$400 billion erased from European tech market in 2022, Atomico says



The Klarna logo displayed on a smartphone.

Rafael Henrique | SOPA Images | LightRocket via Getty Images

Europe’s tech industry has lost more than $400 billion in value this year, according to venture capital firm Atomico.

The combined value of all public and private European tech firms has fallen from to $2.7 trillion from a peak of $3.1 trillion in late 2021, Atomico said in its annual “State of European Tech” report Wednesday.

The figures underscore what has been a rough year for tech. Once richly-valued technology companies have seen their shares come under pressure from global factors, including Russia’s invasion of Ukraine and tighter monetary policy.

The Federal Reserve and other central banks are raising rates and reversing pandemic-era stimulus to stave off soaring inflation. That’s prompted investors to reassess their positions on lossmaking tech companies, whose values typically rest on the expectation of future cash flows.

“It’s been a tough year — war in Ukraine, inflation, interest rate hikes, geopolitical tensions all across the continent,” Tom Wehmeier, a partner at Atomico, told CNBC. “It’s the most challenging macroeconomic environment since the global financial crisis.”

In Europe, some companies have seen precipitous drops in their market values. Klarna, the Swedish buy now, pay later group, slashed its valuation by 85% from $45.6 billion to $6.7 billion in a so-called “down round.” Shares of music streaming service Spotify, meanwhile, have fallen over 60% in the past year.

Overall venture capital funding of European startups is expected to drop to $85 billion this year, according to the Atomico report, which is based on quantitative data and surveys in 41 countries. That is down 18% from the more than $100 billion European startups raised in 2021.

It was nevertheless the second-highest amount ever invested in the European tech ecosystem to date, Atomico said. European tech investment shattered records last year as participation from U.S. investors surged to new heights.

There's 'a lot of upside' for tech, investment firm says

This year saw a reversal of that trend, with foreign investors largely retreating. The number of active U.S. investors in “mega rounds” of $100 million or more dropped 22% from last year.

“It’s a less liquid funding environment now,” Wehmeier said. “We’ve gone from a period in 2021 when capital was abundant, when it was cheap, to one where it is harder to raise capital and one in which the cost of capital has increased.”

Slowdown began in second half

‘There’s a lot of upside’

Still, for some investors, not all is doom and gloom. Per Roman, partner at GP Bullhound, said he is bullish about the promise of certain technologies, including artificial intelligence, cybersecurity and environmental tech.

“There’s a lot of upside,” Roman told CNBC Monday. “Right now, we’ve seen through the year, the beginning of last year, the software and internet markets revaluing, I think that’s quite positive and healthy. It’s been in strong bubble territory for some time.”

“At the same time, these software layers are running the world we live in today, whether it’s a hospital, school or construction site. So the core fundamentals will remain strong over the next decade.”

There are reasons to be optimistic, says Sarah Guemouri, principal at Atomico. One is growth in Ukraine’s tech industry. Despite Russia’s brutal onslaught, business activity has returned to pre-war levels for 85% of Ukrainian IT companies, according to figures from the Lviv IT cluster. Since the war began, 77% of ICT firms in Ukraine have attracted new customers.

And while the market picture was bleak this year, investment is still eight times greater than it was in 2015.

“Overall, the series needs to be viewed from the lens of a much longer time horizon,” Guemouri told CNBC. “It is still a pretty remarkable on many levels. For us, what we are really excited about is the future and the opportunity that lies ahead, which continues to be huge.”


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