Funding in Europe by 2024 down to $45 billion, says Atomico

European tech funding looks set to stabilize in 2024 after a sharp decline in 2023, but signs continue to point to more difficult times ahead, according to the latest State of European Tech report.

The annual study – produced by European VC firm Atomico – notes that startups in the region are on track to raise $45 million this year. While we are far from a 50% drop by 2023, this figure is still $2 billion lower than last year. (Note: Atomico originally estimated $45 billion by 2023; then revised 2023 to $47 billion.)

Atomico has been producing these reports every year for the past decade so this latest edition is making a lot of noise about how much things have grown.

There’s no denying that the tech ecosystem in Europe has exploded: Atomico says there are now 35,000 tech companies in the region that can be described as “early stage,” with 3,400 late-stage companies and 358 valued at more than $1 billion. Compare that to 2015, when there were just 7,800 startups, 450 latecomers and 72 tech companies valued at more than $1 billion. Yet there are many sobering readings, too, about the current challenges and signs that geopolitical and economic turmoil – despite those glowing stories about the growth of AI – continue to weigh down the market.

Here are some breakout stats:

Getting out fell off a cliff. This is one of the most prominent tables in the report that emphasizes some of the liquidity pressure that is finally falling on the former technology companies. Simply put, M&As and IPOs are virtually non-existent right now in European technology. By 2024, when the report was published in mid-November, it saw just $3 billion in IPO value and $10 billion in M&A, according to S&P Capital calculations. Both of these are major declines in the overall trend, which has been seen as a slight increase in both, “always exceeding $50 billion annually.” (Granted, sometimes all it takes is a year. In 2023, for example, ARM’s $65 billion IPO was worth a whopping 92% of the IPO price, and apparently didn’t have much of a negative impact. I was hoping to get a lot of work done. ) Transaction volumes, Atomico notes, are at their lowest level in a decade.

Debts are mounting. As you might expect, debt financing fills a gap especially for startups that are expanding growth cycles. So far this year, debt financing has made up a full 14% of all VC investments, totaling $4.7 billion. That’s a big jump from last year, according to Dealroom figures: loans made up just $2.6 billion, accounting for 5.5% of all VC investments.

Average round sizes are back. Last year, the average size of all funding rounds from Series A to D all declined in Europe, while only seed stage rounds continued to grow. However, amid an overall decline in the number of funding rounds in the region, those startups that manage to close deals are, on average, raising more. Series A is now $10.6 million (2023: $9.3 million), Series B $25.4 million (2023: $21.3 million), Series C $55 million (2023: $43 million). The US continues to outpace Europe in overall round sizes.

But don’t expect rounds to be raised in quick succession. Atomico noted that the number of startups on average raised within a 24-month period decreased by 20%, and it took a long time for a company to transform from A to B in what it called “compressed” times of 15 months or less, with only 16% raising Series B by then in 2024.

Ratings are improving… After the start of the ratings “downgraded” in 2023, Atomico writes, now they are going back, the delayed effect of the slow return of activity in the public markets. The general rule seems to be that founders are more open to splitting big rounds in earlier stages and that plays out as higher valuations. Then the startups that step up in the later steps take pieces of that earlier excitement and raise the rounds, Atomico said. European startups continue to see prices on average lower than those of their American counterparts, on average between 29% and 52% lower, Atomico notes.

(In the picture below, the Series C chart, the average value of a US startup is $218 million, compared to $155 million for a startup in Europe.)

…But emotions are not like that. If confidence is a strong indicator of market health, there may be some work left for existing promoters. Atomico has been polling founders and investors every year asking how they feel about the state of the market compared to the previous year, and 2024 is seen as the high watermark of low confidence. In a candid survey of how founders and investors currently view the market, a record proportion – 40% and 26% respectively – said they felt less confident than 12 months ago.