Funding for European tech seems to have stabilized in 2024 after dropping precipitously in 2023, however the indicators proceed to level to extra powerful instances forward, based on the newest State of European Tech report.
The annual survey — produced by European VC agency Atomico — notes that startups within the area are on observe to boost $45 billion this yr. Whereas removed from the 50% drop of 2023, the determine remains to be down by $2 billion in comparison with a yr in the past. (Be aware: Atomico initially projected $45 billion for 2023; it has since revised 2023 as much as $47 billion.)
Atomico has been producing these reviews yearly for the final decade so this newest version makes plenty of noise about how a lot issues have grown.
It’s simple that the tech ecosystem in Europe has blown up: Atomico says that there at the moment are 35,000 tech corporations within the area that might be categorised as “early stage,” with 3,400 late-stage corporations and 358 valued at over $1 billion. Examine that to 2015, when there have been a mere 7,800 early-stage startups, 450 late-stage startups and simply 72 tech corporations valued at over $1 billion. But there may be plenty of sobering studying, too, about a number of the challenges of the second and indicators of how geopolitical and financial unrest — regardless of shiny tales concerning the growth in AI — proceed to crush the market.
Listed below are a number of the breakout stats:
Exits have fallen off a cliff. This is among the extra stark tables within the report that underscores a number of the liquidity strain that in the end trickles right down to earlier-stage tech corporations. Put merely, M&As and IPOs are comparatively non-existent proper now in European tech. 2024, on the time of the report being printed in mid-November, noticed simply $3 billion in IPO worth and $10 billion in M&A, based on S&P Capital figures. Each of those are huge drops on the general development, which had in any other case seen regular rises in each, “constantly surpassing $50 billion per yr threshold.” (Granted, typically all it takes is one huge deal to make a yr. In 2023, for instance, ARM’s $65 billion IPO accounted for a full 92% of whole IPO worth, and clearly it didn’t have the knock-on impact many had hoped for in kick-starting extra exercise.) Transaction volumes, Atomico notes, are at their lowest factors in a decade.
Debt on the rise. As you may anticipate, debt financing is filling within the funding hole particularly for startups elevating development rounds. To this point this yr, debt financing made up a full 14% of all VC investments, totaling some $4.7 billion. That’s an enormous bounce on final yr, based on Dealroom’s figures: In 2023, debt made up simply $2.6 billion of financing, accounting for five.5% of all VC investments.
Common spherical sizes bounce again. Final yr, the typical measurement of each stage of funding from Sequence A to D all declined in Europe, with solely seed-stage rounds persevering with to extend. Nonetheless, amid an total decline in variety of funding rounds within the area, these startups which can be managing to shut offers are, on common, elevating extra. Sequence A is now $10.6 million (2023: $9.3 million), Sequence B $25.4 million (2023: $21.3 million), and Sequence C $55 million (2023: $43 million). The U.S. continues to outpace Europe on spherical sizes total.
However don’t anticipate rounds to be raised in fast successions. Atomico famous that the variety of startups on common elevating inside a 24-month timeframe declined by 20%, and it has taken longer for a corporation to transform from A to B on what it calls “compressed” time frames of 15 months or much less, with simply 16% elevating a Sequence B in that interval in 2024. As you possibly can see within the desk under, the variety of rounds this yr is down on the yr earlier than.
AI continues to guide the pack. As with 2023, synthetic intelligence continued to dominate conversations. Atomico spells this out with a graphic displaying the burst of AI mentions in earnings calls.
And that has carried by as a powerful theme amongst personal corporations. Between corporations like Wayve, Helsing, Mistral, Poolside, DeepL, and many others, AI startups have led the pack in relation to the most important enterprise offers this yr in Europe, elevating $11 billion in all. But even so, Atomico factors out, “Europe has a protracted method to shut the hole with the U.S. when it comes to AI funding.” Due to outsized rounds for corporations like OpenAI, all advised the U.S. is shaping as much as have invested $47 billion in AI corporations this yr — that’s proper, $2 billion greater than all startup funding in Europe, mixed.
The U.Ok. (because of Wayve) is presently the most important marketplace for AI funding within the area, it stated.
Valuations enhancing… After startup valuations “bottomed out” in 2023, Atomico writes, they’re now heading again up, a lagged results of the gradual return of exercise within the public markets. A few of that’s doubtless additionally because of the outsized rounds raised by sure corporations in sure fields like AI. Extra usually, the rule seems to be that founders are extra open to dilution on bigger rounds in earlier phases and that performs out as larger valuations. Then startups elevating at later phases are selecting up the items of that earlier exuberance and are elevating down rounds, Atomico stated. European startups proceed to see valuations on common decrease than these of their American counterparts, on common between 29% and 52% decrease, Atomico notes.
(Within the graphic under, charting Sequence C, the typical valuation for a U.S. startup is $218 million, in comparison with $155 million for startup in Europe.)
…However sentiment just isn’t. If confidence is a powerful indicator of the well being of a market, there is likely to be some work forward for the motivators on the market. Atomico has been polling founders and buyers yearly asking how they really feel concerning the state of the market in comparison with a yr in the past, and 2024 seems to be a excessive watermark for low confidence. In a frank evaluation of how founders and buyers are viewing the market for the time being, a file proportion — respectively 40% and 26% — stated they felt much less assured than 12 months in the past.
