European Start-up Funding Witnesses a 55% Decline in 2023

Atomico Report says European start-up funding will drop by 55% in 2023. The significant drop is partly caused by late-stage companies delaying fundraising and investors taking longer to put their money to work.

Investment in Europe's start-ups has experienced a substantial decline, plummeting to $45 billion (over €40 billion) in 2023, marking a stark 55% drop from the previous year, as indicated by venture capital firm Atomico data.

The "State of European Tech" report, published on Tuesday, points to the primary factors behind this decline: later-stage companies delaying their fundraising efforts and a slower pace of deployment by investors. In 2022, the capital invested in European start-ups amounted to $82 billion (€75 billion).

The report projects an overall 45% decrease in funding for European venture-backed companies in 2023 compared to the previous year. Tom Wehmeier, a partner at Atomico, noted that some startups that secured substantial funding in 2021 and early 2022 to reach billion-dollar valuations may see their valuations dip below the billion-dollar mark.

"I expect to see more of this next year as those companies are likely to be running out of runway at this point and will need to return to the market in 2024 or 2025 to survive," said Wehmeier.

Over the five years from 2018 to 2022, 257 European tech companies achieved a billion-dollar valuation, with more than 150 attaining this status in 2021 and 2022, according to Atomico's data.

However, despite the significant drop, Europe's funding rounds are projected to be 18% higher than in 2020, preceding the tech investment boom in 2021. In contrast, the United States, China, and other countries are expected to remain flat or fall below 2020 figures.

Wehmeier remains optimistic, stating, "When you consider how overheated those two years were, the fact that we are up from 2020 suggests that Europe is heading in the right direction, especially since it is the only global region to be up since 2020."

Additionally, the report highlights a potential silver lining for start-ups in artificial intelligence, with 11 AI companies securing mega funding rounds of $100 million (€91 million) or more.