Investments in European Startups Fell by 50 Percent, AI is the Main Topic in Investment Circles

Funding for European technology companies is set to decrease by nearly half this year, as American investors increasingly abandon the continent amid a global pullback of venture capital investors, writes the Financial Times. It is expected that the amount of money raised by technology startup companies in Europe will reach around $45 billion by the end of 2023, according to an annual report compiled by the London-based venture capital firm Atomico.

Venture capital investments have fallen worldwide since the onset of the pandemic, as rising interest rates hit the valuations of public technology stocks and push investors to focus more on profitability, the report states.

One of the main reasons for such a shortfall this year is the reduced funding from American investors, while Atomico notes that investments in startups, despite the current decline, are still up by 18 percent compared to 2020.

For startups seeking funding and in the ‘growth phase’, the share of capital from American investors has dropped from 39 percent in 2021 to 25 percent this year.

Venture capital investments in the U.S. continue to reduce spending in Europe, with nearly tripled levels of investment in technology this year, according to Atomico’s report.

Investors are focusing on smaller bets

One bright spot has been the proliferation of large fundraising contracts for artificial intelligence companies. European startups such as the French Mistral and the German Aleph Alpha have fared the best in terms of funding this year, raising $400 million and $500 million, respectively.

Of the 36 European technology deals worth over $100 million this year, 11 were aimed at AI companies.

– We see that artificial intelligence is the main topic in investment circles – Atomico notes.

Large fundraising rounds have been rare in Europe this year, after startups like Revolut and Klarna raised hundreds of millions of dollars in funding rounds during the early pandemic.

Some startups that attracted investors this year had to do so at significantly lower valuations. In September, the Turkish grocery delivery startup Getir raised only $500 million, while the valuation was at $2.5 billion.

While larger deals have declined, ‘early-stage’ or ‘seed’ deals have remained relatively active as investors focus on smaller bets.

Companies in earlier stages have also seen their valuations remain more resilient than those of more mature startups. While the valuations of early-stage companies have returned to long-term averages after the growth during the pandemic, this correction has not deeply affected early-stage companies.