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Green shoots are appearing for Europe’s technology start-ups after a two-year investment drought, as dealmaking picks up among early-stage companies and venture capitalists raise new funds.
Creandum, an early backer of Spotify, Klarna and Depop, unveiled a €500mn fund on Monday, becoming the latest European-focused private tech investor to secure fresh capital for start-ups this year.
That fundraising follows similar-sized deals, including Accel Europe, which launched a $650mn fund last month, and Plural, a London- and Tallinn-based firm targeting “deep tech” start-ups that has raised €500mn. Plural added another €100mn to its fund last month after January’s initial close.
Creandum’s fund was raised “in record time”, according to general partner Carl Fritjofsson. “There is a dramatic change in the sentiment, appetite and activity across the industry,” he said.
After the Covid-19 pandemic-driven frenzy of tech investment came to a sudden halt due to inflation, rising interest rates and geopolitical tensions, European start-ups were forced to slash costs as VC investment dried up. Some large US tech investors, including Tiger Global and Coatue, pulled back on European dealmaking.
But VCs say the market has started to change in the first few months of 2024, as a new craze for artificial intelligence start-ups couples with a strong rally in Big Tech valuations on Wall Street.
“We haven’t fully washed through the overhang from the peak years but the green shoots are all around us,” said Tom Wehmeier, who runs the insights team at Atomico, one of Europe’s largest VC companies. “We are moving beyond the recovery phase and back into a period of growth.”
Wehmeier predicts that, after the decline in 2023, private tech investment into European start-ups will return to growth this year. “The market is more active at any point than we’ve seen before 2021,” he said, pointing to three successive quarters of increased investment in “Series B” deals.
“From the data we see and from our work every day, we are genuinely very excited about 2024,” said Sabina Wizander, a Creandum partner based in Stockholm. “More quality companies are daring to go out [to raise money] because the fundraising environment is more predictable.”
Many start-ups were forced to cut costs and focus on profitability as the market turned in 2022. Those that survived the funding freeze are now more sustainable, investors say, while revenue growth has generally begun to accelerate.
Even some Silicon Valley investors have returned to Europe, with Andreessen Horowitz and IVP opening offices in London in the past few months.
Between 2007 and 2021, Creandum made back almost seven times what it invested in companies, after selling those stakes. One in six companies it has invested in has hit a valuation of more than $1bn.
Jon Biggs, a partner at one of Creandum’s investors, Top Tier, said the figures demonstrated that European venture capital groups could show returns to match those of their Silicon Valley peers — a question that has long hung over investors in the region. “The firm is comfortably at the top table of global VCs,” he said.
Not every European fund has been able to raise funds so easily. London-based Atomico is in the final stages of its largest ever capital raise, targeting as much as $1.35bn across its venture and growth funds, according to people familiar with the matter. But, while it expects to complete the funding in the coming months, the process has taken more than a year.
That reflects both the size of the deal and continued investor caution around funds directed at later-stage companies at a time when there have been few successful initial public offerings, these people said. Atomico declined to comment on its fundraising plans.