Funding for European tech appears to have stabilized in 2024 after falling sharply in 2023, but according to the latest, signs continue to point to more difficult times ahead. European Tech State Report
The annual survey – produced by European VC firm Atomico – notes that startups in the region are on track to raise $45 billion this year. While a far cry from the 50 percent reduction of 2023, the number is still $2 billion less than a year ago. (Note: Atomico originally projected $45 billion for 2023; it has since revised that to $47 billion by 2023.)
Atomico has been producing these reports annually for the past decade, so this latest edition makes a lot of noise about how much things have grown.
It’s undeniable that the tech ecosystem in Europe has exploded: Atomico says the region now has 35,000 tech companies that can be classified as “early-stage”, 3,400 late-stage companies and 358 Those worth more than $1 billion. Compare that to 2015, when there were only 7,800 early-stage startups, 450 late-stage startups and only 72 tech companies valued at more than $1 billion. Yet there’s also much sobering reading about some of the challenges of the moment and signs of how geopolitical and economic unrest — despite glowing stories about the AI boom — are weighing on the market. is continuing.
Here are some breakout stats:
The exits have fallen off a cliff.. It’s one of the more stark tables in the report that points to some of the liquidity pressures that eventually trickle down to early-stage tech companies. Simply put, M&As and IPOs are relatively non-existent in European tech right now. 2024, when the report was published in mid-November, saw just $3 billion in IPO value and $10 billion in M&A, according to data from S&P Capital. Both are big dips in the overall trend, which had otherwise seen steady growth in both, “consistently crossing the $50 billion mark annually”. (Granted, sometimes only one big deal takes a year to make. For example, in 2023, ARM’s $65 billion IPO accounted for 92 percent of the total IPO value, and clearly didn’t have much of an impact. It was hoped to start more activities.
The debt is increasing.. As you might expect, debt financing is filling the funding gap, especially for startups raising growth rounds. So far this year, debt financing accounts for a full 14% of all VC investments, totaling nearly $4.7 billion. That’s a big jump from last year: In 2023, debt made up just $2.6 billion in financing, 5.5% of all VC investments, according to data from Deal Room.
Average round sizes bounce back.. Last year, the average size of each round of funding from Series A to D in Europe decreased, with only seed-stage rounds increasing. However, amid an overall decline in the number of funding rounds in the region, startups that are managing to close deals are, on average, raising more. Series A is now $10.6 million (2023: $9.3 million), Series B is $25.4 million (2023: $21.3 million), and Series C is $55 million (2023: $43 million). The US is outpacing Europe in overall round size.
But don’t expect the rounds to be picked up in quick succession.. Atomico notes that the average number of startups growing within a 24-month time frame has dropped by 20 percent, and it’s taking longer for a company to go from A to B than they do in 15 months or less. Called “compressed” time frames. In 2024, only 16% raised a Series B in that period. As you can see in the table below, the number of rounds is less this year. years ago.
AI continues to lead the pack. As in 2023, artificial intelligence dominates the conversation. Atomico spells this out with a graphic that mentions AI in earnings calls.
And it has served as a strong theme among private companies. Among companies like Wayve, Helsing, Mistral, Poolside, DeepL, and many others, AI startups led the pack when it came to the biggest venture deals in Europe this year, totaling $11 billion. Collected. Even so, Atomico points out, “Europe has a long way to go to close the gap with the US in terms of AI funding.” Thanks to outside rounds for companies like OpenAI, all told, the U.S. is investing $47 billion in AI companies this year — that’s right, $2 billion more than that. all Early Investments in Europe, Joint.
That said, the UK (thanks to Wayve) is currently the largest market for AI funding in the region.
Improvement in values… After startup valuations “bottomed out” in 2023, Atomico writes, they’re now heading back, a result of the slow return of activity in the public markets. Some of this is also likely due to outside rounds raised by some companies in specific areas such as AI. More generally, the rule appears to be that founders are more open to discounting larger rounds in early stages and this comes across as higher valuations. Then later-stage startups are picking up the pieces of the earlier excitement and putting down rounds, Atomico said. Atomico notes that European startups continue to see lower costs on average than their US counterparts, between 29% and 52% lower on average.
(In the graphic below, charting the Series C, the average valuation for a US startup is $218 million, compared to $155 million for a startup in Europe.)
…but emotion is not.. If confidence is a strong indicator of market health, there could be some work for bullies. Atomico has been polling founders and investors annually about how they feel about the state of the market compared to a year ago, and 2024 appears to be a high-water mark for low confidence. In a stark assessment of how founders and investors currently view the market, a record proportion – 40% and 26% respectively – said they felt less confident than 12 months ago.
Credit : techcrunch.com
