State of European Tech 2022: Tech slowdown begins to chew

The final yr within the European tech sector can virtually be cut up down the center. The primary half of the yr continued the bumper progress of 2021, with robust funding flowing into the market regardless of the battle in Ukraine and rising inflation.

By the point July rolled round, tightening financial coverage, heightened geopolitical tensions, and a declining market sentiment dynamically modified the funding panorama.

Because the yr involves an finish, European tech firms are dealing with a big slowdown in dealmaking, more durable fundraising cycles, and fewer buyers keen to decide to late-stage, large-round investments.

That’s the conclusion of an annual survey of the state of Europe’s know-how market from Atomico, the enterprise capital agency began by billionaire co-founder of Skype Niklas Zennström.

VCs protecting money of their pockets

The report finds that the dealmaking frenzy of 2022 began to chill off round July, and by August and September month-to-month funding had dropped to ranges not seen since 2018 – a 40% drop in comparison with the third quarter of final yr.

In a survey despatched to founders, round 82% mentioned they believed it was more durable to lift enterprise capital than it was 12 months in the past – the most important change in founder sentiment for the reason that report first began surveying the European tech sector 5 years in the past.

Layoffs beginning to hit

As money dries up, extra tech firms have needed to lean down their operations drastically.

Globally, greater than 200,000 tech staff have been laid off up to now yr, in response to Layoffs Tracker. Europe accounted for 7% of those layoffs with over 14,000 tech workers shedding their jobs within the final yr.

“We’ve gone from a interval in 2021 the place capital was considerable and low cost, to 1 the place the price of capital has elevated and the place capital is much less available and it’s harder to fundraise,” Tom Wehmeier, Head of Insights at Atomico & co-author of the report instructed Fortune.

“You consider European tech, it’s barely 20 years outdated. And now we’re seeing its resilience put to the check.”

U.S. buyers turnings away from Europe

The slowdown in progress has left American buyers shying away from the European market.

Whereas over the course of 2022, the variety of European buyers in rounds of $100 million or extra grew barely, the variety of energetic U.S. buyers declined by 22%.

A lot of this may be chalked as much as the lower, and in some circumstances the whole withdrawal, of “crossover buyers” or funds that actively make investments throughout each the private and non-private markets.

Unicorns changing into rarer

As fundraising slows down, so has the variety of unicorns which have come to the market in 2022.

Whereas 2021 noticed a report variety of new unicorns emerge in Europe, with 105 firms reaching billion-dollar milestones, solely 31 unicorns have come to market this yr by the point of the report’s publication.

IPO window ‘slammed shut’

And as anticipated, the IPO window has additionally been “slammed shut,” the report says.

With extremely unsure and risky public markets, solely three tech IPOs reached a market cap of over $1 billion, in comparison with the 86 introduced onto the market in 2021.

“I believe actually our view and once we communicate to different buyers and different founders, is that we aren’t going to see a reversion again to the situations we noticed in 2021 anytime quickly,” says Wehmeier.

Girls founders struggling

Whereas that is dangerous information for all founders, it nonetheless has a better influence on girls or minority-led tech firms.

Round 87% of all VC funding in Europe continues to be raised by men-only founding groups, whereas the proportion of funding raised by women-only groups has dropped from 3% to 1% since 2018.

The excellent news

The report writes that the altering panorama of 2022 marks a shift away from “the market’s long-standing urge for food for growth-at-all-costs in the direction of a give attention to progress effectivity.”

One other factor to be optimistic about is the quantity of expertise within the European market.

As workers are recycled and redeployed throughout totally different tech firms, the variety of founders who’ve graduated from profitable unicorns has ballooned to nearly 700.

“This has created the best expertise pipeline that Europe has ever had,” the report writes.

And whereas the horizon for these tech firms appears bleaker over the following years, the businesses which are getting funding wish to change the world for the higher.

The extent of European funding in purpose-driven firms is seeking to overtake 2021 ranges and the continent now leads the world within the share of enormous investments going into these firms.

In distinction, the North American and Asian funding quantities into purpose-driven firms have decreased by round 50% and 65% respectively in 2022, when in comparison with final yr.  

Tech founders are additionally remaining fairly optimistic concerning the market.

Regardless of all of the headwinds they face, 77% of founders in a survey mentioned they remained assured in the way forward for European know-how going into 2023.  

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