The dreaded downround has well and truly taken hold across European VC in 2023.
According to a new report by PitchBook, 21.3% of raises this year priced a company lower than their previous round — known as a downround — as median valuations across all stages fell on year. That is the highest level since 2014.
In the frothy days of 2021 and 2022 downrounds made up just 16.9% and 14.8% of raises, respectively.
Latest stages hardest hit
Europe’s venture growth companies — Series E and beyond — have been the worst hit by lower valuations, with median valuation figures for 2023 sitting 26.1% lower than 2022.
A quick turnaround for venture growth valuations isn’t likely anytime soon as interest rates stay high and public markets remain closed, say PitchBook analysts.
Companies at Series C and D have seen less of a valuation drop off, with median valuations falling 4.3% this year.
Unsurprisingly, the unicorn stable is looking pretty bare this year.
Just seven new billion-dollar European startups were minted in the first three quarters of 2023 — including AI startups Synthesia and Deeply and financial crime company Quantexa — and the total value of all unicorns in the region has dropped from €453.8bn at the end of 2022 to €447.4bn in the first three quarters of 2023, the PitchBook data shows.
Unicorn deal value has seen a more significant dip. In 2023, unicorn raises brought in just €3.9bn across 34 deals, falling from €22.3bn across 88 in 2022.
Valuation crunch catches up with early-stages
The downturn has finally caught up with valuations at the early stages too — which were holding firm at the start of the year.
Across the first three quarters of 2023 combined, median pre-seed, seed and early-stage valuations all dropped from 2022 levels.
Non-VC investors pull back
2023 has also seen non-traditional investors — which PitchBook defines as private equity investors, mutual funds, sovereign wealth funds, hedge funds, corporations and family offices — pull back from the market.
Investment into European tech companies by these investors fell from €82.3bn in 2022 to just €32.4bn across the first three quarters of this year.
A number of non-traditional investors have also pulled back from their investments as LPs, the report says. It’s also put the brakes on the fundraising plans of many fund managers — particularly emerging ones.
