Are European Tech Start-ups Set for a Resurgence in Venture Capital?

Is the tech funding drought in Europe finally over? How are early-stage companies faring in the current investment climate? What is driving the renewed surge in Eurozone venture capital? The latest edition of Offmarket Investments by Summit Communication Group explores the rich with data and recent success stories, from Creandum 's rapid €500 million fundraise to Forestay Capital 's strategic investments in Israeli start-ups, discover how the European venture landscape is evolving and what it means for the future. This is essential reading for our partners in venture capital and family offices throughout Europe.

Is the Tech Drought Finally Over?

After a prolonged drought in venture capital investment, European tech start-ups are witnessing renewed enthusiasm. The first quarter of 2024 has shown significant signs of recovery, with deal activity ramping up and new funds being raised at a rapid pace. Creandum , an early backer of Spotify , Klarna , and Depop , recently announced a €500 million fund raised in record time. This follows similar fundraising successes by Accel Europe and Plural, the latter targeting deep tech start-ups.

“We are moving beyond the recovery phase and back into a period of growth.” Tom Wehmeier, Head of Insights, Atomico

The investment landscape in Europe has undergone a significant transformation. The Covid-19 pandemic-induced investment frenzy came to a sudden halt due to rising inflation, interest rates, and geopolitical tensions. European start-ups were forced to slash costs as venture capital investment dried up, with major US tech investors like Tiger Global Management and Coatue pulling back on European dealmaking.

Early-stage companies are seeing a revival in dealmaking. Creandum’s fund is a testament to the shifting market sentiment. General partner Carl Fritjofsson highlighted the dramatic change in the industry’s appetite and activity levels. “There is a dramatic change in the sentiment, appetite, and activity across the industry,” he said. The renewed focus on artificial intelligence (AI) has been a significant driver, coupled with a strong rally in Big Tech valuations on Wall Street.

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Atomico , one of Europe’s largest VC firms, noted three successive quarters of increased investment in Series B deals. Tom Wehmeier, who runs the insights team at Atomico, emphasized that the market is more active than at any point before 2021, signaling a shift from recovery to growth. “We are moving beyond the recovery phase and back into a period of growth,” he said.

“There is a dramatic change in the sentiment, appetite, and activity across the industry.” Carl Fritjofsson, General Partner, Creandum

Are European VCs Competing with Silicon Valley?

A new craze for AI start-ups is a major catalyst for the increased investment activity. Cleantech, AI and biotech have emerged as leading sectors. Cleantech deals in Q1 2024 accounted for €6.8 billion, driven by significant investments like Stegra ’s €4.75 billion round in Sweden. AI deals, while fewer, commanded substantial investments, with Mistral AI raising €384.4 million in France.

The fundraising environment in Europe has become more predictable, encouraging more quality companies to seek investment. Creandum’s impressive track record, where one in six of its portfolio companies hit a valuation of more than $1 billion, showcases that European VCs can match their Silicon Valley peers. This sentiment is echoed by Jon Biggs of Top Tier, a partner at Creandum, who asserts that the firm is now comfortably at the top table of global VCs.

“Forestay Capital’s new fund demonstrates our commitment to supporting Israeli tech innovation in enterprise AI, data infrastructure, and cybersecurity.” Frederic Wohlwend, Managing Partner, Forestay Capital

Nontraditional Investors: Strategic Moves and Corporate Synergy

Nontraditional investors, including corporate venture arms and sovereign wealth funds, have been pivotal. These investors participated in deals worth €13.5 billion in Q1, marking a significant YoY increase. Corporate investments in sustainable technologies, such as adidas and H&M Investments in Infinited Fiber Company , underscore a broader commitment to ESG goals.

Forestay Capital , another key player, announced its second fund closure at $220 million, focusing on Israeli start-ups. Frederic Wohlwend, Managing Partner of Forestay Capital, emphasized the firm's commitment to supporting Israeli tech innovation in enterprise AI, data infrastructure, and cybersecurity. The fund plans to make 10 to 15 investments, reflecting a strategic move to foster tech growth amidst geopolitical challenges.

Forestay Capital’s second fund will support 10 to 15 new investments, with a focus on enterprise AI, data infrastructure, cybersecurity, and process automation. Noteworthy investments include Israeli cybersecurity start-up VERITI and Swiss engineering intelligence start-up Neural Concept . This initiative is backed by major family offices in Europe, including Anaïs Ventures SA , the investment vehicle for members of the Firmenich family.

For its first fund, Forestay Capital backed 13 companies, three of which reached unicorn status, and two were acquired. The portfolio includes Israeli start-ups Fornova , vcita , and K2view , along with cloud storage start-up Wasabi Technologies , Nexthink , and smart data start-up Scandit . K2view ’s founder, Achi Rotem, praised Forestay Capital for their proactive network support and strong belief in their offering.

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What Are the Key Challenges?

Despite the optimism, challenges remain. Not every fund has found it easy to raise capital. Atomico is in the final stages of its largest ever capital raise, targeting $1.35 billion across its venture and growth funds. However, this process has taken over a year, reflecting continued investor caution, particularly around later-stage companies. The scarcity of successful initial public offerings (IPOs) adds to this cautious outlook.

“The scarcity of successful IPOs adds to the cautious outlook for later-stage investments.” Carl Fritjofsson, General Partner, Creandum

Female-Founded Ventures

Female-founded companies experienced a challenging start to 2024, with a 28.6% decline in deal value YoY. However, the exits for these companies looked more promising, with €1.3 billion in exit value in Q1. This trend indicates a narrowing gap between investments and exits for female founders, offering a glimmer of hope amid broader market challenges.

How Are Nontraditional Investors Contributing?

Nontraditional investors, including corporate venture arms and sovereign wealth funds, have been pivotal. These investors participated in deals worth €13.5 billion in Q1, marking a significant YoY increase.

Opportunities for European Venture Capitalists and Entrepreneurs by 2030

Fundraising has shown resilience, with €4.6 billion raised in Q1 2024 across 47 vehicles. This suggests that 2024 could match or surpass the fundraising levels of 2023. Smaller funds dominated the scene, reflecting a broader base of fundraising activity. Emerging firms captured 57.6% of the capital raised, indicating a dynamic and evolving venture ecosystem.

The European tech start-up ecosystem is poised for a resurgence, buoyed by significant investments in key sectors, the involvement of nontraditional investors, and a resilient fundraising environment. While challenges remain, particularly around later-stage investments and exits, the renewed enthusiasm and strategic investments signal a promising future for European tech ventures.

“We anticipate significant advancements in AI and biotech by 2030, positioning Europe as a global leader.” Tom Wehmeier, Head of Insights, Atomico

Looking ahead to 2030, what opportunities could this resurgence bring for European venture capitalists and entrepreneurs? If current trends continue, Europe could become a global hub for innovation in AI, cleantech, and biotech. The significant involvement of corporate venture arms and sovereign wealth funds in sustainable technologies underscores a broader commitment to ESG goals, which could catalyse the development of next-generation solutions to global challenges.

Consider the rapid advancements in AI and data infrastructure. By 2030, European start-ups in these sectors could lead the way in developing AI-driven platforms that revolutionise industries from healthcare to finance. The strategic investments in Israeli tech by firms like Forestay Capital highlight the potential for cross-border collaborations, leveraging Europe's market and talent pool to scale innovations globally.

“By 2030, Europe could become a global hub for innovation in AI, cleantech, and biotech.” Andrew Kresse, Head of Corporate Client Banking, J.P. Morgan

Moreover, the growing diversity in fundraising, with a notable presence of female-founded ventures and emerging firms, suggests a more inclusive and varied entrepreneurial landscape. This diversity could drive unique solutions and foster a culture of innovation that is both resilient and adaptive to market changes.

As we move further into 2024, the interplay of these factors will shape the trajectory of the European venture landscape. Strategic investments, adaptive fundraising approaches, and a commitment to sustainability will be crucial in navigating this dynamic market. By 2030, European venture capitalists and entrepreneurs have the opportunity to not only recover but to redefine the global tech landscape, setting new standards for innovation and impact.

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Written by Gregory Gray , CEO and Founder of Summit Communication Group

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