The Klarna logo is displayed on a smartphone.
Rafael Henrique SOPA Pictures | LightRocket via Getty Images
Europe’s tech industry has lost more than $400 billion in value this year, according to venture capital firm Atomico.
In its annual “State of European Technology” report on Wednesday, Atomico said the combined value of all public and private European technology companies has fallen to $2.7 trillion from a peak of $3.1 trillion in late 2021.
The numbers underscore what’s been a tough year for the tech. Once highly valued tech companies saw their stocks come under pressure from global factors, including Russia’s invasion of Ukraine and tightening monetary policy.
The Federal Reserve and other central banks are raising interest rates and reversing pandemic-era stimulus to stave off soaring inflation. That prompted investors to reassess their positions in loss-making tech companies, whose values are typically based on projections of future cash flows.
“It’s been a tough year — war in Ukraine, inflation, rising interest rates, geopolitical tensions across the continent,” Tom Weihmeyer, partner at Atomico, told CNBC. “It is the most challenging macroeconomic environment since the global financial crisis.”
In Europe, some companies have seen their market values drop sharply. Klarna, the Swedish buy-now-pay-later group, cut its valuation by 85% from $45.6 billion to $6.7 billion in a so-called “landing round”. Meanwhile, shares of music streaming service Spotify have fallen more than 60% in the past year.
Total venture capital funding for European startups is expected to drop to $85 billion this year, according to the Atomico report, which is based on quantitative data and surveys in 41 countries. This is down 18% from the more than $100 billion European startups raised in 2021.
Still, Atomico said, it was the second-largest amount ever invested in the European tech ecosystem so far. European technology investment Broken records last year The participation of American investors has soared to new heights.
This year saw a reversal of that trend, with foreign investors largely backing out. The number of active US investors in “grand rounds” of $100 million or more is down 22% from a year ago.
“It’s a much less liquid financing environment now,” Weimer said. “We went from a period in 2021 when capital was plentiful, when it was cheap, to a period when it was difficult to raise capital and one where the cost of capital increased.”
The slowdown began in the second half
In the first half of 2022, Atomico said, Europe’s technology sector was on fire, with investment levels still 4% higher than in the same period in 2021.
However, investment started to slow down from July and slowed further during August and September. Since then, average monthly investment levels have ranged between $3 billion and $5 billion, in line with 2018 levels.
The rate of unicorn creation has also slowed, with the number of new unicorns over $1 billion in 2022 dropping to 31 from 105 last year.
Meanwhile, the public market listings have virtually evaporated. Atomico said only three technology IPOs with a market value of $1 billion or more took place globally in 2022, with two taking place in Europe. In 2021, there were 86 IPOs.
The region was not immune from this A wave of technical layoffs. According to the report, European-based companies laid off more than 14,000 employees this year, accounting for 7% of all layoffs globally.
At industry tradeshows like Web Summit and Slush, well-funded unicorn founders encourage fellow entrepreneurs to keep costs in check and ensure they have ample runway to survive the downturn.
“There are a lot of positive aspects.”
For some investors, however, it’s not all bleak. Per Roman, partner at GP Bullhound, said he was optimistic about the promise of some technologies, including artificial intelligence, cybersecurity and environmental technology.
“There are a lot of positives,” Roman told CNBC Monday. “Right now we’ve seen during the year, the beginning of last year, a reassessment of the software and internet markets, I think that’s quite positive and healthy. They’ve been in a strong bubble territory for some time.”
“At the same time, these layers of software run the world we live in today, whether it’s a hospital, a school, or a construction site. So the underlying fundamentals will remain strong over the next decade.”
There are reasons for optimism, says Sarah El Gaimouri, director of Atomico. One is Growth of the technology industry in Ukraine. Despite Russia’s brutal onslaught, business activity has returned to pre-war levels for 85% of Ukrainian IT companies, according to figures from Lviv IT Group. Since the outbreak of the war, 77% of ICT companies in Ukraine have attracted new customers.
And while the market picture has been bleak this year, investment is still eight times higher than in 2015.
“Overall, the series should be viewed from the perspective of a much longer time horizon,” El-Gamouri told CNBC. “It’s still amazing on so many levels. For us, what we’re really excited about is the future and the opportunity that lies ahead of us, which is still huge.”
