$400 billion erased from European tech market in 2022, Atomico says

The Klarna brand displayed on a smartphone.

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Europe’s tech trade has lost greater than $400 billion in worth this year, in keeping with enterprise capital agency Atomico.

The mixed worth of all private and non-private European tech corporations has fallen from to $2.7 trillion from a peak of $3.1 trillion in late 2021, Atomico stated in its annual “State of European Tech” report Wednesday.

The figures underscore what has been a tough year for tech. Once richly-valued technology firms have seen their shares come below strain from world components, together with Russia’s invasion of Ukraine and tighter financial coverage.

The Federal Reserve and different central banks are elevating charges and reversing pandemic-era stimulus to stave off hovering inflation. That’s prompted buyers to reassess their positions on lossmaking tech firms, whose values sometimes relaxation on the expectation of future money flows.

“It’s been a tough year — war in Ukraine, inflation, interest rate hikes, geopolitical tensions all across the continent,” Tom Wehmeier, a associate at Atomico, informed CNBC. “It’s the most challenging macroeconomic environment since the global financial crisis.”

In Europe, some firms have seen precipitous drops in their market values. Klarna, the Swedish purchase now, pay later group, slashed its valuation by 85% from $45.6 billion to $6.7 billion in a so-called “down round.” Shares of music streaming service Spotify, in the meantime, have fallen over 60% in the previous year.

Overall enterprise capital funding of European startups is predicted to drop to $85 billion this year, in keeping with the Atomico report, which is predicated on quantitative information and surveys in 41 international locations. That is down 18% from the greater than $100 billion European startups raised in 2021.

It was nonetheless the second-highest quantity ever invested in the European tech ecosystem to this point, Atomico stated. European tech funding shattered information final year as participation from U.S. buyers surged to new heights.

There's 'a lot of upside' for tech, investment firm says

This year noticed a reversal of that pattern, with overseas buyers largely retreating. The variety of lively U.S. buyers in “mega rounds” of $100 million or extra dropped 22% from final year.

“It’s a less liquid funding environment now,” Wehmeier stated. “We’ve gone from a period in 2021 when capital was abundant, when it was cheap, to one where it is harder to raise capital and one in which the cost of capital has increased.”

Slowdown started in second half

In the primary half of 2022, Europe’s tech sector was on fireplace, with funding ranges nonetheless 4% larger than on the identical level in 2021, Atomico stated.

However, funding started slowing from July and decelerated additional by means of August and September. Since then, month-to-month funding ranges have averaged round $3 billion to $5 billion, in line with 2018 ranges.

The rate of unicorn creation additionally slowed, with the variety of new $1 billion-plus unicorns minted in 2022 falling to 31 from 105 final year.

Meanwhile, public market listings have nearly evaporated. Just three tech IPOs with a market cap of $1 billion or extra occurred globally in 2022, with two occurring in Europe, Atomico stated. In 2021, there have been 86 such IPOs.

And the area wasn’t proof against the wave of tech layoffs. European-headquartered corporations laid off greater than 14,000 workers this year, accounting for 7% of complete layoffs globally, in keeping with the report.

At trade commerce reveals like Web Summit and Slush, founders of well-funded unicorns inspired their fellow entrepreneurs to maintain prices below management and guarantee they’ve ample runway to outlive a downturn.

‘There’s lots of upside’

Still, for some buyers, not all is doom and gloom. Per Roman, associate at GP Bullhound, stated he’s bullish concerning the promise of sure applied sciences, together with synthetic intelligence, cybersecurity and environmental tech.

“There’s a lot of upside,” Roman informed CNBC Monday. “Right now, we’ve seen through the year, the beginning of last year, the software and internet markets revaluing, I think that’s quite positive and healthy. It’s been in strong bubble territory for some time.”

“At the same time, these software layers are running the world we live in today, whether it’s a hospital, school or construction site. So the core fundamentals will remain strong over the next decade.”

There are causes to be optimistic, says Sarah Guemouri, principal at Atomico. One is progress in Ukraine’s tech trade. Despite Russia’s brutal onslaught, business exercise has returned to pre-war ranges for 85% of Ukrainian IT firms, in keeping with figures from the Lviv IT cluster. Since the battle started, 77% of ICT corporations in Ukraine have attracted new clients.

And whereas the market image was bleak this year, funding remains to be eight instances higher than it was in 2015.

“Overall, the series needs to be viewed from the lens of a much longer time horizon,” Guemouri informed CNBC. “It is still a pretty remarkable on many levels. For us, what we are really excited about is the future and the opportunity that lies ahead, which continues to be huge.”

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