2022 has been a year of big changes for the European tech sector. While last year Sifted predicted that the market would cool off a little this year, no one anticipated that a war and an energy crisis would be hitting tech investment and result in a wave of layoffs across Europe.
So with uncertainty growing, what can European tech expect in 2023?
Sifted journalists share their predictions for the new year:
Amy Lewin, editor
There will be a lot more layoffs
More startups will make hefty cuts to their teams — and some will realise they need to make several rounds of redundancies. This will be good for early-stage startups that are hiring; it will be no fun at all for the employees and managers on the sharp end. How and when CEOs make these choices — and how they deliver the message — will be very telling.
Lots of VCs will struggle to raise their next fund
Plenty of VCs have raised fresh funding in Europe this year — more than $10bn was raised in the first half of 2022, and the State of European Tech report predicts that the total for the year could beat 2021’s $19bn raised — however it won’t stay so rosy for long. First-time and new fund managers (find all those who raised in 2022 listed here) raise capital from their investors — the limited partners or LPs — based on hopes and dreams. By the time they come to raise their second or third funds, that isn’t good enough anymore: LPs want to see strong signs that they’ll get a nice return on their investment. Europe’s startup cycle slowing down, valuations dropping and fewer chunky IPO exits taking place makes most VC fund returns look less juicy on paper. So, bonne chance all you VC partners heading out to raise in 2023.
Mimi Billing, senior reporter
The longevity sector takes off in Europe
What is the only thing billionaires cannot buy? A longer life.
Well, as seen in Silicon Valley and with some Saudi sheikhs, people are going to great lengths to find the cure for ageing. By the end of August this year, $4.1bn had already been invested into longevity businesses globally. And although the research is nowhere near finding the silver bullet to curing ageing, a lot of progress has been made in finding ways of prolonging life, at least for mice (lucky them!).
In Europe, we’re lacking billionaires with death anxiety as well as a research community pushing to bring scientific research to the masses. But there are some investors that have bought into the idea, like the crypto millionaires behind Maximon, a longevity company builder in Switzerland, the US-inspired, Berlin-based longevity company builder Apollo Health Ventures and London-based Apeiron Investment Group, which is the family office of Christian Angermayer.
However, it’s still a very small sector in Europe. In 2023, I think the trend will start taking off, with a number of longevity clinics opening up. Just imagine what could happen when artificial intelligence and great UX merge with care initiatives to prolong healthy lives — a win-win for all of us.
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ChatGPT will be a wakeup call for tech workers
Have you tried ChatGPT? Of course you have. I asked it to write an article for me and it obviously did a fantastic job, at least creatively — but it didn’t get many of the facts right. My job may be safe (see Eleanor Warnock’s prediction below), but what about programmers?
How (and how not) to run a startup.
Some programmers may think of ChatGPT as a fabulous tool to increase efficiency, and of course, it will be — but what are the consequences? If it can manage the workload of five entry-level programmers, some will have to find another place to work. The question is where?
For the first time people in tech may find themselves in the position many other workers have already found themselves in — seeing technology as a threat to job security. But could the greater efficiency lead to people working fewer hours for the same pay? Think again. If we haven’t cut down on working hours with technological advancements in the past, why would it happen now?
Starting next year, the next generation of tech workers may start making demands of regulators and unions to make sure they have a job to do in the future — time will tell.
Tim Smith, Iberia correspondent
Metaverse founders will (finally) admit it’s all about video games
Evangelists for the metaverse would have us believe that this shiny new 3D version of the internet is going to replace pretty much every aspect of normal life: whether it’s going to work meetings, sports events and concerts or just meeting up for a chat with friends.
But as early metaverse flops have shown, consumers seem to be pretty picky with how and where they spend their virtual time. Speaking on stage at the Sifted Summit in October, Herman Narula, cofounder of metaverse platform builder Improbable, suggested that the metaverse presents a whole new medium, separate from video games. “If video games are the theatre, the metaverse is the TV,” he said.
But as metaverse prospectors compete for our attention, they’ll likely need to learn some lessons from video game makers — the masters of building highly engaging and immersive virtual worlds. Basically, if you want me to hang out with my mates in the metaverse, you’re going to need to supply me with something fun to do, and video games are the blueprint.
Spain will be flooded with British and US digital nomads
2023 is the year that Spain’s much-touted “startup law” will come into effect. Among a raft of measures around stock options and taxation, one headline policy from the legislation is a new digital nomad visa for the country.
Spain has historically been a much tougher place to move to for non-EU residents than neighbouring Portugal, but that will change from March 2023, as the new visa comes into effect. There are a few different requirements for people applying for the visa, but I predict that the country is about to see a tidal wave of nomads making use of the opportunity to move to sunnier climes.
Eleanor Warnock, deputy editor
It’s all about coalitions
The people who matter have realised that a lot of the truly disruptive, move-the-needle climate tech that we are going to need to keep us all from turning into human barbecue is going to require some BIG BUCKS. Building things like fusion reactors, carbon capture facilities and gigafactories does not come cheap. VCs aren’t great at backing these kinds of brick and mortar innovations — nor should they be. This is where startups need other kinds of capital, to avoid giving away lots of ownership in order to pay for concrete.
That’s why we’re going to see many more “coalitions” of capital to back climate tech next year. We saw this with Northvolt’s huge debt and equity raises this year. And it will continue. I’ll be looking for what other investors get into the climate game and bring their unique expertise to solving the biggest problem we face.
Creatives are going to embrace ChatGPT
People ask me all the time if I’m afraid ChatGPT and generative AI are going to take journalists’ jobs. No. We can’t put this stuff back in the box, so let’s get excited about what it can do. My prediction is that it is going to help more people solve the “blank page problem” ie. staring at an empty Google Doc for two hours. ChatGPT will give us a first draft we can make even better.
But it’s also going to fundamentally change how skills-based interviews are done in a variety of settings — including tech. For jobs that require writing skills, interviewers will start assessing other skills such as fact-checking, data gathering and project management.
Miriam Partington, DACH correspondent
Talent will flood from Big Techs into (well-capitalised) startups
The mass layoffs seen by the tech industry across the globe has shaken up the talent market. I’m expecting to see professionals from growth-stage and Big Tech companies filter into startups, to try something new, work for a smaller, more agile and perhaps more impactful organisation, and share the knowledge they’ve gained to early-stage startups that need it most.
With some of the best capitalised companies shedding staff, it’s no longer taboo to work for a scrappy startup — we can no longer argue that working at a Big Tech company is more secure than working for a (well-funded) seed-stage company.
The other dynamic at play is that early-stage companies are now on a more equal footing with larger companies to compete for talent. In the last five years, it's been hard for fledgling companies to compete with the salary, bonuses and equity options offered by growth-phase companies, but mass layoffs will likely reduce compensation expectations for candidates.
I’m interested to see what moves upcoming tech professionals make with regards to their career trajectories: will they continue to fight for traditionally highly-coveted roles at Big Techs, or choose the startup life instead?
Freya Pratty, senior reporter
Investment partnerships will help ramp up climate hardware
Climate tech’s shown relative resilience this year. The sector’s on track to match 2021’s funding total — a big win considering the 24% drop in funding seen across European tech in general compared to last year.
The challenge for next year will be getting bigger cheques into the right places. The lack of climate tech funding post-Series B is well-documented, as is the gap in funding needed to get hardware and infrastructure projects off the ground.
There’s a pretty wide consensus that the solution lies in founders combining a mixture of capital sources: venture capital, private equity, corporate venture funding, real estate funding and government grants. It’s how startups like Northvolt have funded their capital-intensive projects. 2023 should be the year we see more investment streams come together to get more projects to the point Northvolt is at.
I’m optimistic about climate tech’s 2023 prospects: there’s a lot of dry powder in the sector after a flurry of new funds launched and raised this year.
Amy O’Brien, fintech reporter
We’ll see a big wave of downrounds — and consolidation
If 2022 was the year in which everyone was talking about a market correction, 2023 will be the year we see this actually play out. And the aspect that needed correcting most in the European startup world? Valuations.
Investors and founders have realised that the lofty price tags assigned to barely discernible payments companies in competitive fundraising rounds in 2021 don’t stack up when compared with the market caps of their public peers.
Although many founders used 2022 as a chance to refocus their business plan on profitability, for most companies this is still a long way off. Despite best efforts to decrease burn rate, the impact of declining consumer spend means that revenues simply can’t grow fast enough for them to become cash generating.
What does all this mean? Startups that closed a fundraise 12 to 18 months ago will run out of runway. They’ll have no option but to try and raise again, and their investors will be loath to assign them a higher valuation. Their enterprise value will be marked down from before — what's known as a downround — in exchange for the fresh cash, which might temporarily weigh on founders' egos, but will take the pressure off their business in the long-term. Put simply: if they need the cash, and can raise the cash, startups will do it.
But watch out for those that don’t manage. Investors have become much more discerning this year, as have their LPs. There will be no room for startups that rode a wave of hype in the past but now sit in an oversaturated vertical where their unit economics are worse than their rivals. Expect to see those startups struggle to raise, and eventually some market consolidation. M&A will finally start picking up in Q1 2023, and I’m sad to say, so will the insolvencies.