The end of easy money for beginners. Sustained interest rate increases and the uncertain backdrop created first by the conflict in Ukraine and now by the escalation in the Gaza Strip have cooled venture capital activity. In Spain, for example, financing to startups is projected at about 1.5 billion euros this year, a 42% drop from the previous year. These figures align with the State of European Technology 2023 report by Atomico, which notes an international retreat by investors that directly affects startup fundraising across Europe. Forecasts indicate a continental funding pullback of roughly 45% to 41,000 euros by 2023, compared with 74,659 million euros in 2022.
After two turbulent years, the European tech ecosystem has stabilized and begun a recovery, delivering a meaningful push for tech entrepreneurship and driving more startups to be founded in Europe than in the United States, according to the report. Spain stands out as a top destination for private funding, ranking sixth globally with about 4% of all new companies. It is the fourth largest recipient of startup financing in Europe and boasts one of the highest startup densities per capita, with around 60 new ventures per million people. Spain also has the strongest regional investment intensity in Southern Europe, consolidating its prominent position on the European tech scene and outperforming neighbors such as Italy and Portugal.
Atomico highlights the Spanish entrepreneurial spirit as reaching new heights thanks to ongoing success stories and a pool of talented operators delivering global impact. The report features the perspective of Julio Martínez, co-founder and CEO of fintech Abacum, who describes the country’s keys as a high standard of living combined with a deep and diverse talent pool from universities worldwide, a vibrant immigrant community, and supportive public policy. This combination, he argues, fuels a landscape where Spanish companies not only start but continue to grow, and rising investment levels serve as a clear signal of market confidence.
Less capital in Europe
Although a reduction in capital for startups began to show a year earlier, the first half of 2023 saw a marked decline compared with the prior year. Total funds raised reached 6.737 million euros versus 21.851 million the year before. Investors are adopting a more selective approach with smaller average deals. Yet this comes after an unprecedented fundraising surge when European tech reserves peaked at 108,000 million dollars (about 98,330 million euros) in the early pandemic years. Despite macroeconomic uncertainty, the sector’s value has climbed to about 2.73 trillion euros globally, nearing the 2021 peak.
Among all initiatives, those in the seed-to-early stages face the toughest capital-raising environment. Venture funds tend to favor companies with established business models and clear growth upside over riskier, fast-scaling ventures that are still proving traction, such as delivery platforms. While more startups are being created across Europe, funding barriers remain higher. Europe recently surpassed the United States in new startup creation with roughly 14,000 versus 13,000, yet American tech startups are reported to be more likely to secure capital within their first five years of operation.
Is Europe a leader in artificial intelligence?
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Artificial intelligence has dominated discussions in 2023 and could become a major driver for Europe if it leverages its potential. The Atomico analysis sees the continent as having the chance to lead in AI, with the technology described as the defining theme for seed-stage funded startups. Currently, AI-focused rounds account for about 11% of deals not exceeding five million euros. In Spain specifically, around 9,000 people work in AI-related roles, signaling growth potential as the field expands. The report notes that despite the broader funding downturn, 11 AI-focused companies closed mega rounds of 100 million dollars or more, underscoring Europe’s standing in AI capability. Data show a tenfold rise in AI professionals over the past decade, now surpassing the number of qualified AI experts in the United States.