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Green shoots are emerging for Europe’s tech startups after a two-year investment drought, as dealmaking among early-stage companies increases and venture capitalists raise new funds.
Creandum, an early backer of Spotify, Klarna and Depop, unveiled a €500 million fund on Monday, becoming the latest Europe-focused private tech investor to secure new capital for startups this year.
The fundraising follows deals of similar size, including Accel Europe, which launched a $650 million fund last month, and Plural, a London and Tallinn-based firm focused on deep tech start-ups that has raised €500 million fetched. Plural added another €100 million to its fund last month, following its first close in January.
Creandum’s fund was raised “in record time,” said general partner Carl Fritjofsson. “There is a dramatic change in sentiment, appetite and activity across the sector,” he said.
After the tech investment frenzy brought on by the Covid-19 pandemic came to a sudden halt due to inflation, rising interest rates and geopolitical tensions, European startups were forced to cut costs as venture capital investment dried up. Some major US tech investors, including Tiger Global and Coatue, have withdrawn from European dealmaking.
But venture capital firms say the market has begun to change in the first few months of 2024, as a new craze for artificial intelligence startups is accompanied by a strong rally in Big Tech’s valuations on Wall Street.
“We’re not quite through the overhanging peak years yet, but the green shoots are all around us,” says Tom Wehmeier, who leads the insights team at Atomico, one of Europe’s largest venture capital firms. “We are beyond the recovery phase and are returning to a period of growth.”
Wehmeier predicts that, after declining in 2023, private technology investment in European startups will grow again this year. “The market is more active at any given time than we have seen prior to 2021,” he said, pointing to three consecutive quarters of increased investment in “Series B” deals.
“Based on the data we see and based on our daily work, we are really excited about 2024,” said Sabina Wizander, a Creandum partner based in Stockholm. “More and more quality companies are daring to open their doors [to raise money] because the fundraising environment is more predictable.”
Many startups were forced to cut costs and focus on profitability when the market turned in 2022. The companies that survived the funding freeze are now more sustainable, investors say, while overall revenue growth is starting to accelerate.
Even some Silicon Valley investors have returned to Europe, with Andreessen Horowitz and IVP opening offices in London in recent months.
Between 2007 and 2021, Creandum returned almost seven times what it invested in companies after selling those stakes. One in six companies it has invested in has achieved a valuation of more than $1 billion.
Jon Biggs, a partner at one of Creandum’s investors, Top Tier, said the figures show that European venture capital groups can show returns comparable to their Silicon Valley peers – a question that has long vexed investors in the region. “The company sits comfortably at the top of global venture capital funds,” he said.
Not every European fund has been able to raise funds so easily. London-based Atomico is in the final stages of its biggest ever capital raise, targeting as much as $1.35 billion through its venture and growth funds, according to people familiar with the matter. But while the company expects to close the financing in the coming months, the process has taken more than a year.
That reflects both the size of the deal and continued investor caution about funds focused on later-stage companies at a time when there have been few successful IPOs, these people said. Atomico declined to comment on its fundraising plans.