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According to data from PitchBook, VC funding raised in Europe last year was down nearly 40pc from 2022.
The value of venture capital deals in Europe fell sharply last year, almost halving in value compared to 2022, thanks to a tough macroeconomic environment.
This is according to PitchBook, a data and research company covering capital markets, which has published its 2023 European Venture Report today (18 January). It states that the UK and Ireland, clubbed as one market in the study, continues to dominate Europe in raising capital.
“The UK and Ireland region remained core to European VC activity in 2023. Across the three areas of the ecosystem we track – deals, exits and fundraising – the UK and Ireland remains a dominant region within Europe,” wrote report author Navina Rajan, senior analyst at PitchBook.
According to the data, VC deal value was €57.1bn last year, 45.6pc lower than the previous year.
“This is in line with trends seen through the year and therefore comes as little surprise, as venture markets in 2023 corrected from highly inflated activity seen in 2022 and 2021, coupled with a tougher macroeconomic backdrop,” Rajan wrote.
Total VC funding raised in Europe last year amounted to €17.2bn, down nearly 39pc from 2022.
Not all is bad news, however. Excluding the hype in the two years prior, VC deal value in 2023 remains higher than in previous years and the 10-year average.
Clean-tech emerged as the sector attracting the “top tier” of venture capital, PitchBook data shows. Biotech and pharma showed the most resilience as a sector, while media and software lagged the most.
“For the software sector, the impact of regulation that came to the fore in 2023 will be key to determining the development of the sector in 2024,” said Rajan.
The report singled out exits as the weakest area of venture capital last year. At €11.8bn, exit value in 2023 was down more than 70pc year-on-year and at its lowest level since 2013.
According to Rajan, a large part of exit value decline has been driven by “weak” public listing activity, which was 90pc lower year-on-year and sits at a decade low.
“Looking into 2024, we expect no meaningful recovery in public listings activity. More broadly, cash generation will be integral to company survival, and startups will need to rationalise cost bases and increase profitability to recalibrate to a tougher funding environment,” she said. “Those that cannot, may need to exit at lower valuations as the impact of a tougher year for funding continues into 2024.”
Half of the top 10 VC deals in Europe last year were in the UK. Two were in France, while Germany, Sweden and Malta were home to one each.
Rajan wrote in the report that as rates remain higher for longer, exits via public listings are likely to stay weak, especially because late-stage players tend to be “more top-heavy” on costs.
“Companies that will do well will be those that continue to increase profitability and organic cash generation. The road to such may continue to be tough as start-ups recalibrate to a much different funding environment, with several large players cutting workforces in 2023,” she said.
“We expect more companies that cannot rationalise cost bases, scale and achieve free cash flow generation to be forced to exit at lower valuations as the impact of a tougher year for funding continues into 2024.”
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