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Funding squeeze for EU start ups.

 

EU start up funding


More than $400bn in market value has been wiped from European technology companies since the peak of the 2021 boom, as venture capital dealmaking hit a wall at the end of the summer.

The continent's start-ups were beneficiaries of a funding frenzy in 2021, leading to over 100 unicorns — tech start-ups valued at more than $1bn.

That figure has fallen to 31 this year, according to a report by London-based venture capital firm Atomico, the lowest level since 2017, excluding the pandemic year of 2020. More than 14,000 European tech workers have been laid off, Atomico estimates.

The trend reflects investor wariness of high inflation, rising interest rates, and Ukraine's war. The funding crunch represents the first test of the European tech scene since a new generation of homegrown companies, led by the likes of Spotify, Revolut and King, became international successes.

«Our view is the challenging macro will persist» well into 2023, said Tom Wehmeier, partner and head of research at Atomico. «There's no going back, at least for a very long time, to the conditions we saw at the end of 2021».

«I've been in this game for 20 years, and it is tough to read the tea leaves at the moment,» said Nic Brisbourne, managing partner at London-based Forward Partners, which has a £95mn portfolio of early-stage tech companies.

Investors say confidence, not capital, is the problem. Atomico estimates there is still about $80bn worth of «dry powder» available in Europe — venture capital funding raised in the boom years has not been deployed.

Cautious investors could eke that out for years. At a London event hosted by Accel for fintech start-ups and investors, Eric Boyle, partner at tech advisers Qatalyst Partners, said he expected the drop-off in deal activity to last a while, especially with the public markets in effect closed to new listings. After 86 initial public offerings at a $1bn-plus valuation in the US and Europe last year, there have been just three this year.

«We've already had a few people ask us when the IPO window reopens,» Boyle said. «Several months ago, many great entrepreneurs were financed who still didn't have a great idea».

The expansion of US tech investors such as Sequoia, Lightspeed and General Catalyst in Europe over the past couple of years accentuated that «fear of missing out» among local VCs, even as they hailed it as a validation of the region's tech maturity.

Some US businesses are pulling back again, particularly crossover funds such as Tiger Global and Insight Partners, fearing that a recession might last longer in Europe than in the US. As a result, the number of US investors involved in deals of more than $100mn in Europe has declined 22 per cent this year to 122 after rising from 48 in 2020 to 157 in 2021.

Despite the turmoil, some start-up deals are being done, mainly in more sedate corners of business software rather than crypto or e-commerce bets.

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Comments

  1. George8 December 2022 at 10:37

    The ones that have confidence now will be ahead of the pack. Most investors are very cautious now. Being cautious is not bad on its own but overdoing it can lead to stagnation or even downfall.

    ReplyDelete
  2. Chris8 December 2022 at 12:07

    The funding frenzy of 2021 showed how we should do things. No matter how the economy is going and external events, we should always have a consistent funding strategy in place. From 100 to just 31 unicorns in just 1 year - well, that shows a grim picture.

    ReplyDelete

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