Venture capital investment in Europe’s tech industry faces a 45% decline in 2023, plummeting to $45 billion, marking a return to pre-COVID levels, reveals Atomico’s “State of European Tech” report. However, Artificial Intelligence (AI) emerges as a standout category with sustained mega funding rounds amid the correction.
Correction in Tech Funding Amid Macroeconomic Challenges
The tech sector in Europe is witnessing a substantial correction, with overall funding for venture-backed companies projected to decline by half in 2023 compared to the previous year. Atomico’s data indicates a drop from $82 billion in 2022 to $45 billion this year, reflecting a return to pre-pandemic funding levels. This correction follows a period of overheated growth and soaring valuations in 2021 and early 2022.
AI Stands Out Amidst Decline
While the overall tech funding experiences a correction, Artificial Intelligence emerges as a resilient and thriving sector. Notably, companies like Aleph Alpha, Mistral, and DeepL secure substantial funding, capitalizing on the buzz surrounding OpenAI and its popular ChatGPT chatbot. AI becomes the focal point for fundraising mega rounds, with 11 AI companies securing rounds of $100 million or more.
Green Shoots in Resilient European Tech Landscape
Despite the correction, Europe demonstrates resilience in its tech sector compared to the U.S., China, and other global counterparts. Institutional investment from the U.S. and Asia retreats, with “tourist” funds like Tiger Global and Coatue scaling back amid macroeconomic uncertainties. Europe, however, experiences a 19% growth in investment levels since 2020, showcasing its resilience.
AI and Climate Tech as Driving Forces
AI remains a buzzworthy space for investors at both seed and mega-round stages, emphasizing its prominence in the tech landscape. Europe solidifies its position as a hub for global AI talent, witnessing a tenfold increase in highly-skilled AI roles over the past decade, surpassing the U.S. Climate tech also emerges as a standout sector, attracting significant funding, with carbon and energy-related companies accounting for 27% of all capital invested in European tech in 2023.
Tech Market Capitalization Rebounds, IPOs on the Horizon
The combined value of private and publicly listed tech companies in Europe surpasses $3 trillion in 2023, reclaiming the pre-2022 levels after a $400 billion slump in market capitalization last year. While the IPO window remains largely closed, a healthy pipeline of companies, including late-stage players like Klarna, Revolut, and Monzo, signals a potential resurgence in public offerings. Mergers and acquisitions activity, however, remains subdued compared to previous years, with deal transaction value reaching $36 billion in 2023, dominated by smaller transactions.