Feb 23, 2023 | 10 min read
2022 has not been an easy year for European tech, in fact, it’s been something of a nightmare with very real echoes of the crisis of 2008.
Investors and businesses have found themselves facing a world plagued with war, spiking energy prices and interest rate hikes. However, the situation is not as bad as some commentators have suggested. Despite the apparently bleak circumstances, there are many reasons for investors in the European tech industry to take heart.
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Firstly, Euro-tech, as a whole, is the most resilient and hardy it has ever been. Europe is now home to over 150,000 start-ups, many of whom are still actively looking to hire from the pool of around 2.6 million employees that have gained experience in European start-ups in the last decade.
Furthermore, these start-ups aren’t the last oases of investment in a growing desert of illiquidity. European investors are locked, loaded and ready to invest in the right projects. In the last 5 years, Europe’s growth and venture funds have almost tripled their value and now hold $84 billion in ready-to-invest dry powder, in spite of the challenging situation they find themselves in.
Likewise, 2022 saw 3,500 institutions commit to European investments, meaning that the pool of potential investors looking to become involved has never been quite so broad or deep. Case in point; several US-based private equity firms are establishing offices all across Europe, adding their vast quantities of dry powder to the already incredibly well-stocked European magazine.
All this means that although the present situation is undoubtedly difficult and some companies are being forced to make unenviable and painful decisions to shore up their profitability, there is a blazing light at the end of this short tunnel. Crucially, it needs to be remembered that the Euro-tech ecosystem is still relatively new, being barely two decades old at this point, unsurprisingly then, many European founders only have experience in navigating fair economic winds. As such, for investors and business leaders to learn to chart a course through rougher economic waters is vital to the long-term stability and health of the European tech industry.
The market will need to adapt to new challenges using the lessons that have been learned over the pandemic. This current rough patch is an integral part of the market’s ongoing march towards greater resilience and maturity that will make the Eurotech sector a nigh-on unstoppable force in the near future. Just the fact that the industry has held up so well in the face of the continuous stream of unprecedented geopolitical shocks is a testament to its maturity. Prior to the last decade, European founders were regarded as a deeply risk-averse breed, who’d turn tail and run once the going got tough.
Now, the complete opposite is true, in spite of the problems facing the industry, investors are still bullish and are more optimistic than they have been at almost any other time with 77% of surveyed founders and VCs saying that they were more or as confident as they were last year.
In fact, the only year that exceeded these levels of unbridled optimism was 2021. This industry-wide fervour has been evidenced by the continued high pace at which new start-ups are receiving investment. Likewise, just as the players have changed, so too has the world they operate in. Spending on technology has doubled in the last two decades, and this trend shows no sign of abating at any point in the near future.
In fact, unforeseen factors like the pandemic have accelerated this trend markedly, pushing tech adoption faster and harder than ever before. Barring a rather unfortunate collapse of modern society, the genie of technology can’t be put back in its bottle. As such, investment in tech solutions will only become increasingly important as they continue to revolutionize almost every aspect of our lives.
**The key point to take away from this is that, yes, it’s undeniable that times are hard currently for many start-ups and VC funds. **
However, innovation doesn’t sleep and the sheer scale of the opportunities that lie beyond this rough patch will transform the European tech investment landscape dramatically for the better.