Forget Britain, France is the new home of technology. Hardware is a VC desert! Gen AI will save us all!
We’re all guilty of making exaggerated claims from time to time about what’s going on in Europe’s tech industry. But what do the numbers really tell us?
As part of our debunking series, Sifted Intelligence investigated some of the stories we’ve heard over and over again this year to see if they’re backed up by the numbers.
Myth 1: France is having another great year for major European companies.
France was the only major European ecosystem to receive more funding last year than the previous year.
However, the situation in France has not been so rosy since the start of 2023, with startup investment in the first half of the year falling to its lowest level since the second half of 2020 and less than half of the total raised in the first half of 2022. Our analysis shows that the most active investor in Europe is state-backed Bpifrance. Only 44 raises of more than $25 million were announced, compared to 86 in the first half of last year. So far, the only French technology company to go public in 2023 is the online driving school Lepermislibre (although this is not a unique problem; the world’s IPO market is at rock bottom).
Meanwhile, Germany is quietly moving closer to a tie with France as the see-saw battle for Europe’s second-biggest ecosystem after the UK intensifies.
Myth 2: Generative AI is getting all the funding.
There is no need for the AI industry to worry about a market pullback in 2023. Investors are marveling at his ChatGPT and its imitators, which have captured the zeitgeist in a way rarely seen in new technology.
While the excitement surrounding Gen AI has led some to believe that this sector is receiving the lion’s share of funding, the European market is actually still quite small. According to venture capital firm Atomico, AI generation companies attracted 35% of all funding going to AI/machine learning in Europe in 2023. This is the highest percentage ever, expanding from 1% in 2019 to 5% in 2022.
However, while the total amount of capital being pumped into AI companies is increasing, with $668 million worth of deals done to date, this includes several late-stage deals across the Series C+ stage. Promoted by Among the big funding was a $90 million deal that produced Europe’s third unicorn this year, London-based AI startup Synthesia.
The “pipeline” of AI generation startups is also limited, with the total number of pre-seed funding rounds for Series A generation AI companies at 57 in 2022 and 17 in H1 2023.
Myth 3: The hardware isn’t funded yet.
Old chestnut: Investors love SaaS, but they have no patience for unwieldy hardware startups.
But when we compare the two sectors, we see evidence that the ground is shifting. In H1 2023, hardware accounted for 24.4% of total SaaS and hardware funding, the highest share since 2016.
It is important to add that hardware funding fell by 28.5% in the second half of last year, but relatively speaking, this was more than the 38% decline in SaaS in a market with few sectors moving in an upward direction. It’s better.
There were 38 mega-rounds (equity deals of $100 million or more) in Europe in the first half of this year. Twelve of these were for companies developing hardware. Eight of these mega-rounds were related to climate technology. Solar power startups 1KOMMA5 (Series B €215m) and Enpal (Series D €215m) both raised significant funding in June, while energy storage and electric vehicle enablers DRIVECO, EVC, Octopus Electric Vehicle, Jolt Storage, Ingrid Capacity and Girasole Energies all went home with heavier pockets.
What is clear is that a reallocation of investor capital and priorities is underway. This leaves room for optimism in capital-intensive sectors such as climate tech, deep tech and health tech.
Myth 4: You’ve gotten over the pain of the worst layoff.
Eighteen months into the tech decline, the number of layoffs has already exceeded the total confirmed for 2022, but has been steadily declining since the start of the year, suggesting a lower limit is being reached. . The number of global layoffs in 2023 decreased month-on-month, according to tracking firm Layoffs.fyi.
So is the cold fog that has spread over Europe’s tech industry starting to lift?
It’s too early to tell, and some investors fear a bigger reckoning is coming. “Startups will see significant job cuts from Q3 2023 to late 2024,” Christian Meermann, founding partner at Cherry Ventures, predicted in a widely read analysis earlier this year. . His reasoning is that many companies raised two to four years’ worth of cash in 2021 at unnaturally high valuations. Most of these companies will not grow to their previous valuations and will need to exit, or close, within the next 18 months.
Myth 5: Some technologies are recession-proof.
Some investors consider certain sectors to be “recession-proof,” predicting that they will still attract capital even if other sectors struggle.
Climate change technology has been an investment bright spot in an otherwise bleak market since 2021, but some have pointed to its recession resilience, as it has largely disrupted overall market trends for some time. But before the founders of climate action can party like it was 1999, the latest figures show that funding for European climate technology companies will rise by 43% in the first half of 2023 compared to the same period last year. We actually found that it decreased.
There is further evidence that stages, rather than sectors, are recession-proof. Late-stage mega-rounds tend to disappear when there is a lack of funds, and indeed the Series B+ stage in 2023 is in the red in both the number of deals and the average deal size (although there has been a slight recovery recently) . Smaller checks are preferred in difficult times, and early-stage funding, the backbone of European tech, has held strong throughout the recession, at times outperforming the first half of 2022.
Additional data research by startup analyst Daria Dmytrenko and contributing editor Éanna Kelly
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