European Startup Funding Falls as US Investors Pull Back

FinTech investments

Funding for European tech startups continues to fall as American investors shut off financing.

That’s according to the annual State of European Tech report by British venture capital firm Atomico. Released Tuesday (Nov. 28), it projects funds raised by Europe’s tech startups will reach around $45 billion for the year, down from $82 billion in 2022.

“The decline is not surprising given the dual effect of many later-stage companies delaying fundraising, as well as materially slower deployment pacing by investors, which have both served to drive the large decline in the prevalence of outsized, late-stage investment rounds — the biggest factor in the lower amounts of capital invested,” the report said.

The report shows a drop in participation among American investors. For example, the share of total capital from U.S. investors in growth-stage companies fell from 39% in 2021 to 25% this year.

Atomico adds that while the decline in overall investment is significant, it is worth noting that 2023 is still on pace to be the third-largest year for capital invested, with funding projected to be four times higher in volume than what was seen in 2014.

“In fact, the resetting of investment levels appears to reflect a correction to the long-term upwards trajectory, following two outlier years of overheated activity,” Atomico said.

The report also notes that the funding downturn is a global phenomenon, with companies in Europe facing the same dearth of private tech investment as their counterparts in China, the U.S. and other parts of the world.

This year has brought reports of venture capital firms reducing the size of their “megafunds” even in the midst of a boom in artificial intelligence (AI) investment.

Past reporting by PYMNTS has shown that early-stage tech startups in the U.S. have seen a substantial drop in VC spending.

In the second quarter of 2023, investors in the U.S. backed 3,011 startup deals, which is a third lower than the same period last year. Venture firms also spent less, with the total amount just a bit shy of $40 billion, nearly half of what these investors spent last year. The largest drop in funding was seen in angel or seed deals for startups in the concept phase.

Meanwhile, PYMNTS on Tuesday examined the FinTech environment in a conversation with Sezzle CEO Charlie Youakim.

As Youakim told PYMNTS’ Karen Webster, “it’s going to be a tough year” for these companies. While the economy is resilient, interest rates and the cost of capital remain high, and many companies are wrestling with ever-evolving regulations.

“A lot of air is coming out of the balloon” for these fledgling companies, said Youakim.