The venture slowdown has long been established to be a global phenomenon, and per a new report from VC firm Atomico, this “adjusted market reality is here to stay.”
Based on Dealroom and Crunchbase data, Atomico predicts that if things stay the same, the amount of capital invested in European startups this year will be 52% lower than in 2021.
That’s a clear decline, but it isn’t much worse than what we are tracking in other major regions.
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We should note that the report comes with a caveat: It doesn’t include Israel, which is often part of many European data venture data summaries, and also excludes biotech, secondaries, debt or lending capital. Some of those sectors and funding avenues have been on the rise lately, which makes their exclusion notable. 
However, the geographic, sector and funding-type restrictions are consistent with prior Atomico reporting, meaning we have a solid basis for historical comparison.
Many of the same problems present in the United States are also showing up in Europe, such as infrequent exits and a dead IPO market. But we already knew that.
So, instead let’s look at recent European venture capital totals and see if there is cause for optimism despite yet another decline in anticipated funding levels.
The bad news isn’t actually that bad
Atomico reports that European tech investment volumes are tracking at around half of 2021, set to reach $51 billion in 2023, compared to $106 billion two years ago.
But that comparison isn’t that useful, given that 2021 was such a big outlier. We’re more interested in how 2023 will compare to years when the funding climate wasn’t so inflated.
If 2023 does end up with a cumulated $51 billion invested into European startups, that would be more than we saw in 2019 ($36 billion) and 2020 ($38 billion). But it would be less than was recorded in 2022, when European startups managed to collectively attract $83 billion in funding, despite the fact that the slowdown had started already.
If we had to pinpoint a point of difference between 2022 and 2023, it is perhaps that investment in the U.S. retreated further this year than it had previously. Atomico found that in the first half of 2023, U.S. VC funds invested 34 cents in European startups for every $1 invested by European VCs, compared to 54 cents in 2022.
Given that many of the world’s billion-dollar funds are based in the United States, less money flowing across the Atlantic is a headwind for European startups.
From that perspective, things are simply leveling out: 2023 does look slightly worse than the previous year. This makes us less bullish than Atomico, which isn’t exactly wearing rose-colored glasses either.
Atomico partner Tom Wehmeier, who co-authored the report, had a somewhat positive take on the numbers: “We should think about this period as a return to first principles. 2021 was a clear outlier, with investment volumes and valuations now returning to long-term averages. That’s no bad thing, but it won’t be an easy time for everyone.”
Signs of resilience?
If Atomico does frame its report as bad news, it is not just because it hopes that the ecosystem will emerge healthier when the downturn is behind us. It’s actually seeing “clear signs of resilience” in the data, and we agree.
The primary number driving that hypothesis is that 93% of the decline in investment volume in Europe between H1 2022 and H1 2023 is accounted for by the decline in late-stage funding.
Early-stage funding, defined by Atomico as rounds that raised less than $15 million, has been a lot more consistent throughout the years covered. Strong early-stage fundraising means that Europe is improving its global share of investments in that bracket. A healthy early-stage market implies that a new generation of European startups are being formed and funded — that matters for future years, whereas the present-day, late-stage freeze will eventually thaw and pass.
When it comes to global capital raised in rounds below $5 million, 29% went to European startups in H1 2023, compared to 36% to American startups. Atomico notes that Europe is closing the gap with the U.S, which back in 2013 was attracting 59% of that type of funding while Europe scored only 18%.
Will U.S. VC funds go back to investing in Europe as much as previously? Will the IPO window reopen? Will down rounds be the new norm? Your guess is as good as ours.
In the meantime, let’s end with a number that reflects much of the hype we’re seeing in AI: European AI and ML startups accounted for 35% of all funding so far this year compared to 5% in 2022.