This is the region’s second consecutive year of decline following a record-breaking 2021. 

London-based venture capitalist Atomico analysed the startup investment landscape in Europe. The report highlights an immense concentration of venture capital activity. Just three countries – the UK, Germany, and France – account for 81 percent of all European funding rounds this year.

The report also assessed the impact of COVID-19 on venture capital investment, noting that 2022 saw a sharp drop compared to 2021 levels before recovering in the latter half.

Forecast

Atomico’s report forecasts that European startups will have raised about $85B by the end of 2022 as investors increasingly look outside traditional markets to find innovative opportunities.

Companies from southern and eastern Europe have seen rapid growth over the past few years and are expected to continue this trend in the coming year. The report highlights the growing importance of non-traditional investors, such as corporate venture capitalists, which have become increasingly influential in Europe’s startup ecosystem.

It also notes that non-traditional sources of capital such as hedge funds (up 30 percent), corporates (14 procent) and family offices (6 percent) have helped to offset some of the declines seen in venture capital (VC) investment.

Besides, the overall deal volume is only marginally down (7 percent) despite a significant drop in seed activity (34 percent). This suggests that even during times of economic uncertainty, investors are still willing to invest in startups with solid fundamentals and growth potential.

Venture capital market

Despite various macroeconomic challenges, the European venture capital market remains healthy. Deal values and sizes at Europe’s top 50 VC-backed companies are, on average, more significant than ever before, and a record number of tech unicorns (startups valued over $1B) were founded in the region this year.

Atomico predicts that corporate venture capital firms will account for nearly one-third of all European investments in the coming years, noting that Europe’s startup ecosystem is resilient, even in the face of economic headwinds.

With increased access to capital and opportunities for growth, the region will remain a key player in the global tech landscape and is well-positioned to create ground-breaking startups in the years ahead, Atomico said.