Interest rate increases have rippled through the entrepreneurial landscape, shaping outcomes for startups across Europe and beyond. A study funded by a venture capital fund highlights that Spain ranked fourth in Europe for the number of new companies receiving funding in 2022, yet total funds raised declined by 42%. Europe’s tech investment decreased by 45%, slipping from 82 billion dollars in 2022 to 45 billion that year. Spanish startups still raised about 1.6 billion dollars, up 18% from 2020, but investors stayed cautious amid rising rates and ongoing volatility in the financial and crypto spheres.
The State of European Technology 2023, an annual survey by the venture capital firm Atomico, collects data from thousands of European founders, operators, and investors. The report offers a snapshot of the sector’s mood and direction. It notes that after two turbulent years, European technology shows signs of stabilization and a budding recovery, with more startups being founded in Europe than in the United States. With global macroeconomic pressures, the tech sector remains a multi-trillion-dollar arena, peaking around 2021. Europe has surpassed the US in new startup creation, with roughly 14,000 new European ventures vs. about 13,000 in the United States. Yet U.S. tech startups face a tougher path to early-stage capital within the first five years of existence. Spain contributes about 4% of all new startups worldwide and ranks sixth in global startup activity.
The report’s takeaways point to a more selective investment climate, though ample capital still exists. In the first half of 2023, total funds raised fell sharply to 7.4 billion dollars from 24 billion in 2022. Investors, wary of uncertainty, adopted more selective strategies and modest average deal sizes. The authors estimate that the European technology capital pool reached a historic high of 108 billion dollars, underscoring persistent liquidity despite caution.
Nevertheless, investors are more discerning about which teams they back. About 80% of surveyed entrepreneurs say it has become harder to secure funding, leading many to adjust expectations for rounds. There has also been a notable slowdown in large, multi-million-dollar rounds in Europe. Only a handful of companies in the region achieved valuations above one billion dollars, including Deepl, Helsing.ai, Synthesia, and Quantexa.
The Stock Market Spurs Momentum
Atomico’s analysts expect public markets to play a growing role for Europe’s startup ecosystem. After six straight quarters of retreat, the IPO window appears to be loosening a little, aided by notable listings such as ARM in September 2022 and the IONOS Group, a German cloud infrastructure provider. These events could help fuel future IPO activity within European tech.
Technology remains a central engine for entrepreneurship in Europe. Over the past five years, the tech workforce expanded from about 750,000 to more than 2.3 million people. In Spain, employment in technology exceeds 126,000, a gain of roughly 25,000 in the last year. The continent did experience higher layoff activity in May 2023, though the situation has stabilized since then, with further adjustments anticipated in 2024.
Artificial intelligence sits at the core of many investor agendas in early-stage ventures, accounting for roughly 11% of rounds under five million euros. In total, eleven AI-focused companies have raised at least 100 million dollars, signaling strong investor appetite for AI-enabled startups.
Climatetech has emerged as a leading capital-raising category, surpassing fintech and software to command about 27% of all European technology funding in 2023. This surge marks a threefold increase in climate-related investments since 2021. Sustainability and climate concerns also feature prominently in rounds of five million dollars or less, underscoring a broad shift toward environmental and long-term impact strategies in the funding landscape.