May 10, 2024

VCs increasingly reliant on government money in 2023

According to a new report, governments were the only source of VC funding that increased year-on-year in 2023

Governments were the biggest investor into European VC funds in 2023 — with their share more than doubling versus the previous year — as countries across the region made a push for tech sovereignty and other kinds of investors in VC pulled back.

According to a new report by Invest Europe, government agencies contributed 37% (€4.2bn) of the €11.2bn of funds with known LPs raised by VCs across 2023, up from 16% (€2.8bn) the previous year. Including unclassified funds — those that Invest Europe couldn't track a source for — total investment into European VC in 2023 was €14.2bn.

As geopolitical tensions have risen across the globe and tech supply chains have faltered in recent times, Europe has moved to shore up resources by investing in homegrown tech.


That focus has seen government money for VC funds head north — and in the past year sizable pots of public cash have been announced for areas like AI, quantum, biotech and climate tech, as the region looks to compete with the US and China. 

That’s in spite of a sector-wide dropoff in investment into European VC, the report shows. Total funding for VCs almost halved in 2023, down 42% compared to the €24.5bn raised in 2022.

The report also dug into what regions those funds came from and the number of new funds raised.

Who do VCs tap for funds?

After governments, the next-biggest investors into VC funds in 2023 were private individuals and family offices, contributing roughly 19% (€2.1bn) to the classified funds — flat on year. 

Corporate investors, the third-biggest investor, saw their contribution fall by 16% on the previous year — where classified funds totalled €17.7bn — to 13% (€1.5bn). 

Governments were the only group of backers that invested more than €200m into VC funds in the past two years which upped the amount of cash invested into the sector between 2022-23. That figure rose from €2.8bn to €4.2bn.

The wider funding pullback saw total capital invested into VC fall to its lowest levels since 2018.

LPs based in France and the Benelux region — home to the European Investment Fund and French state bank Bpifrance — were the main source of capital for VCs in 2023 by some way, contributing 37.3% of total funding. Investors from southern Europe — including Spain, Portugal, Italy and Greece — coughed up 20.5% of funds.

LPs from the UK — the best-funded startup ecosystem in Europe, raising more than a third of all the region’s capital across 2023 — contributed 11.4% of VC capital. 

Who raised funds?

The report tracked 278 European VC funds that raised capital in 2023 — the lowest figure since before 2019.

Despite that, there were some sizable funds announced during the year. London-based Atomico raised a €1.1bn vehicle as well as Germany’s DeepTech and Climate Fonds and the Amsterdam-HQ’d Nato Innovation Fund announced $1bn funds.

Generalist funds raised 43% of total capital — the biggest share — a figure that has risen from 36% in 2019. Life science funds saw the largest proportional increase in capital, rising from 11% in 2022 to 19% in 2023.


There were also 70 first-time funds raised in 2023.

Exits plunge 

The lack of exits in the market is unlikely to have helped the hundreds of VCs out raising funds last year. After all, most LPs need liquidity — capital returned from previous investments — to make new commitments to funds. 

Venture divestments hit €2.4bn in 2023 — a 16% decrease from the year before, and 14% below average for the past five years (€2.8bn). 1,168 companies gave capital back to their investors — 35% via a trade sale. 

Kai Nicol-Schwarz

Kai Nicol-Schwarz is a reporter at Sifted. He covers UK tech and healthtech, and can be found on X and LinkedIn