UK tech companies raised $7.4bn (£5.9bn) during the first half of 2023 in the steepest funding decline across Europe amid rising interest rates and geopolitical disruption.
Total UK tech investment fell by 57% year-over-year, while France decreased by 55% and Germany by 44%, according to a report by investment firm Atomico.
UK tech companies raised the most across Europe in 2022, collectively scooping $17.3bn in the first half of the year – meaning the UK had the most ground to lose.
Tech funding for French companies fell from $10.1bn to $4.6bn over the period, while German tech companies dropped from $8.1bn to $4.5bn.
Rising interest rates, soaring inflation and macroeconomic uncertainty stemming from Russia’s invasion of Ukraine have significantly slowed down investment levels from record levels in 2021.
‘New market reality’
With less capital available, there has been a recalibration of private startup valuations. Companies, such as Swedish buy now pay later giant Klarna, have wiped billions from valuations when seeking fresh external funding.
Reflecting the public market tech selloff, one in five global venture rounds during the first quarter of 2023 were downrounds, the Atomico report found – nearly four times higher than the same period in 2022.
In a further sign that 2021 was anomalous, valuations have now returned to five-to-10-year averages.
“We should think about this period as a return to first principles,” said Tom Wehmeier, partner and head of insights at Atomico. “2021 was a clear outlier, with investment volumes and valuations now returning to long-term averages.”
The report added that the “new market reality” first identified in the second half of 2022 is “here to stay”.
Based on current trends, total investment levels for Europe are projected to reach around $50bn for the whole of 2023, Atomico said.
This would mark a 50% drop from 2021 – a trend mirrored by China, the US and the rest of the world.
Levels of inward investment from the US into Europe also declined from 2021 highs.
Global tech exits – through both IPOs and M&A – remain stagnant, with $21bn in value so far this year compared to a peak of $177bn in 2020 and $166bn in 2021.
In the UK, it is a continuation of a downward trend for tech IPOs, with volumes falling to their lowest level last year in a decade.
Generative AI – the latest technology buzzword – accounts for 35% of all artificial intelligence and machine learning funding so far this year, the highest share ever.