Europe’s tech business has misplaced greater than $400 billion in worth this 12 months, in line with enterprise capital agency Atomico.
The mixed worth of all private and non-private European tech corporations has fallen from to $2.7 trillion from a peak of $3.1 trillion in late 2021, Atomico stated in its annual “State of European Tech” report Wednesday.
The figures underscore what has been a tough 12 months for tech. As soon as richly-valued know-how corporations have seen their shares come beneath stress from international components, together with Russia’s invasion of Ukraine and tighter financial coverage.
The Federal Reserve and different central banks are elevating charges and reversing pandemic-era stimulus to stave off hovering inflation. That is prompted buyers to reassess their positions on lossmaking tech corporations, whose values usually relaxation on the expectation of future money flows.
“It’s been a tough year — war in Ukraine, inflation, interest rate hikes, geopolitical tensions all across the continent,” Tom Wehmeier, a associate at Atomico, instructed CNBC. “It’s the most challenging macroeconomic environment since the global financial crisis.”
In Europe, some corporations have seen precipitous drops in their market values. Klarna, the Swedish purchase now, pay later group, slashed its valuation by 85% from $45.6 billion to $6.7 billion in a so-called “down round.” Shares of music streaming service Spotify, in the meantime, have fallen over 60% in the previous 12 months.
General enterprise capital funding of European startups is anticipated to drop to $85 billion this 12 months, in line with the Atomico report, which is predicated on quantitative knowledge and surveys in 41 international locations. That’s down 18% from the greater than $100 billion European startups raised in 2021.
It was nonetheless the second-highest quantity ever invested in the European tech ecosystem so far, Atomico stated. European tech funding shattered information final 12 months as participation from U.S. buyers surged to new heights.
This 12 months noticed a reversal of that pattern, with overseas buyers largely retreating. The variety of energetic U.S. buyers in “mega rounds” of $100 million or extra dropped 22% from final 12 months.
“It’s a less liquid funding environment now,” Wehmeier stated. “We’ve gone from a period in 2021 when capital was abundant, when it was cheap, to one where it is harder to raise capital and one in which the cost of capital has increased.”
Slowdown started in second half
Within the first half of 2022, Europe’s tech sector was on fireplace, with funding ranges nonetheless 4% greater than on the similar level in 2021, Atomico stated.
Nonetheless, funding started slowing from July and decelerated additional by way of August and September. Since then, month-to-month funding ranges have averaged round $3 billion to $5 billion, in line with 2018 ranges.
The speed of unicorn creation additionally slowed, with the variety of new $1 billion-plus unicorns minted in 2022 falling to 31 from 105 final 12 months.
In the meantime, public market listings have nearly evaporated. Simply three tech IPOs with a market cap of $1 billion or extra happened globally in 2022, with two taking place in Europe, Atomico stated. In 2021, there have been 86 such IPOs.
And the area wasn’t resistant to the wave of tech layoffs. European-headquartered firms laid off more than 14,000 employees this year, accounting for 7% of total layoffs globally, according to the report.
At industry trade shows like Web Summit and Slush, founders of well-funded unicorns encouraged their fellow entrepreneurs to keep costs under control and ensure they have ample runway to survive a downturn.
‘There’s a lot of upside’
Still, for some investors, not all is doom and gloom. Per Roman, partner at GP Bullhound, said he is bullish about the promise of certain technologies, including artificial intelligence, cybersecurity and environmental tech.
“There’s a lot of upside,” Roman told CNBC Monday. “Right now, we’ve seen through the year, the beginning of last year, the software and internet markets revaluing, I think that’s quite positive and healthy. It’s been in strong bubble territory for some time.”
“At the same time, these software layers are running the world we live in today, whether it’s a hospital, school or construction site. So the core fundamentals will remain strong over the next decade.”
There are reasons to be optimistic, says Sarah Guemouri, principal at Atomico. One is growth in Ukraine’s tech industry. Despite Russia’s brutal onslaught, business activity has returned to pre-war levels for 85% of Ukrainian IT companies, according to figures from the Lviv IT cluster. Since the war began, 77% of ICT firms in Ukraine have attracted new customers.
And while the market picture was bleak this year, investment is still eight times greater than it was in 2015.
“Overall, the series needs to be viewed from the lens of a much longer time horizon,” Guemouri told CNBC. “It is still a pretty remarkable on many levels. For us, what we are really excited about is the future and the opportunity that lies ahead, which continues to be huge.”