How European VCl Will Deal With Uncertainty in 2023

The European venture capital scene is at a turning point in 2023. Regulatory filings show that Niklas Zennstrom, the founder of Skype, has raised a huge $1.1 billion for Atomico. This shows how strong the industry is, even though times are tough. Of this amount, $600 million is set aside for venture capital and $750 million is for growth, bringing the company closer to its ambitious $1.35 billion goal for both vehicles.

Since its inception in 2006, Atomico has been a linchpin in the European startup ecosystem, backing 130 ventures. Notable among its investments are successes like Lilium, Klarna, and Hinge Health, while others like Truecaller, Lilium, and Clutter have moved on.

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The recent co-leadership in a $70 billion funding round for healthtech firm Corti further underscores Atomico's commitment to fostering innovation.

However, the venture capital landscape is not without its challenges. The past 18 months have seen the industry grapple with a confluence of fafactors,ncluding the Ukraine crisis, escalating inflation, and risk-averse Limited Partners (LPs). For first-time funds, the hurdles to ssecuringinvestable dollars have become even more formidable.

PitchBook's Q2 analysis for 2023 paints a nuanced picture. Exit valuations for startups have declined, irrespective of their strategies, owing to persistently low asset prices. In H1 2023, the total exit value amounted to $4.12 billion indicating an alarming 82.2 percent reduction compared to the previous year. The exit count is also down by 10.4 percent, with public listings experiencing the steepest drop of 83.1 percent.

The initial public offering (IPO) market has not been spared either, with H1 2023 witnessing a 27 percent decrease in proceeds, falling from $6.12 billion to $4.47 billion compared to the previous year.

Despite these headwinds, it is essential to maintain a sense of cautious optimism. In 2022, European venture capital witnessed a surge, with total funds raised reaching $27.06 billion, marking a 13 percent increase from 2021. Although 2023 has been relatively quiet, with 60 European vehicles raising only $10.47 billion in H1, there is still cause for optimism. If the trajectory holds, 2023 may end 36.7 percent below 2022 levels.

Recent fundraises in September from key players like Dawn Capital ($700 million), Verdane ($1.29 billion), and Keensight Capital ($3.29 billion) offer a glimmer of hope. While it may be unlikely for funding to match or exceed 2022 levels, confidence in the industry's future remains palpable.

As the year draws to a close, the European venture capital landscape stands on the cusp of transformation. Navigating geopolitical uncertainties and economic complexities will be paramount. However, with pioneering firms like Atomico leading the charge, there is every reason to believe that the industry will rise to the occasion, shaping a future of innovation and opportunity for startups across the continent.