On Monday, the UK tech lobby Startup Alliance warned in a blog post that Reeves’ tax plan could lead to a “brain drain” in tech. (Photo by Olly Scarfe/Getty Images)
Olly Scarfe | Getty Images
Venture capital investment in European technology startups is expected to fall for a third consecutive year, but there are signs that the situation is finally stabilizing as valuations improve and interest rates fall, venture capital firm Atomico said.
European venture capital-backed startups are expected to receive $45 billion in investment by the end of 2024, slightly lower than the $47 billion raised last year, Atomico said in its “State of European Tech” report on Tuesday.
Still, Atomico said it showed that European tech financing levels were finally “stabilizing” despite three consecutive years of declines caused by deteriorating global macroeconomic conditions.
The company stressed that the continent’s tech ecosystem is much better than it was a decade ago and that this year’s funding will still exceed the $43 billion raised by new startups between 2005 and 2014.
From 2015 to 2024, European startups have received $426 billion in investment, dwarfing the total investment in technology companies a decade ago.
Tom Wehmeier, head of insights at Atomico, told CNBC that Europe still needs to improve in some key areas before it can create companies on par with the largest technology companies in the United States and China.
“It’s frustrating that we face ongoing challenges in terms of regulation, bureaucracy, access to capital and the idea of expanding in a fragmented European market,” Wehmeyer said in an interview.
For example, Wehmeier said pension funds in Europe face barriers to investing in venture capital funds and therefore don’t have much access to the continent’s fast-growing startup ecosystem.
According to Atomico’s report, European pension funds allocate just 0.01% of their $9 trillion in assets under management to continent-based venture capital funds.
The 2024 publication marks 10 years since Atomico began producing the annual report, produced in partnership with data company Dealroom.
Europe’s first $1 trillion tech company?
According to Atomico, there are signs that the industry is improving. In the UK, for example, Finance Minister Rachel Reeves last week Make a plan Consolidate 86 independent local government pension funds into eight “mega funds” to promote domestic asset investment.
TechUK, a British technology advocacy group, said the reforms “should address barriers to more pension funding being made available and encourage a vision for greater investment in UK technology startups and scale-up businesses.”
Reforms of pension schemes are being discussed or being discussed in several other countries in Europe.
“These changes could result in billions of dollars more funding for scale-ups in Europe, and that could be the difference between Europe’s best and brightest companies expanding here and being forced to relocate,” Wehmeyer told CNBC.
Atomico said it is optimistic about the next decade of European technology. The venture capital firm, founded by Skype co-founder Niklas Zennström, predicts that the entire European technology ecosystem could be worth $8 trillion by 2034, up from about $3 trillion currently.
Atomico also predicts that Europe will have its first multi-trillion dollar tech company within a decade.
While Europe is home to several so-called “decacorns” valued at $10 billion and above, including arm, Adien, Spotify Like Revolut, it has so far failed to grow a $1 trillion company.
This differs from the United States, where several so-called “big seven” technology companies now have market capitalizations in excess of $1 trillion. That includes Google parent company letter, Amazon, appleFacebook owner Yuan, Microsoft, NVIDIA and Tesla.
Wehmeier said: “If we can unlock capital at scale, keep the brightest minds in Europe, and continue to focus on solving the real hard problems of society and the economy, then we can unlock the first multi-trillion dollar companies. “
