Atomico’s latest report, State of European Tech 2022, found that the year 2022 has been a “tale of two halves”. The investment levels have marked an increase of 52% by the end of the first quarter of 2022, however, through August and September investment levels dropped to around $3-5 billion invested per month. Consequently, total investments in Q3 2022 were over 40% down compared to Q3 2021. Regardless of the decrease in investment activity, total investments levels are estimated to reach around $85 billion which represents a year-on-year decline of 18%, which remains a noteworthy outcome considering the challenging macroeconomic environment of 2022, in the words of Henrik Müller-Hansen, the founder and CEO of Gelato: “We are living through extraordinary times. The level of uncertainty in the macro environment will transform how we use technology to tackle the challenges humanity faces.”
Atomico’s report found that despite several setbacks, Europe’s total tech ecosystem value has added over $2 trillion dollars in value since 2015, increasing at a remarkable 26% compound annual growth rate (CAGR) over that period. The report projects that European tech investment will be around $85 billion which, compared to 2020, represents a greater than twofold increase in total capital invested. European tech companies across the public and private markets have marked around $400 billions of value erased since the start of 2022. As a result, the total ecosystem value has fallen to $2.7 trillion from its $3.1 trillion peak in late 2021.
Concerning unicorns, 2022 unsurprisingly looks very different from 2021, with ‘only’ 31 new unicorns birthed in Europe (at the time of Atomico’s publication deadline). This is a steep decline in the number of unicorns created in 2021, which was truly exceptional in creating 105 new unicorns. Europe has to-date created total of 352 unicorns. However, some of the unicorns were de-horned, or subsequent to reaching the unicorn status of company valuation exceeding a billion dollars, the valuation dropped below the mark. In 2022, 45 companies lost their unicorn valuation. Not a surprise given the loss in value of 35-40% of the technology stocks in the public markets.
Europe’s fastest-growing region in terms of venture capital investment is CEE, which has grown at a compounded level (CAGR) of 44% since 2018. Another notable feature of CEE is that the region is the leanest and the swiftest in unicorn creation. For investors, valuation-to-investment ratio for CEE is 7x, compared to European average of 4x. One of the possible explanations is that 22% of CEE unicorns are bootstrapped (or self-financed) before they reach the unicorn status (for example, Croatian Infobip was bootstrapped prior to receiving first VC round that made the company first official Croatian unicorn in July 2020).
Despite investment in Europe as a whole declining in 2022 compared to last year, many individual countries have seen capital investment grow year-on-year, despite the macro headwinds. Amongst the biggest ‘risers’ is Croatia, driven by the large rounds of Rimac. In June 2022, Rimac officially became the Croatian second unicorn following a € 500 million round led by Softbank Technology Vison Fund II and Goldman Sachs Asset Management.
Croatia and Estonia are only two countries that managed to attract overall venture capital investments above 1% of GDP in Europe. Croatia’s capital Zagreb also made it to the list of Top 20 European hubs by venture capital invested for the first time by attracting an estimated $ 758 million investments in 2022. Estonia is a true global champion in attracting 3,6% of GDP as venture capital investments in 2022. Besides, Estonia is a true startup nation with over a thousand starutps per thousand inhabitants. Croatia is lagging behind with only 105 startups per thousand inhabitants, below the European average of 269 startups per thousand inhabitants.
Overall, much progress has not yet been made in the gender disparity in European tech. Proof of this is the fact that women founders’ share of investment has remained somewhat stagnant. Atomico states that men-only founding teams still raise 87% of all VC funding in Europe, while the proportion of funding raised by women-only teams has dropped from 3% to 1% since 2018.
Despite the many challenges both, occurred and ahead, the resilience of the European tech ecosystem and its ability to ‘weather the storm’ can evidently be seen in the strong and continued sense of optimism in the future of European technology. Atomico created and conducted a survey to dive deeper into what lies ahead for the European tech ecosystem in 2023. A topic explored by the survey was the question of what the perceived greatest challenges of the upcoming 12 months for the European tech ecosystem are. Unsurprisingly the top two challenges uncovered by the survey respondents were accessing venture capital, highlighted by founder respondents. The second most mentioned concern was with the challenges posed by the macroeconomic environment and geopolitical instability. Regardless of the presented hardships, 77% of survey respondents describe themselves as either more optimistic for the future or said to retain the level of optimism they had 12 months ago. The importance of tech is evident, and to put it into perspective it is interesting to mention that Atomico found that the tech economy, at a regional level, already contributes more than 6% of the Gross Value Added (‘GVA’) which is equivalent to almost $800 billion. This is more than the European insurance and finance industries combined. On a global basis, Europe accounts for 51% of all investments that go into early-stage tech companies, and this is especially stunning as Europe’s total global investment share is only 23%. Seeing what 2023 has in store will be very interesting indeed.