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2023 confirms itself as a horribilis year for investments and those dedicated to startups and innovation are not exempt from the negative trend. This is confirmed by the annual report of the Atomico investment fund, State of European Tech 2023, which intends to take a snapshot of the credible and transparent European technological ecosystem, based on data and drawn up with the contribution of data partners including dealroom.co, Invest Europe, S&P Global Market Intelligence, Pitchbook, Preqin, Revelio Labs and Crunchbase.
The report – which integrated the survey data with a qualitative analysis and interviews with over 35 leading figures in the European tech ecosystem – emerges that investments in the European technology sector have almost halved compared to last year, going from 82 billion dollars in 2022 to 45 billion in 2023, with a 45% drop in total capital invested in Europe, also due to a notable drop in the participation of US investors in both the initial and final stages. An effect which has also led to a slowdown in megarounds, i.e. rounds of 100 million dollars and more, with only 36 megarounds closed compared to 163 in 2022 and almost 200 in 2021.
But looking beyond the data, despite the global average falling by 39%, the European tech sector is holding up and, for the first time, Europe surpasses the USA in the creation of startups, recording the historic record of fundraising by Venture Capitals, with 108 billion dollars. A resilient sector that employs over 2 million people.
Tom Wehmeier, Partner, Head of Intelligence at Atomico and co-author of the report, said: «This year’s report shows that founders and talent in Europe are taking risks and tackling the most complex problems, such as ‘AI, climate and health. Now we need to further broaden this willingness to take risks and better embrace the potential available to us. We need to build an investor landscape that truly matches the ambitions of our founders. Currently, businesses are still 40% more likely to be funded in the US than in Europe, and our public markets continue to hold back on the tech sector. European companies can do more to deploy their cash on digital transformation and the regulatory landscape to embrace and incentivize innovation. We will be able to fully grasp the value of our technological opportunities only if all elements of the ecosystem are ready to get involved.”
Italy in 5th place in the creation of startups
In our country the technology sector remains lively – a sector with more than 40,000 companies that employ 78,000 people – earning a median of 5th place in the EU for the creation of startups and 7th place for financed technology companies (for a total of 0, 89 billion dollars in investments). Unfortunately, only 1 of the 36 megarounds of 100 million dollars and more created in Europe in 2023 went to Italy. The brightest gem is D-Orbit, an Italian company active in the space-tech sector among the most promising at an international level, which also recently received EU funds of 350 million euros after the acceleration program launched by the European Innovation Council (Eic). Returning to the data, 0.93 billion dollars were invested in Italy, a value albeit decreasing compared to the 2.4 billion dollars in 2022 (-61%), but an increase of 26% compared to 2020 (0.74 billions of dollars). Spain did better, recording investment levels of $1.6 billion, down 42% from last year ($2.7 billion) but up 21% from 2020 levels ($1.32 billions of dollars). Regardless, this is still the third biggest year for the European tech sector since records began, indicating that the ecosystem remains resilient and is correcting itself after the peaks of 2021 and early 2022.
Access to capital remains more difficult in Europe than in the US
In the State of European Tech survey, 80% of founders surveyed said they were finding it more difficult to raise capital and had to change their expectations for funding rounds. In terms of the number of companies receiving funding, Italy ranks in the top 10, in seventh place. From the point of view of the number of funded and unfunded tech companies in Europe, Italy is in fourth place (40,773) and Spain in fifth (32,468). This indicates how Southern Europe could prosper with greater access to capital. This year, Europe overtook the United States in terms of the formation of new tech startups, with an estimated 14,000 and 13,000 new founders respectively. However, thanks to greater access to capital in the US ecosystem, American tech startups are 40% more likely to secure venture capital funding within five years of founding. This is despite the fact that, once companies secure a first round of Seed investment, the likelihood of reaching a billion-dollar valuation is the same in Europe as in the United States. The need to guarantee European startups the same access to capital, and therefore to opportunities, as their US counterparts is therefore evident. This problem is particularly acute in Southern Europe which, while representing 4% of global GDP, receives only 1% of global private technology investment, suggesting that access to capital is a real challenge for the region.
Talent is still attracted to the tech sector
Despite layoffs at the start of the year, there has been net growth in the number of people working in Europe’s tech sector, meaning the rate of new job creation is more than offsetting the layoffs. Over the past five years, Europe’s tech industry has grown its workforce from 750,000 employees to more than 2.3 million. In Italy the number of workers in the sector is greater than 78,000 units, in Spain 126,000, and in Portugal it is equal to 31,415. Talent from all over the world is crossing borders to join the European tech scene. This year’s data shows that Europe is a net beneficiary of industry talent from the United States. Italy gained 20,000 net employees, while Spain gained 25,000 net. Early-stage startups account for nearly double the new entrants into the tech sector in each quarter this year compared to growth-stage companies, indicating how critical the early-stage ecosystem has become for job growth. In Europe, the peak in layoffs was reached in May 2023. Since that peak, layoffs have stabilized, although more are expected to follow in the new year.
Ai: Europe has the potential to become a leader in the sector
Eleven AI companies – including seven that have reached a $1 billion valuation, including DeepL, Helsing.ai, Synthesia and Quantexa – have managed to raise megarounds this year, despite the overall decline in levels of financing. It’s no coincidence that AI is the largest funding theme at the Seed level, with 11% of rounds under $5 million, as more and more companies take advantage of this year’s innovations in large language models. But this isn’t just a trend: AI has maintained a steady share of total funding over the past five years. Europe, the data indicates, is a world leader in AI talent, with a more than 10-fold increase in the number of people working in AI-related positions over the last decade, and also boasts a population resident of highly trained AI professionals higher than that of the United States. Spain boasts over 9,000 people working in AI, Italy 6,300, Portugal 2,000. Erin Platts, CEO of HSBC Innovation Banking, commented: «The latest data from Atomico shows that we should be proud of the resilience that the AI landscape has. European companies has demonstrated and will continue to demonstrate. Europe is at the forefront of purpose-driven technology investment, with sustainability and climate having increased their share of financing over the last decade. It’s something we should be collectively proud of and something we should continue to foster.” Chris Grew, Partner of Orrick’s Technology Companies Group, is of the same opinion: “The European technology community continues to revolutionize, innovate and grow. Serial entrepreneurs and next-generation founders are collaborating and leveraging technology to solve some of the most pressing problems we face. The ecosystem is increasingly enriched with sprouts: Europe is full of incredible opportunities. Now we just need to seize them.”