The first quarter of 2023 has seen a significant shift in the European venture capital landscape. The Dealroom’s Venture Capital in Europe: Q1 2023 update provides a comprehensive overview of these changes, highlighting key trends and sectors that are shaping the future of investment both globally and in EMEA countries. In Q1 of 2023, a total of $80 billion was invested in startups globally, marking a 64% decrease from the previous quarter. In Europe, venture capital investment dropped by 58% year over year, to $14B.
One of the most striking revelations is that the “unicorn bonanza”, a period characterised by a high number of startups reaching valuations of over $1 billion, has ended. Although the past few years have witnessed a boom in the creation of such companies, this trend has now hit its zenith. The yearly count of new unicorns, which averaged 250-300 since 2018 and spiked to 787 in 2021, drastically dropped by 90% within the next five quarters, resulting in only 21 new unicorns in Q1 2023.
Investment stages analysis
A deeper dive into the data reveals some interesting trends across different investment stages. The global investment landscape in Q1 2023 shows a significant decrease across all stages, with the late one seeing the most substantial drop of 71% from the peak, followed by the breakout stage, down by 51%. The smallest reduction in investment is observed in the early stage, with a 32% decline from the peak.
In contrast, the European investment landscape shows a less dramatic downturn across all stages, apart from the late stage which saw a more significant decrease of 86%. The drop in investment in the early stage is 17% from the peak, and 13% in the breakout stage.
These trends across the different investment stages reflect the broader investment climate in Q1 2023. While there has been a general decrease in investment, the relative resilience of early-stage investment suggests that there is still a strong appetite for innovative startups. However, the more significant drop in the breakout and late stages indicates that investors may be taking a more cautious approach to higher-value investments.
Sector-specific trends
The report also delves into sector-specific trends worldwide, providing a granular view of where investments are being directed. The data shows that globally the sectors gaining the most in 2023 are energy, cybersecurity, semiconductors, and legal technology. On a more granular level, clean energy, innovative food, agritech, waste management, autonomous technology, and regulatory technology (regtech) have emerged as key focus areas.
Clean energy startups, in particular, have seen a significant increase in venture capital share over the last nine months. This trend aligns with global efforts to combat climate change and transition to renewable energy sources. It also presents a promising opportunity for investors looking to contribute to sustainable initiatives while also achieving substantial returns.
Innovative food and agritech are also gaining traction, reflecting growing consumer demand for sustainable and ethical food production methods. Meanwhile, the focus on waste management and reg tech underscores the increasing importance of efficient resource use and compliance in today's business landscape.
Geographical trends
The geographical trends in venture capital investment present an interesting picture. According to the report, globally, among the top 10 nations attracting venture capital, only France saw an increase in investments in 2022 compared to the previous year, with a rise of 8%. Conversely, Brazil experienced the most significant decline in investment, with a 64% decrease.
Amongst the top 10 biggest European startup ecosystems, Switzerland stands out defying the global trend. In 2022, Switzerland saw a 34% increase in venture capital investment in comparison to 2021. On the other end of the chart, with over 40% decrease in investments are the Netherlands and Germany.
The competitiveness of the European venture capital landscape has increased. The number of unique investors active in Europe doubled between 2020 and 2022. This growth in investor activity suggests a vibrant and dynamic investment landscape, with a diverse range of investors seeking opportunities in European startups. The report also states that half of the world's top science clusters are located in Europe. This indicates a strong focus on scientific research and development within the European startup ecosystem, potentially driving innovation.
The Dealroom’s Quarterly Update offers a wealth of information for investors, startups, and analysts alike. It paints a picture of a venture capital landscape that is evolving, with the unicorn bonanza giving way to a more measured approach to investment. As we move further into 2023, it will be fascinating to see how these trends develop and what new opportunities arise.
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