End of easy money for startups. The continuous rate hikes and the uncertainty generated first by the conflict in Ukraine and now by the escalation in the Gaza Strip have cooled the desire of venture capital funds to disburse large amounts to support the growth of emerging companies. If we focus on the In the Spanish case, the firms will raise around 1.5 billion euros in financing this year, what represents a drop of 42% compared to the previous year, according to the forecasts included in the ‘State of European Tech 2023’ report prepared by the Atomico venture capital fund. The data is in line with European figures, where there is an “international withdrawal of investors” that has had a direct impact on fundraising for startups. Estimates point to a 45% decrease in the continent’s financing by 2023 to 41,000 euros compared to the 74,659 million registered in 2022.
“After two turbulent years, the European technology sector has managed to stabilize and has begun its recovery process, producing a notable boost to technological entrepreneurship that has led to the creation of more startups in Europe than in the United States,” the authors of the report point out. . And one of the countries where the most bet is on this type of companies is precisely Spain: It ranks sixth worldwide with 4% of all new companies. The country is positioned as the fourth country where the most emerging companies obtain financing and one of the countries with the highest number of startups per capita (60). Spain also has the highest figure in the south of the continent in terms of investment and manages to surpass other neighboring countries, such as Italy or Portugal, while consolidating “its position in the European technological scene.”
For Atomico, the Spanish entrepreneurial spirit “is reaching new heights” thanks to the momentum of success stories and talented operators who are creating a global impact. Within the report they have included the vision of Julio Martínez, co-founder and CEO of the ‘fintech’ Abacum, where he exposes the keys to the country: a Profitable standard of living combined with a deep talent pool from world-class universities, a vibrant expat community and solid public policy initiativesto. “This is promoting a panorama in which Spanish startups not only start, but stay to grow,” he argues. And for him, a clear symptom is the increase in investment as an indicator of confidence in the Spanish market.
Less capital in Europe
Although the contraction of capital allocated to startups began to be seen a year ago, the truth is that a “significant” year-on-year reduction has been seen during the first half of 2023. The total funds raised amounted to only 6,737 million euros compared to the 21,851 million registered in the same period of the previous year. “Investors are taking a more selective approach, with more modest average amounts invested. However, it is important to note that this follows a period of unprecedented fundraising in the ecosystem, and the capital available in the European technology space has reached its historical peak, reaching 108,000 million dollars (98,330 million euros)”, the document explains, referring to the first two years of the pandemic. But do not be alarmed. Although macroeconomic uncertainty does not help, the value of the sector currently amounts to 2.73 trillion euros worldwide, a figure very similar to the maximum reached in 2021.
Of all types of startups, those in earlier stages are the ones who are having the most difficulties to raise capital. Venture capital funds prefer to bet on companies with a well-established business model and growth prospects instead of fueling explosive sectors, such as delivery, which is still in the doldrums. And although more startup companies are created in Europe, the truth is that they must overcome more obstacles to access financing: “Although Europe has surpassed the United States in the creation of new startups (approximately 14,000 and 13,000), the ‘ “American technology startups are 40% more likely to successfully secure capital in the first five years of their creation,” the authors explain in the report.
Europe, leader in AI?
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Artificial intelligence (AI), the omnipresent tool in all debates in 2023, can become big business for Europe if it manages to exploit its potential. The Atomico report believes that the continent has the potential to become a leader in AI because this technology stands out for being “the predominant theme in startups funded at the seed stage.” At the moment, This type of company represents 11% of the rounds that do not exceed 5 million euros. If we take the issue to Spain, around 9,000 people work in positions related to AI, so it is not ruled out that even more people will find employment thanks to the development of this technology.
“Despite the overall decline in funding levels, This year 11 AI-focused companies have raised mega rounds of $100 million or more, evidencing the interest of investors. Europe is a world leader in AI talent. In the last decade, the number of professionals dedicated to this technology has experienced a tenfold increase, currently surpassing the number of qualified professionals residing in the United States,” according to the study data.