2023 has been a tough funding year for European startups — even being characterised as the “most depressed” in VC exit value in a decade. Amid uncertainty and a staggering macroeconomic environment, VC activity and deal value also, unsurprisingly, dropped.
But what will the funding ecosystem look like in 2024? And, more importantly, will it bring cause for hope for startups and investors alike?
According to analysis by Pitchbook, neither the volume nor the value of VC-backed IPOs will see a meaningful recovery next year. With macroeconomic factors weighing heavily on public markets, stakeholders remain cautious as 2023 saw fewer listings with lower valuations — a trend that is expected to continue.
This could lead companies to rely on different ways of extending cash runaways, such as cutting costs, consolidation, follow-up rounds from existing investors, or even other types of financing like venture debt. But potentially profitable startups could still see valuations upon IPOs with investors willing to pay higher multiples.
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On the bright side, VC fundraising levels will at least match those of 2023. Recovery has begun, supported mostly by larger funds. This could enable investment capital to exceed last year’s depressed levels — potentially boosted by a higher number of smaller fund closes through 2024.
Meanwhile, PE fundraising is expected to be lower in 2024 than in 2023, which is on track for a record year in terms of capital raised despite seeing the smallest number of fund counts in over a decade. The key to this performance lies in that the top three funds closed in raised €50.2bn, contributing 44.4% of the total.
In 2024, Pitchbook’s analysts expect the total capital raised by the top three funds to reach €45bn, which means that, if Europe’s overall PE fundraising drops below €100bn, they will hit a record concentration of funding.
Region-wise, it seems that the UK will continue to be a leader for private capital (both VC and PE), but Germany and France could close the gap with their combined deal value in 2024.
While the two EU member states are fostering policies to bolster their tech ecosystem, the uncertainty of the political landscape in the UK may deter investors from taking major decisions before a clearer legislative landscape is established. At the same time, investors may also target less saturated nations with fewer competitors.