A market resetting – European tech pulse check

Rationalization in venture capital funding, a rise in debt financing, and a move towards market consolidation – in collaboration with Silicon Valley Bank, we’ve taken a look at how the European tech ecosystem has fared in the first half of 2022, and the global trends underway.

European tech, H1 2022 stats:

• Europe’s 2nd highest half year period of VC funding, but investment cooling
• Foreign investors pulling back – providing 47% of capital, down from 50% in 2021
• Fintech is Europe’s leading industry for startup investment, and at an all-time high ($15.6B)
• Debt financing on the rise (up ~3x since 2020), IPOs have dried up, but M&A activity is at an all-time high
• European VCs have record levels of dry powder, having raised over $20B this year

European startups raised a total of $58.6B in the first half of 2022. While this is the second highest half-yearly period on record for VC funding on record, it also signals the start of a pull back from the heady highs of 2021, where venture capital funding globally went on a record-smashing (2x year on year) run.

The easing of activity in Europe is also less pronounced that in other major tech ecosystems, where the US has seen a greater impact in H1 2022.

International investors, which last year provided half of Europe’s startup funding, have pulled back from the continent slightly in the first half of 2022. Foreign investors accounted for 47% of overall European funding in H1. This will have the biggest impact on late-stage funding, where non-European investor involvement is more pronounced.

Debt financing has been on a noticeably upward trajectory in the last year, as startups perhaps look to at alternative funding options to extend runway in an uncertain venture environment. $10.4B in debt financing was been raised by European startups in H1 2022, compared to $16.2B for the full year 2021, and $7.5B in 2020.

Fintech continues to be Europe’s most active investment space, accounting for over a quarter of all European funding, and reaching an all-time high of $15.6B in H1 2022. Enterprise Software meanwhile overtook Healthtech in H1 to claim second place in Europe for industry VC funding.

Public listings have drastically slowed in 2022, amid major public market volatility, particularly among tech stocks. There were just 26 European tech IPOs and SPACs in H1 2022, down from 115 a year ago. M&A activity on the other hand is at an all-time high, perhaps the start of a wave of market consolidation.

While all signs point to a major readjustment from 2021 levels of venture activity, VCs are continuing to successfully raise new funds from LPs. VCs continue to raise record levels of dry powder – over $20B so far this year.

In a smaller subplot, while unicorn creation has slowed in the continent’s most mature markets, Europe continues to add new entries to its list of “unicorn cities” – those locations that have produced a billion dollar company. From Kilkenny to Sofia, Oulu to Athens, entrepreneurship is successfully breaking through in all corners of Europe, and leading burgeoning ecosystems for the future.

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