Europe’s venture capital firms are on pace for their most meager year of funding since 2015, a worrying sign for technology startups already facing a sharp slowdown in deals and exit opportunities.
(Bloomberg) — Europe’s venture capital firms are on pace for their most meager year of funding since 2015, a worrying sign for technology startups already facing a sharp slowdown in deals and exit opportunities.
Venture funds based in Europe raised €3.4 billion ($3.72 billion) from limited partners during the first quarter of 2023, down from €7.4 billion in same period of 2022, according to new data from research firm PitchBook. Since 2019, these funds had raised investing stockpiles of more than €20 billion annually. But a weaker stock market and rising interest rates caused large institutional investors and pension funds, the largest backers of venture firms, to pull back.
With less capital, Europe’s venture firms cut fewer checks. During the quarter, €11.8 billion went into European startups, a 57% drop from the first quarter of 2022, according to PitchBook. Deal count fell almost a fifth from the last quarter. Additionally, bigger investment vehicles — such as sovereign wealth funds, private equity and corporate venture arms — were also less active in Europe at the start of 2023.
“Investors are being more cautious with their capital,” said Nalin Patel, the PitchBook analyst who wrote the report. “Inflation, political risk, interest rates – it’s adding to the cocktail of challenges.”
In the US, tech investments and venture fundraising also plummeted as the year began. US startups raised $37 billion, the lowest amount in 13 quarters. The sector was hit hard by the collapse of Silicon Valley Bank. The failure is expected to have a dampening effect on deals for the rest of the year, though Europe’s exposure to the California-based bank was limited.
Europe has also suffered from a dearth of late-stage tech deals and exits. PitchBook’s report counted just €1.6 billion in venture capital exit value in the first three months of the year, a 70% drop from the prior quarter. With fewer opportunities for large startups, Europe’s venture capitalists have made more early-stage deals so far this year.
Patel said he expects to see more acquisitions in Europe in the coming months as sectors like fintech and instant delivery consolidate. He doesn’t expect to see any new prospects for public listings.
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