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European technology funding appears to have stabilized in 2024 after falling sharply in 2023, but signs still point to more difficult times ahead, according to the latest reports. State of European technology a report.
The annual survey – produced by European venture capital firm Atomico – indicates that startups in the region are on track to raise $45 million this year. Although this number is far from a 50% decline in 2023, it is still down $2 billion compared to last year. (Note: Atomico originally projected $45 billion for 2023, then revised 2023 to $47 billion.)
Atomico has been producing these reports annually for the past decade, so this latest edition makes a lot of noise about how much things are growing.
It’s undeniable that Europe’s tech ecosystem has exploded: Atomico says there are now 35,000 tech companies in the region that can be classified as “early-stage,” with 3,400 late-stage companies and 358 companies worth more than $1 billion. Compare that to 2015, when there were only 7,800 early-stage startups, 450 late-stage startups, and only 72 technology companies valued at more than $1 billion. However, there is also a lot of sober reading on some of the challenges of the moment and signs of how geopolitical and economic turmoil – despite those glowing stories about the boom in artificial intelligence – will continue to weigh on the market.
Here are some penetration statistics:
The exits have fallen from the abyss. This is one of the clearer tables in the report that underscores some of the liquidity pressures that eventually trickle down to early-stage technology companies. Simply put, mergers, acquisitions and IPOs are currently relatively non-existent in the European technology space. 2024, at the time of the report’s publication in mid-November, had seen just $3 billion in IPO value and $10 billion in mergers and acquisitions, according to S&P Capital figures. Both represent significant declines in the overall trend, which has seen steady rises in both, “consistently exceeding the $50 billion per year threshold.” (True, sometimes all it takes is one big deal to get through a year. In 2023, for example, ARM’s $65 billion IPO was 92% of the total IPO value, so clearly… It didn’t have a significant impact on many that were hoping to initiate more activity.) Atomico notes that transaction volumes are at their lowest levels in a decade.
Debt is rising. As you might expect, debt financing fills the gap especially for startups that are achieving growth rounds. So far this year, debt financing has accounted for 14% of all venture capital investments, totaling about $4.7 billion. That’s a big jump from last year, according to Dealroom’s numbers: Debt accounted for just $2.6 billion of funding, representing 5.5% of all venture capital investments.
Average round bounce sizes. Last year, the average size of each Series A to D funding stage declined in Europe, with only seed-stage rounds continuing to increase. However, with the overall decline in the number of funding rounds in the region, those startups that manage to close deals are, on average, raising more. Series A is now $10.6 million (2023: $9.3 million), Series B is $25.4 million (2023: $21.3 million), and Series C is $55 million (2023: $43 million). The United States continues to outperform Europe in terms of overall round volumes.
But don’t expect rounds to be raised in quick successions. Atomico noted that the number of startups that averaged an increase over a 24-month time frame decreased by 20%, and it took a company longer to convert from A to B on what it calls “compressed” time frames of 15 months or less. With only 16% of the Series B raised in that period in 2024.
Improve ratings… After bottoming out in 2023, startup valuations are now on track to rise again, an overdue result of a slow return to activity in public markets, Atomico wrote. The general rule seems to be that founders are more open to dilution in larger, early-stage rounds, and this leads to higher valuations. Later-stage startups capture pieces of that earlier exuberance and raise their rounds, Atomico said. European startups still see lower valuations on average than their American counterparts, with an average of between 29% and 52%, Atomico notes.
(In the chart below, which shows a Series C, the average startup value in the US is $218 million, compared to $155 million for a startup in Europe.)
…But feelings are not like that. If confidence is a strong indicator of market health, there may be some work ahead for catalysts there. Atomico surveys founders and investors annually to ask how they feel about the state of the market compared to last year, and 2024 appears to be a high-water mark for declining confidence. In a candid assessment of how founders and investors currently view the market, a record percentage – 40% and 26% respectively – said they felt less confident than they did 12 months ago.
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