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Atomico’ State of European Tech report shows that AI was the biggest driver of investment at the seed level this year, attracting 11pc of all rounds under $5m.
European start-ups are on track to raise $45bn in funding this year, a steep drop from the $82bn raised last year, according to the latest State of European Tech report published by Atomico today (28 November).
While this year’s figure is significantly lower than the previous two years, it is the third highest amount on record raised by European start-ups, and according to Atomico, represents a stabilising funding scenario on the continent.
The report also found that Europe’s tech ecosystem is now valued at $3trn, a valuation it had achieved at its 2021 peak.
Earlier this month, the Irish Venture Capital Association said there was a sharp decline in the value of VC deals in Ireland in the third quarter – dropping 38pc from the same period last year – while the number of transactions fell by more than a quarter.
Tom Wehmeier, partner at Atomico and co-author of the report, said that while this year’s report shows founders in Europe are taking risks across fields such as AI, climate and health, we now need to “spread the risk taking and embrace more of the potential at our disposal”.
“We need to build an investor landscape that truly matches the ambitions of our founders. Right now, companies are still 40pc more likely to be funded in the US versus Europe and our public markets continue to hold back on tech,” he explained.
“European corporates can still do more to deploy their cash behind digital transformation and the regulatory landscape can still do more to embrace and incentivise innovation. We will only capture the total value of our tech opportunity if all corners of the ecosystem are prepared to lean in.”
The report also shows that European start-ups have the potential to take the lead on AI, seeing that the technology was the biggest driver of investment at seed level, attracting 11pc of all rounds under $5m.
Atomico said even though the latest tech investment in Europe is a significant drop from the previous years, the continent is not an outlier. There has been a global downturn in tech funding which has been diminishing the value of investments raised in several major markets.
“Atomico’s latest insights show we should be proud of the resilience the European venture landscape has shown and will continue to show,” said Erin Platts, CEO at HSBC Innovation Banking.
“Europe is leading the way in purpose-driven tech investment, with sustainability and climate increasing their share of funding in the past decade. This is something we should be collectively proud of and continue to foster. If we want Europe to become the next tech superpower, investment is key.”
In fact, the report shows that European VCs are outperforming their US counterparts in the long-term, even though one-year VC returns are in the “negative territory” in both markets.
Atomico said that European VCs have consistently outperformed US counterparts over the past two decades by at least matching, and in most cases, beating, benchmarks from VCs across the pond as well as European buyout and public equities.
“The European tech community continues to disrupt, innovate and scale. Serial entrepreneurs and next-generation founders are collaborating and leveraging technology to solve some of the most pressing issues we face,” added Chris Grew, partner at the Technology Companies Group of Orrick.
“The ecosystem is growing more and more green shoots – Europe is full of incredible opportunity. Now, it just needs seizing.”
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