The European start-up scene counts on the end of the boom | fDi Intelligence – Your source of information on foreign direct investments | Jobs Recent

Venture capitalists and tech entrepreneurs are wary of the deteriorating global macroeconomic picture as the tech industry goes through a correction phase with falling company valuations and wide-ranging cutbacks.

“There are a lot of uncertainties,” said Miki Kuusi, CEO of Finnish delivery platform Wolt fDi at Slush 2022. Mr. Kuusi is also the co-founder of Slush, one of the biggest tech events in Europe, the latest edition of which took place in Helsinki, Finland on November 17-18. “I think more or less every company has to accept that we don’t know what’s going to happen next year.”

There is a lot of uncertainty; I think more or less every company has to come to terms with the fact that we don’t know what will happen next year

Miki Kuusi, CEO of Wolt

According to PitchBook data, in the third quarter of 2022, venture capital (VC) funding in Europe amounted to €18.4 billion, down 36.1% compared to the same period last year and the lowest result since the fourth quarter of 2020.

“We need to be ready for an extended period of time where consumers run out of money,” Doug Leone, global managing partner at Silicon Valley VC firm Sequoia Capital, said during a November 17 session at Slush.

Leone said the current global crisis is “tougher” than the 2008 financial crisis and the 2000 dot-com bubble, given the drop in demand, tech budget cuts and fewer start-ups.

“Surviving in this market is half the battle,” he said.

Several public US tech companies have announced massive layoffs this month, including the very public collapse of Twitter, Facebook’s parent company Meta, e-commerce giant Amazon and cloud service provider Cisco. According to data from, around 55,000 redundancies have been tracked in the tech industry since early October 2022, bringing the total to over 134,000 this year. In most cases, these layoffs are the end of recent massive recruitment campaigns, but prominent personalities emphasize that they are a sign that the boom period fueled by the pandemic in the tech industry is coming to an end.

said Nikolay Storonsky, co-founder and CEO of digital bank Revolut fDi in Slush that over the past five years, “capital has been misallocated” to many start-ups with unsustainable business models.

“Now we’re back to that fluctuating mood of efficient capital allocation. As a result, many start-ups will go out of business or be forced to raise prices at much lower valuations,” he said. Mr. Storonsky recently launched the Quantum Light Capital Fund, an AI-focused fund that he says will be different from the “crowd-thinking mentality” seen in the VC industry.

Several prominent venture capitalists have highlighted the problem founders face when trying to raise funds as interest rates rise. “Today in this environment, anything that requires a lot of money is a difficult sector to invest in because money is more expensive,” said Mar Hershenson, managing partner at PearVC. This translated into valuations of companies in the tech sector, which have skyrocketed in recent years as billions of dollars have been poured into VC funds by institutional investors and implemented into start-ups.

Some founders “face really tough decisions, cuts, layoffs, ‘decline rounds’ (when a start-up raises funding at a lower valuation than the previous round), and even shut down,” said Niklas Zennström, co-founder of Skype and CEO of Atomico, one of the leading European VC companies.

“The decline is simply a function of the broader market. This is the reality we are dealing with now. People are not willing to pay the same amount for a tech company as they were a year ago,” Zennström said, noting that nearly 19% of European VC rounds in Q3 2022 fit this definition.

He continued that pre-monetary valuations for startups in the fourth quarter of 2022 have so far “down as much as 62%” from their highs at the start of the year, adding that “there is no indication that this will ever change.” soon”.

This environment is a step change from recent years. According to PitchBook, global VC investments in 2021 exceeded $687 billion, up from $353.3 billion in the previous year, an increase of almost 95%. This spectacular increase in VC funding has prompted many companies to further grow through international expansion. Now that the “free money era” is over, large scalers in Europe and beyond have had to reassess their plans and focus on profitability.

Source link