Europe had an eerily quiet first quarter. According to Dealroom, just over 2,300 rounds were closed — the lowest number since Q3 of 2016. Funding totals didn’t fare quite as badly — the €14.3bn raised is the worst since only the third quarter of 2020 — but it’s evident that the continued macroeconomic uncertainty and a mini-banking crisis has held the continent back from breaking out of its malaise.
Historically, activity tends to trail off in Q4, before bouncing back at the start of the year. However, this is the first time since 2016-17 that a slow Q4 has preceded an even slower Q1.
Still MIA: big cheques
Just one unicorn was minted in January to March this year: German AI translation startup DeepL.
That makes Q1 2023 the worst quarter for unicorn creation since Q2 2020, at the height of the pandemic.
Last week Quantexa, which uses AI to analyse user behaviour data, also joined Europe’s unicorn ranks, raising a $129m Series E at a $1.8bn valuation.
Big rounds like that have been few and far between. Only 18 megarounds (those of $100m or more) were signed in Q1, Dealroom data shows, and just two of these came from existing unicorns, which usually make up the majority of growth rounds. Solar provider Enpal raised a €215m Series D and blockchain platform Ledger snagged a $109m downround.
Other megarounds included:
- Autonomous mobility software company Oxbotica’s $140m Series C
- Therapeutics healthtech Amolyt Pharma’s $138m Series C
- Biotech Hemab Therapeutics $135m Series B
- Quantum computing startup PASQAL’s €100m Series B
- Smart residential proptech GROPYUS’s €100m Series B
Things looked somewhat brighter across the pond, as the US closed off the quarter with six new unicorns and total investment up by 18.2%, largely driven by OpenAI’s $10bn deal with Microsoft, Stripe’s $6.5bn downround and SpaceX’s $750m injection.
But early-stage funding was more free-flowing in Europe, only falling short of the US’s $6.4bn — its lowest level since Q2 2020 — by $2bn. Early-stage investment contributed to 30% of total cash flows in Europe, compared to 13.5% in the US.
Investment drops in UK, France and Germany
The UK held onto the top spot in terms of funding raised — $4.1bn — but saw a staggering 67% drop compared to Q1 last year. France and Germany brought in $2.5bn and $2.1bn, equating to drops of 56% and 42% respectively.
Comparing Q3 and Q4 for Europe’s top three tech hubs tells a slightly different story, revealing how static funding levels are — perhaps a sign that they’ve bottomed out.
Only five of Europe’s top 25 countries eclipsed their 2022 Q1 funding total: Iceland, Latvia (which has already beaten 2022 amount thanks to Lokalise’s unannounced $61.6m fundraise), the Czech Republic, Lithuania and Ukraine.
Fintech was Q1’s biggest loser. Investment plummeted 83% to $2bn from the record $9.7bn the sector hit in the same period last year.
For a sector that has surpassed 300 rounds each quarter for the past seven years, Q1’s 212 rounds represents a steep drop off for the one-time darling of European tech. Deeptech, climate tech and healthtech (the latter by number of rounds) have emerged as the region’s frontrunners.
If you’re tired of the doom and gloom, the emergence of generative AI will likely have provided a source of entertainment and inspiration through these long winter months. Down the line, we may look back on this quarter as a turning point for the global tech industry. Suddenly there’s a real sense of pace, urgency and lots of people building cool stuff.
The chaos on social media has blurred the lines between those actually developing new software and tools, and those just using AI as a personal branding exercise, making total funding difficult to quantify at this stage. Notable rounds include AI chatbot startup Inbenta’s €40m, conversational AI company Parloa’s €20m Series A and legal contract AI platform Robin AI’s $10.5m Series A. The funding gates will likely open even wider in the quarters to come.
Another sector with a rocket strapped to its back is European spacetech. $337m has already been poured into Europe’s space scene (more than double last quarter), headlined by German rocket maker Isar Aerospace’s $165m Series C and Exotrail’s $58m Series A.
Quantum computing also made a big leap during the quarter, with nine rounds totalling $220m — a record for the sector in Europe, boosted by healthy fundraises by Quantum Motion (£42m Series B) and Oxford Ionics (£30m Series A).
Jonathan Sinclair is intelligence research manager at Sifted. Federico Scolari is an intelligence analyst at Sifted. For more in-depth analysis of Q1’s data, including the most active investors and top early-stage deals, check out Sifted’s Briefing — exclusively available to Sifted subscribers.
Note: though most deals are captured, recording lag makes for systematic underreporting of recent figures. Q1 data will adjust upwards as smaller deals surface.