A new report from VC firm Atomico confirms that the venture slowdown is a global phenomenon, with the "adjusted market reality" set to stay. According to Dealroom and Crunchbase data, if things stay the same, the amount of capital invested in European startups this year will be 52% lower than in 2021.
Global Venture Capital Trends
This decline may seem alarming, but it’s not much worse than what we’re seeing in other major regions. The report from Atomico highlights that many of the same problems present in the United States are also showing up in Europe, such as infrequent exits and a dead IPO market.
European Venture Capital Totals
Atomico reports that European tech investment volumes are tracking at around half of 2021, set to reach $51 billion in 2023. While this may seem like a significant decline, it’s essential to consider the context. 2021 was an outlier year, with record-breaking funding levels. In comparison, 2023 is more in line with pre-pandemic levels.
A Return to First Principles
Atomico partner Tom Wehmeier, who co-authored the report, frames this period as a return to first principles. "We should think about this period as a return to long-term averages," he says. "2021 was a clear outlier, with investment volumes and valuations now returning to long-term averages." This perspective is essential to understanding the current market reality.
Signs of Resilience
While the report from Atomico may seem bleak, there are signs of resilience in the data. The primary number driving this hypothesis is that 93% of the decline in investment volume in Europe between H1 2022 and H1 2023 is accounted for by the decline in late-stage funding.
Early-Stage Funding: A Bright Spot
Atomico’s report highlights that early-stage funding, defined as rounds that raised less than $15 million, has been more consistent throughout the years covered. This is a significant indicator of a healthy market, as it implies that new generations of European startups are being formed and funded.
Global Capital Raised in Early-Stage Rounds
The data shows that 29% of global capital raised in rounds below $5 million went to European startups in H1 2023. This is compared to 36% for American startups. While this may seem like a decline, it’s essential to consider the historical context. In 2013, Europe scored only 18% of global capital raised in early-stage rounds, while the U.S. attracted 59%.
European AI and ML Startups
The report from Atomico highlights that European AI and ML startups accounted for 35% of all funding so far this year compared to 5% in 2022. This is a significant indicator of the growing importance of AI in the startup ecosystem.
Conclusion
The venture slowdown is a global phenomenon, with many regions experiencing similar trends. While the report from Atomico may seem bleak, there are signs of resilience in the data. Early-stage funding and European AI and ML startups show promise for the future. However, it’s essential to remain cautious and not make predictions about the market.
