The Klarna logo displayed on a smartphone.
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Europe’s tech industry has lost greater than $400 billion in value this 12 months, in response to enterprise capital firm Atomico.
The combined value of all private and non-private European tech firms has fallen to $2.7 trillion from a peak of $3.1 trillion in late 2021, Atomico said in its annual “State of European Tech” report Wednesday.
The figures underscore what has been a rough 12 months for tech. Once richly-valued technology corporations have seen their shares come under pressure from global aspects, including Russia’s invasion of Ukraine and tighter monetary policy.
The Federal Reserve and other central banks are raising rates and reversing pandemic-era stimulus to stave off soaring inflation. That is prompted investors to reassess their positions on lossmaking tech corporations, whose values typically rest on the expectation of future money flows.
“It has been a tricky 12 months — war in Ukraine, inflation, rate of interest hikes, geopolitical tensions all across the continent,” Tom Wehmeier, a partner at Atomico, told CNBC. “It’s essentially the most difficult macroeconomic environment for the reason that global financial crisis.”
In Europe, some corporations have seen precipitous drops of their market values. Klarna, the Swedish buy 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, meanwhile, have fallen over 60% previously 12 months.
Overall enterprise capital funding of European startups is anticipated to drop to $85 billion this 12 months, in response to the Atomico report, which relies on quantitative data and surveys in 41 countries. That’s down 18% from the greater than $100 billion European startups raised in 2021.
It was nevertheless the second-highest amount ever invested within the European tech ecosystem up to now, Atomico said. European tech investment shattered records last 12 months as participation from U.S. investors surged to latest heights.
This 12 months saw a reversal of that trend, with foreign investors largely retreating. The variety of lively U.S. investors in “mega rounds” of $100 million or more dropped 22% from last 12 months.
“It is a less liquid funding environment now,” Wehmeier said. “We have gone from a period in 2021 when capital was abundant, when it was low cost, to 1 where it’s harder to boost capital and one wherein the price of capital has increased.”
Slowdown began in second half
In the primary half of 2022, Europe’s tech sector was on fire, with investment levels still 4% higher than at the identical point in 2021, Atomico said.
Nevertheless, investment began slowing from July and decelerated further through August and September. Since then, monthly investment levels have averaged around $3 billion to $5 billion, in step with 2018 levels.
The speed of unicorn creation also slowed, with the number of latest $1 billion-plus unicorns minted in 2022 falling to 31 from 105 last 12 months.
Meanwhile, public market listings have virtually evaporated. Just three tech IPOs with a market cap of $1 billion or more took place globally in 2022, with two happening in Europe, Atomico said. In 2021, there have been 86 such IPOs.
And the region wasn’t resistant to the wave of tech layoffs. European-headquartered firms laid off greater than 14,000 employees this 12 months, accounting for 7% of total layoffs globally, in response to the report.
At industry trade shows like Web Summit and Slush, founders of well-funded unicorns encouraged their fellow entrepreneurs to maintain costs under control and ensure they’ve ample runway to survive a downturn.
‘There’s a variety of upside’
Still, for some investors, not all is doom and gloom. Per Roman, partner at GP Bullhound, said he’s bullish concerning the promise of certain technologies, including artificial intelligence, cybersecurity and environmental tech.
“There’s a variety of upside,” Roman told CNBC Monday. “Without delay, we have seen through the 12 months, the start of last 12 months, the software and web markets revaluing, I believe that is quite positive and healthy. It has been in strong bubble territory for a while.”
“At the identical time, these software layers are running the world we live in today, whether it is a hospital, school or construction site. So the core fundamentals will remain strong over the subsequent decade.”
There are reasons to be optimistic, says Sarah Guemouri, principal at Atomico. One is growth in Ukraine’s tech industry. Despite Russia’s brutal onslaught, business activity has returned to pre-war levels for 85% of Ukrainian IT corporations, in response to figures from the Lviv IT cluster. For the reason that war began, 77% of ICT firms in Ukraine have attracted latest customers.
And while the market picture was bleak this 12 months, investment remains to be eight times greater than it was in 2015.
“Overall, the series must be viewed from the lens of a for much longer time horizon,” Guemouri told CNBC. “It remains to be a fairly remarkable on many levels. For us, what we’re really enthusiastic about is the long run and the chance that lies ahead, which continues to be huge.”