3D map showing the continent of Europe.
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Venture capital investment in Europe’s technology industry fell by half in 2023 as investors continued to reel from the effects of high interest rates, according to data from venture capital firm Atomico.
However, artificial intelligence has been a prominent category that has seen sustained mega funding rounds.
Atomico’s “State of European Tech” report, published on Tuesday, showed that overall funding for European backed businesses is expected to fall by 45% in 2023 from a year ago.
Total investment funding for European technology companies will reach $45 billion this year, Atomico expects. That’s down from $82 billion in 2022, which is itself down from $100 billion the previous year.
Atomico said this year was a case of correction and reversal to the pre-pandemic years, which saw a wild rise in valuations and funding levels as the technology industry secured record amounts of capital inflows.
Tom Wehmeier, head of data insights at Atomico, told CNBC that where Europe stood out was where the region actually is in the last three years compared to its US, Chinese and other international counterparts.
“There has been this reset after an overheated and unsustainable period of growth in 2021 and early 2022,” Wehmeier told CNBC. “Now you see that a new reality is being set in and green shoots are starting to appear.”
US and Asian institutional investment in European technology has largely faded, Wehmeier said, as “tourist” funds such as Tiger Global and Coatue, which flooded the market in 2020 and 2021, pulled back in the last year as macroeconomic headwinds took their toll. to cool the feet.
While the US fell by 8% and China fell by 9% for total investment funding since 2020, Europe saw investment levels grow by 19% over the same time period, in a sign of resilience for the region.
Green shoots
However, technology has benefited from interest in artificial intelligence.
Companies like Aleph Alpha, Mistral and DeepL have raised hundreds of millions of dollars in investor capital at high valuations thanks to the hype surrounding OpenAI, which is behind the wildly popular ChatGPT chat.
According to Atomico, AI was the biggest draw for fundraising rounds amounting to $100 million or more, with 11 AI companies bagging these so-called “megarounds.”
At seed stage, AI was the buzziest space for investors, attracting 11% of all funding rounds worth $5 million or less, Atomico said.
Meanwhile, Europe is the main hub for global AI talent, with the number of high-quality AI roles increasing tenfold over the past decade and surpassing the US.
Climate technology was another standout sector, according to Atomico. Funding in companies in the carbon and energy space accounted for 27% of all capital invested in European technology in 2023, three times more than in 2021.
According to Atomico, the combined value of all private and publicly listed technology companies in Europe will exceed $3 trillion in 2023, regaining that level after falling well below it in 2022.
Last year, the European technology sector saw $400 billion wiped off its overall market capitalization.
IPO window remains closed
Almost no IPOs of significant scale have taken place in Europe this year.
Arm, the British chip designer, went public in the US, and its performance has been lackluster ever since. Company shares are higher than its debut price, but the performance of Arm, and other recently listed tech firms such as Instacart and Klaviyo, has not convinced other tech leaders to pursue stock listings.
However, Wehmeier said there is now a healthy pipeline of companies looking to tap into the public markets. Late-stage companies like Klarna, Revolut and Monzo are looking closer to the IPO gates than they’ve ever been.
Meanwhile, mergers and acquisitions activity remained muted compared to earlier years. Deal transaction value reached $36 billion in 2023, and the majority of exits are smaller, sub-$100 million value deals, Atomico said.