Europe is suffering from a huge hangover after the tech investment party of 2020-2021. That said, historically, compared to pre-pandemic levels, venture capital investments in European startups have increased, reaching $60 billion according to a new report. However, the unusual nature of the surge in investment surrounding the pandemic stands in sharp contrast to that growth, and although there are signs of green shoots, it is causing major headwinds.
Global law firm Orrick analyzed more than 350 VC and growth equity investments completed by clients in Europe last year.
Total capital raised in Europe was $61.8 billion. 2023 saw a global reset of investment levels and significant adjustments. Of the world's top three regions for VC (Europe, Asia, and North America), only Europe will surpass 2019 levels in 2023.
The report said Europe remains at “record levels of dry powder,” is “producing more new founders than the United States,” and funding continues to lag.
Only 11 new unicorns were born in Europe last year, the lowest number in a decade, and more unicorns are losing ground.
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AI's share of total investment in Europe has surged to an all-time high of 17%5.
Orrick found that investors, emboldened by the fundraising downturn, are “turning the screws” and tightening control over their investments, with founders required to honor guarantees in 39% of venture deals. did.
Late-stage funding is clearly on the decline, deal volumes are declining, and founders are leaning toward other strategies, such as alternative funding methods and competing for revenue and profits.
There was an “unprecedented surge” in the ability of new investors to enter technology as founders looked for new lead investors, with convertibles, SAFEs and ASAs “on the rise” and convertibles expected to grow in 2023. Funding accounted for 23% of the round.
Investors generally focused on managing their existing portfolios, secondary trading increased, and SaaS and AI continued to grow in popularity. Interestingly, the number of FinTech investments has declined.
European Technology Investment Deals 2023 (Orrick)
At each stage, the transaction value decreases, with the most dramatic decrease in late-stage transactions.
Early-stage deal value has fallen by 40%, even though early-stage investors remain the most active.
“Mega rounds” of $100 million or more have declined. However, the IPO situation 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 secondary demand, increased M&A activity and consolidation.
France has seen a shift from “founder-friendly” terms to more investor-friendly terms, in sharp contrast to the UK.
In Germany, increased demand from LPs seeking liquidity is expected to “energize the M&A pipeline of high-tech companies.”