Atomico says that in 2022, 400 billion dollars will be removed from the European technology market

The Klarna logo is displayed on the smartphone.

Rafael Henrique | SOPA Images | LightRocket via Getty Images

Europe’s tech industry has lost more than $400 billion in value this year, according to venture capital firm Atomico.

The combined value of all public and private European technology firms fell to $2.7 trillion from $3.1 trillion at the end of 2021, Atomico said in its annual State of Europe Technology report on Wednesday.

The numbers highlight a tough year for tech. Once highly valued technology companies have seen their stocks come under pressure from global factors, including Russia’s intervention in Ukraine and tighter monetary policy.

The Federal Reserve and other central banks are raising rates and scaling back pandemic-era stimulus to curb rising inflation. That prompted investors to reassess their positions on loss-making tech companies, whose values ​​are typically based on expectations of future cash flows.

“It’s been a tough year — the war in Ukraine, inflation, rising interest rates, geopolitical tensions across the continent,” Atomico partner Tom Wehmeier told CNBC. “This is the most difficult macroeconomic environment since the global financial crisis.”

Some companies in Europe have seen sharp declines in their market values. Klarna, the Swedish buy-now-pay-later group, slashed its value by 85% from $45.6 billion to $6.7 billion during the so-called “down round.” Meanwhile, shares of music streaming service Spotify have fallen more than 60% in the past year.

Total venture capital funding of European startups is expected to drop to $85 billion this year, according to an Atomico report based on quantitative data and surveys in 41 countries. This is 18% less than European startups raised over $100 billion in 2021.

Atomico said this is the second largest amount ever invested in the European tech ecosystem. European tech investment broke records last year as US investor participation soared to new highs.

This year, the trend has been reversed, with foreign investors largely withdrawing. The number of active US investors in “mega rounds” of $100 million or more fell 22% compared to last year.

“It’s a less liquid funding environment now,” Wehmeier said. “In 2021, we have entered a period where capital is abundant, cheap, difficult to raise capital, and the cost of capital is increasing.”

The slowdown began in the second half

Europe’s tech sector was on fire in the first half of 2022, with investment levels still 4% higher than the same point in 2021, Atomico said.

However, investment began to slow from July and slowed further during August and September. Since then, monthly investment levels have averaged 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 minted over $1 billion in 2022 falling from 105 last year to 31.

Meanwhile, public market listings have virtually evaporated. A total of three tech IPOs with a market value of $1 billion or more took place globally in 2022, Atomico said, with two in Europe. In 2021, there were 86 such IPOs.

The region was not immune to the wave of tech cuts. According to the report, European-headquartered firms have cut more than 14,000 jobs this year, accounting for 7% of global layoffs.

At industry trade shows like Web Summit and Slush, well-funded unicorns founders have encouraged their entrepreneurs to keep costs under control and ensure they have ample runway to survive the recession.

‘There’s a lot of upside’

Still, it’s not all doom and gloom for some investors. Per Roman, a partner at GP Bullhound, said he was optimistic about the promise of certain technologies, including artificial intelligence, cyber security and environmental technology.

“There’s a very good side,” Roman told CNBC on Monday. “Right now, we’ve seen a revaluation of the software and internet markets over the course of the year, early last year, which I think is pretty positive and healthy. It’s been in strong bubble territory for a while.”

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

Atomico director Sarah Guemouri says there are reasons to be optimistic. One of them is the growth of Ukraine’s technology industry. According to figures from the Lviv IT cluster, despite the brutal Russian offensive, the business activity of 85% of Ukrainian IT companies has returned to pre-war levels. Since the start of the war, 77% of ICT firms in Ukraine have attracted new customers.

Although the market outlook is bleak this year, investment is still eight times higher than in 2015.

“In general, the series needs to be viewed through the lens of a longer time horizon,” Guemouri told CNBC. “It’s still pretty remarkable on a lot of levels. What’s really exciting for us is the future and the opportunity that lies ahead and continues to be huge.”

Source link