the market in 2021.
“I feel actually our view and after we converse to different buyers and different founders, is that we aren’t going to see a reversion again to the circumstances we noticed in 2021 anytime quickly,” says Wehmeier.
Girls founders struggling
Whereas that is unhealthy information for all founders, it nonetheless has a higher influence on ladies or minority-led tech firms.
Round 87% of all VC funding in Europe continues to be raised by men-only founding groups, whereas the proportion of funding raised by women-only groups has dropped from 3% to 1% since 2018.
The excellent news
The report writes that the altering panorama of 2022 marks a shift away from “the market’s long-standing urge for food for growth-at-all-costs in the direction of a deal with progress effectivity.”
One other factor to be optimistic about is the quantity of expertise within the European market.
As workers are recycled and redeployed throughout completely different tech firms, the variety of founders who’ve graduated from profitable unicorns has ballooned to nearly 700.
“This has created the best expertise pipeline that Europe has ever had,” the report writes.
And whereas the horizon for these tech firms seems to be bleaker over the subsequent years, the businesses which can be getting funding want to change the world for the higher.
The extent of European funding in purpose-driven firms is seeking to overtake 2021 ranges and the continent now leads the world within the share of enormous investments going into these firms.
In distinction, the North American and Asian funding quantities into purpose-driven firms have decreased by round 50% and 65% respectively in 2022, when in comparison with final yr.
Tech founders are additionally remaining fairly optimistic in regards to the market.
Regardless of all of the headwinds they face, 77% of founders in a survey stated they remained assured in the way forward for European expertise going into 2023.
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