$400 billion wiped from the European tech market in 2022, Atomico says | Popgen Tech

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

The numbers underscore what has been a rough year for technology. Once wealthy tech companies have seen their stocks 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 rates and reversing pandemic-era stimulus to fend off rising inflation. That has prompted investors to reconsider their positions on loss-making technology companies, whose value is typically based on the expectation of future cash flows.

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

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

Overall venture capital funding of European startups is expected to drop to $85 billion this year, according to the Atomico report, which is based on quantitative data and surveys in 41 countries. This is 18% lower than the European startups of more than $100 billion raised in 2021.

Nevertheless, it was the second highest amount invested in the European technology ecosystem to date, Atomico said. European tech investments smashed records last year as participation from US investors soared to new heights.

That trend has reversed this year, 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 financing 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 get capital and one where the cost of capital has increased.”

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

However, investments started to slow from July and further slowed down through August and September. Since then, monthly investment levels have averaged about $3 billion to $5 billion, in line with 2018 levels.

The rate of unicorn creation has 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. Just three tech IPOs with a market capitalization of $1 billion or more occurred globally in 2022, with two occurring in Europe, Atomico said. In 2021, there were 86 such IPOs.

And the region has not been immune to the wave of tech layoffs. According to the report, European-headquartered companies have laid off more than 14,000 employees this year, accounting for 7% of total layoffs worldwide.

At industry shows like Web Summit and Slush, founders of well-funded unicorns urged their fellow entrepreneurs to keep costs under control and ensure they have enough runway to survive a downturn.

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

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

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

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

And although the market picture was bleak this year, investment is still eight times greater than it was in 2015.

“In general, 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, which is still huge.”