Funding for European tech appears to have stabilised in 2024 after dropping precipitously in 2023, but the signs continue to point to more tough times ahead, according to the latest State of European Tech report. 

The annual survey — produced by European VC firm Atomico — notes that startups in the region are on track to raise $45 million this year. While far from the 50% drop of 2023, the figure is still down by $2 billion compared to a year ago. (Note: Atomico originally projected $45 billion for 2023; it has since revised 2023 up to $47 billion.) 

Atomico has been producing these reports annually for the last decade so this latest edition makes a lot of noise about how much things have grown.

It’s undeniable that the tech ecosystem in Europe has blown up: Atomico says that there are now 35,000 tech companies in the region that could be classified as “early stage,” with a 3,400 late-stage companies and 358 valued at over $1 billion. Compare that to 2015, when there were a mere 7,800 early-stage startups, 450 late-stage startups and just 72 tech companies valued at over $1 billion. Yet there is a lot of sobering reading, too, about some of the challenges of the moment and signs of how geopolitical and economic unrest — despite that shiny stories about the boom in AI — continue to weigh down the market. 

Here are some of the breakout stats:

Exits have fallen off a cliff. This is one of the more stark tables in the report that underscores some of the liquidity pressure that ultimately trickles down to earlier-stage tech companies. Put simply, M&A’s and IPO’s are relatively non-existent right now in European tech. 2024, at the time of the report being published in mid-November, saw just $3 billion in IPO value and $10 billion in M&A, according to S&P Capital figures. Both of these a big drops on the overall trend, which had otherwise seen steady rises in both, “consistently surpassing $50 billion per year threshold.” (Granted, sometimes all it takes is one big deal to make a year. In 2023, for example, ARM’s $65 billion IPO accounted for a full 92% of total IPO value, and clearly it didn’t have the knock-on effect many had hoped for in kick-starting more activity.) Transaction volumes, Atomico notes, are at their lowest points in a decade.

Debt on the rise. As you might expect, debt financing is filling in the funding gap especially for startups raising growth rounds. So far this year, debt financing made up a full 14% of all VC investments, totalling some $4.7 billion. That’s a big jump on last year, according to Dealroom’s figures: in 2023, debt made up just $2.6 billion of financing, accounting for 5.5% of all VC investments. 

Average round sizes bounce back. Last year, the average size of every stage of funding from Series A to D all declined in Europe, with only seed stage rounds continuing to increase. However, amid an overall decline in number of funding rounds in the region, those startups that are managing to close deals are, on average, raising more. Series A is now $10.6 million (2023: $9.3 million), Series B $25.4 million (2023: $21.3 million), Series C $55 million (2023: $43 million). The U.S. continues to outpace Europe on round sizes overall. 

But don’t expect rounds to be raised in quick successions. Atomico noted that the number of startups on average raising within a 24-month timeframe declined by 20%, and it has taken longer for a company to convert from A to B on what it calls “compressed” time frames of 15 months or less, with just 16% raising a Series B in that period in 2024. As you can see in the table below the number of rounds in this year is down on the year before.

AI continues to lead the pack. As with 2023, Artificial intelligence continued to dominate conversations. Atomico spells this out with a graphic showing the burst of AI mentions in earnings calls:

And that has carried through as a strong theme among private companies. Between companies like Wayve, Helsing, Mistral, Poolside, DeepL and many others, AI startups have led the pack when it comes to the biggest venture deals this year in Europe, raising $11 billion in all. Yet even so, Atomico points out, “Europe has a long way to close the gap with the U.S. in terms of AI funding.” Thanks to outsized rounds for companies like OpenAI, all told the U.S. shaping up to have invested $47 billion in AI companies this year — that’s right, $2 billion more than all startup investment in Europe, combined.

The U.K. (thanks to Wayve) is currently the biggest market for AI funding in the region, it said.

Valuations improving… After startup valuations “bottomed out” in 2023, Atomico writes, they are now heading back up, a lagged result of the slow return of activity in the public markets. Some of that is likely also due to the outsized rounds raised by certain companies in certain fields like AI. More generally, the rule appears to be that founders are more open to dilution on larger rounds in earlier stages and that plays out as higher valuations. Then startups raising at later stages are picking up the pieces of that earlier exuberance and are raising down rounds, Atomico said. European startups continue to see valuations on average lower than those of their American counterparts, on average between 29% and 52% lower, Atomico notes.

(In the graphic below, charting Series C, the average valuation for a U.S. startup is $218 million, compared to $155 million for startup in Europe.)

…But sentiment is not. If confidence is a strong indicator of the health of a market, there might be some work ahead for the motivators in out there. Atomico has been polling founders and investors annually asking how they feel about the state of the market compared to a year ago, and 2024 appears to a high watermark for low confidence. In a frank assessment of how founders and investors are viewing the market at the moment, a record proportion — respectively 40% and 26% — said they felt less confident than 12 months ago.