Funding for European tech seems to have stabilized in 2024 after dropping precipitously in 2023, however the indicators proceed to level to extra robust occasions forward, in line with the most recent State of European Tech report.
The annual survey — produced by European VC agency Atomico — notes that startups within the area are on monitor to boost $45 billion this 12 months. Whereas removed from the 50% drop of 2023, the determine remains to be down by $2 billion in comparison with a 12 months in the past. (Word: Atomico initially projected $45 billion for 2023; it has since revised 2023 as much as $47 billion.)
Atomico has been producing these experiences yearly for the final decade so this newest version makes quite a lot of noise about how a lot issues have grown.
It’s plain that the tech ecosystem in Europe has blown up: Atomico says that there at the moment are 35,000 tech firms within the area that could possibly be labeled as “early stage,” with 3,400 late-stage firms and 358 valued at over $1 billion. Examine that to 2015, when there have been a mere 7,800 early-stage startups, 450 late-stage startups and simply 72 tech firms valued at over $1 billion. But there may be quite a lot of sobering studying, too, about a few of the challenges of the second and indicators of how geopolitical and financial unrest — regardless of shiny tales concerning the growth in AI — proceed to overwhelm the market.
Listed here are a few of the breakout stats:
Exits have fallen off a cliff. This is likely one of the extra stark tables within the report that underscores a few of the liquidity strain that finally trickles all the way down to earlier-stage tech firms. Put merely, M&As and IPOs are comparatively non-existent proper now in European tech. 2024, on the time of the report being revealed in mid-November, noticed simply $3 billion in IPO worth and $10 billion in M&A, in line with S&P Capital figures. Each of those are massive drops on the general pattern, which had in any other case seen regular rises in each, “constantly surpassing $50 billion per 12 months threshold.” (Granted, typically all it takes is one massive deal to make a 12 months. In 2023, for instance, ARM’s $65 billion IPO accounted for a full 92% of complete IPO worth, and clearly it didn’t have the knock-on impact many had hoped for in kick-starting extra exercise.) Transaction volumes, Atomico notes, are at their lowest factors in a decade.
Debt on the rise. As you would possibly anticipate, debt financing is filling within the funding hole particularly for startups elevating development rounds. To this point this 12 months, debt financing made up a full 14% of all VC investments, totaling some $4.7 billion. That’s an enormous leap on final 12 months, in line with Dealroom’s figures: In 2023, debt made up simply $2.6 billion of financing, accounting for five.5% of all VC investments.
Common spherical sizes bounce again. Final 12 months, the typical dimension of each stage of funding from Sequence A to D all declined in Europe, with solely seed-stage rounds persevering with to extend. Nonetheless, amid an total decline in variety of funding rounds within the area, these startups which are managing to shut offers are, on common, elevating extra. Sequence A is now $10.6 million (2023: $9.3 million), Sequence B $25.4 million (2023: $21.3 million), and Sequence C $55 million (2023: $43 million). The U.S. continues to outpace Europe on spherical sizes total.
However don’t anticipate rounds to be raised in fast successions. Atomico famous that the variety of startups on common elevating inside a 24-month time-frame declined by 20%, and it has taken longer for an organization to transform from A to B on what it calls “compressed” time frames of 15 months or much less, with simply 16% elevating a Sequence B in that interval in 2024. As you possibly can see within the desk beneath, the variety of rounds this 12 months is down on the 12 months earlier than.
AI continues to guide the pack. As with 2023, synthetic intelligence continued to dominate conversations. Atomico spells this out with a graphic displaying the burst of AI mentions in earnings calls.
And that has carried by as a powerful theme amongst non-public firms. Between firms like Wayve, Helsing, Mistral, Poolside, DeepL, and many others, AI startups have led the pack in the case of the most important enterprise offers this 12 months in Europe, elevating $11 billion in all. But even so, Atomico factors out, “Europe has an extended technique to shut the hole with the U.S. by way of AI funding.” Because of outsized rounds for firms like OpenAI, all instructed the U.S. is shaping as much as have invested $47 billion in AI firms this 12 months — that’s proper, $2 billion greater than all startup funding in Europe, mixed.
The U.Okay. (because of Wayve) is at present the most important marketplace for AI funding within the area, it mentioned.
Valuations enhancing… After startup valuations “bottomed out” in 2023, Atomico writes, they’re now heading again up, a lagged results of the gradual return of exercise within the public markets. A few of that’s possible additionally because of the outsized rounds raised by sure firms in sure fields like AI. Extra typically, the rule seems to be that founders are extra open to dilution on bigger rounds in earlier levels and that performs out as larger valuations. Then startups elevating at later levels are choosing up the items of that earlier exuberance and are elevating down rounds, Atomico mentioned. European startups proceed to see valuations on common decrease than these of their American counterparts, on common between 29% and 52% decrease, Atomico notes.
(Within the graphic beneath, charting Sequence C, the typical valuation for a U.S. startup is $218 million, in comparison with $155 million for startup in Europe.)
…However sentiment shouldn’t be. If confidence is a powerful indicator of the well being of a market, there may be some work forward for the motivators on the market. Atomico has been polling founders and buyers yearly asking how they really feel concerning the state of the market in comparison with a 12 months in the past, and 2024 seems to be a excessive watermark for low confidence. In a frank evaluation of how founders and buyers are viewing the market in the meanwhile, a report proportion — respectively 40% and 26% — mentioned they felt much less assured than 12 months in the past.
