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400 billion dollars deleted from the European technology market by 2022, says Atomico

The Klarna logo is displayed on a smartphone.

Rafael Henrique | SOPA Images | LightRocket via Getty Images

Europe’s technology 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 to $2.7 trillion from a peak of $3.1[ads1] trillion at the end of 2021, Atomico said in its annual “State of European Tech” report on Wednesday.

The figures underline what has been a tough year for technology. As richly valued tech 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 interest rates and reversing the stimulus from the pandemic to stave off skyrocketing inflation. That has prompted investors to reassess their positions in loss-making technology companies, whose values ​​typically rest on expectations of future cash flows.

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

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

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

It was still the second highest amount ever invested in the European tech ecosystem to date, Atomico said. European technology investment broke records last year as participation from US investors rose to new heights.

400 billion dollars deleted from the European technology market by 2022, says Atomico

This year saw a reversal of this trend, with foreign investors largely pulling back. The number of active US investors in “mega rounds” of $100 million or more fell 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 plentiful, when it was cheap, to one where it’s harder to raise capital and one where the cost of capital has increased.”

The slowdown began in the second half

In the first half of 2022, Europe’s tech sector was on fire, with investment levels still 4% higher than at the same time in 2021, Atomico said.

However, investment began to decline from July and further declined through August and September. Since then, monthly investment levels have averaged around $3 billion to $5 billion, in line with 2018 levels.

The rate of unicorn creation also slowed, with the number of new $1 billion plus unicorns minted in 2022 falling to 31 from 105 last year.

Meanwhile, public market listings have virtually evaporated. Only three technology IPOs with a market capitalization of $1 billion or more took place globally in 2022, two of which occurred in Europe, Atomico said. In 2021, there were 86 such IPOs.

And the region was not immune to the wave of technical layoffs. Companies headquartered in Europe laid off more than 14,000 employees this year, accounting for 7% of total layoffs globally, according to the report.

At trade shows like Web Summit and Slush, the founders of well-funded unicorns encouraged their co-founders to keep costs under control and ensure they have a good runway to survive a downturn.

“There’s a lot of upside”

Still, for some investors it’s not all doom and gloom. Per Roman, partner at GP Bullhound, said he is optimistic about the promise of certain technologies, including artificial intelligence, cyber security and environmental technology.

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

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

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

And although the market picture was gloomy this year, investments are still eight times greater than in 2015.

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

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