A new report confirms the stagnation of technology investment in Europe, but there are signs of life

Europe is suffering a major after-effect from the tech investment binge in 2020-2021. However, compared to pre-pandemic levels, venture capital investment in European startups has historically risen to $60 billion, according to a new report. However, the anomaly of increased investment due to the pandemic is in marked contrast to this growth and has created significant headwinds, although there are signs of “green shoots.”

Orrick global law firm Analyzed More than 350 venture capital and growth equity investments were completed by its clients in Europe last year.

The total capital raised in Europe amounted to $61.8 billion. The year 2023 saw a major reset and correction in investment levels globally. Of the top three global venture capital regions – Europe, Asia and North America – Europe is the only region to exceed 2019 levels in 2023.

According to the report, Europe is sitting on “record levels of dry powder” and “producing more new founders than the United States,” and funding remains sluggish.

Only 11 new unicorns emerged from Europe last year, the fewest in a decade, and a growing number of unicorns are losing ground.

Climate technology has overtaken fintech as the most popular sector in Europe

The share of artificial intelligence in total investment in Europe has risen to a record level of 17%5.

Orrick found that investors – emboldened by a decline in funding – began to “crack down,” exercising greater control over investments, with founders required to back collateral in 39% of venture deals.

There was a clear decline in later-stage funding, deal volume decreased, and founders turned to other strategies such as alternative financing methods, or the race for revenue and profits.

There was an “unprecedented rise” in the ability of new investors to enter the technology, as founders looked for new lead investors, and an “uptick” in convertible debt, SAFEs and Assassins, with convertible financings accounting for 23% of rounds in 2023. .

Investors generally focused on managing their existing portfolios, secondary transactions increased, and the popularity of SaaS and AI continued. Interestingly, the number of fintech investments has decreased.

At each stage, the value of the trade declines, with the most dramatic decline occurring in later-stage trades.

The value of early-stage deals fell by 40%, although early-stage investors remain the most active.

There has been a decline in “mega rounds” exceeding $100 million. However, the IPO scene showed “signs of life” with ARM’s $55 billion IPO, and M&A activity showed “green shoots.”

In the UK, venture capital firms are under pressure to deliver returns, which is likely to lead to increased demand for secondaries, and increased M&A and consolidation activity.

In France, there has been a shift from “founder-friendly” terms to more investor-friendly terms, in marked contrast to the UK, where the opposite is true.

In Germany, LPs’ growing demand for liquidity is expected to “reinvigorate the technology M&A pipeline.”