Atomico: "Venture capital investments in European technology have halved"

Venture capital investment in Europe's tech industry has halved this year from 2022 levels as investors digest the effects of high interest rates, according to data from the venture capital firm Atomico, writes Business Insider.

A discordant note is made by artificial intelligence, a field that has seen several massive rounds of funding, according to the mentioned source.

Estimates from the "State of European Technology" report published by Atomico this week show that financing of European companies from venture capital sources will decrease by 45% in 2023, compared to the level of the previous year. Atomico expects funding for European tech companies to reach $45 billion this year, up from $82 billion a year ago. In 2021, the value of financing from the area of venture capital amounted to 100 billion dollars.

Tom Wehmeier, head of data at Atomico, told CNBC that over the past three years, however, Europe has gained ground compared to the United States or China.

"There has been a reset after a period of unsustainable growth in 2021 and early 2022," Wehmeier said. "Now we see how a new reality is integrated and signs of recovery are beginning to appear."

US and Asian institutional investment in European technology has largely disappeared as "tourist" funds such as Tiger Global and Coatue, which flooded the market in 2020 and 2021, pulled out in the past year amid a difficult macroeconomic environment, according to Atomico's head of data. According to the report, from 2020 to the present, funding from venture capital sources fell by 8% in the United States and by 9% in China, while in Europe it increased by 19%, a sign of robustness for the region.

• Technologies related to the environment - among the fields preferred by investors

According to the report, the technology field has benefited from the increased interest in artificial intelligence. Companies like Aleph Alpha, Mistral and DeepL have raised hundreds of millions of dollars from investors at high valuations thanks to the excitement surrounding OpenAI, the entity behind the popular chatbot ChatGPT.

According to Atomico, eleven AI-related companies have had funding rounds of at least $100 million. Also, in terms of seed stage funding, artificial intelligence led the way, attracting 11% of all funding rounds of five million dollars or less.

Environmental technologies are another sector that stood out, according to the report, with financing of clean energy companies representing 27% of all capital invested in European technology in 2023, three times more than in 2021.

According to Atomico, the total value of listed and private technology companies in Europe is set to exceed $3 trillion in 2023, after the sector lost $400 billion in valuation last year.

• The IPO window remains closed

There have been no IPOs (public offerings) of significant scale in Europe this year, according to Atomico, referring to the technology field.

British chip designer Arm has listed in the United States, but its performance has disappointed. The company's stock has risen from its debut price, but the performance of it and other recently listed tech firms like Instacart and Klaviyo hasn't convinced other top tech companies to go public.

Still, Wehmeier says there is a significant pool of companies looking to list, and names like Klarna, Revolut and Monzo are closer to IPO than they've ever been.

In the area of mergers and acquisitions, the activity was less compared to previous years, the value of transactions (not from Europe) amounting to 36 billion dollars in 2023, most of the "deals" being small in size, with values below 100 millions of dollars, according to Atomico, writes CNBC.