August 8, 2022

Are we in a downturn? What the data tells us about European tech in 2022

The data shows clear signs that the tech downturn has hit Europe, with deal count dropping and tech company layoffs continuing

Tom Nugent

6 min read

The first half of 2022 rocked the world of tech. A cocktail of Russia’s invasion of Ukraine, rising inflation and poor public market performance has finally started to hit European tech.

Last month Swedish buy now, pay later (BNPL) star Klarna saw its valuation slashed to $6.7bn — from a high of $46bn roughly a year ago — and speedy grocery delivery unicorn Gorillas is reportedly on track to raise fresh funding at a reduced valuation.

And despite a significant amount of capital still being deployed in the first half of 2022 — $58.6bn across 4,000 deals — the days of free-flowing VC cash seem to be over.


But what does the data tell us about the tech downturn?

VC funding started to dip in Q2

The first quarter of 2022 showed signs that this year would keep pace with 2021. A total of $31.6bn was invested in Europe, according to Dealroom data — the second highest quarter of all time. 

But that seems to be changing. Despite the first half of 2022 being Europe’s second highest six months for VC investment, that’s being propped up by Q1 — Q2 shows signs of slowing. Dealroom data shows a total of $27.1bn invested during Q2 2022, the lowest total since Q1 2021. There was a dip in funding across all rounds, from pre-seed to Series C+.

It’s worth noting that this data could change as more rounds are reported and data is updated — private market data tends not to be the most reliable or transparent — but it likely won’t change the overall trend. 

Late-stage (Series B+) VC activity was down 8% in Europe and 19% in the US during H1 2022, according to the H1 VC Pulse Check Report by Dealroom and Silicon Valley Bank (SVB) UK. As Europe typically lags behind the US, this is a data point worth watching in Europe. Things could deteriorate further in the next six months. 

Early-stage funding — pre-seed to Series A — fared better on paper. Investors at the earliest stages in Europe also tell Sifted they’re less exposed to any slowdown as the companies that they back won’t be thinking about raising huge rounds or even exiting until many years from now. And a fair few early-stage firms have actually launched this year, including Cornerstone VC and Creator Ventures. 

Activity at these stages during H1 was up in Europe by 21% compared to the same half last year. That’s better than the US, which saw a 13% increase. 

Quarter-on-quarter funding data, however, shows this may be starting to slow. Pre-seed to Series A funding during Q1 2022 was $4.7bn, according to Dealroom data. In Q2 that dropped to $4bn. 

The start of Q3 also shows that trend continuing. Month-on-month seed-stage funding in Europe went up in June, when €595m was raised across 254 rounds, but then dipped in July to €433m raised across 219 rounds.

2021’s boom in investment was also driven by an influx of non-European capital — a large percentage of that from the US. There are signs that foreign investors may be pulling back — albeit slightly — from European investments. 

Foreign investors contributed 50% of VC cash that flowed into Europe in 2021, and 64% of VC cash in rounds larger than $100m. Those figures so far in 2022 are 47% and 59%, respectively, per the Dealroom and SVB report. 


Though that’s not a huge dip, this is also a data point to monitor as we head into the next two quarters; European tech’s slowdown could be accelerated if the foreign investors that freely deployed cash on the continent last year get cold feet.

VC deal count data shows the extent of the tech downturn

The overall funding amounts still look fairly healthy because of big rounds (more on those later); VCs are still sitting on lots of capital they need to spend, and that’s concentrating in the best-performing companies. So to really see the investment slowdown take hold, deal count can be a better proxy. 

Total deal count in Q1 was 2,300 — the lowest it's been since Q3 2018. The total number of deals in Q2 dropped to 1,700, per Dealroom data, and there was a drop across all round types.

The total number of deals across the first half of 2022 (4,000) was also the lowest number for any half year since H2 2015 (3,900). 

Open roles take a hit and the tech company layoffs began

Sifted first started reporting on the tech company layoffs hitting Europe in May. Among the first to cut staff was Klarna, alongside the likes of Gorillas and digital health company Kry. Since then layoffs have spread rapidly across sectors.

In the three months to June 2022 UK tech job listings were down 20%. The hardest hit were big data and education startups, which saw a 38% and 37% drop in the number of live jobs, respectively, according to data from UK jobs platform Otta. 

There’s been a downward trend in the number of new jobs going live month by month since the start of 2022, when looking at a fixed cohort of 1,000 companies on Otta. There were 4,040 new jobs live on the platform on January 1 but that had dropped to 2,638 by June 1. However that figure did creep back up slightly in July. 

Though the data is UK-focused, it's consistently Europe’s best-funded tech hub and challenges US hotspots like the Bay Area for the best-funded hub globally. The Greater London region was the fourth best VC-funded region in the world in 2021, and the best funded outside of the US — meaning UK-focused data is likely to be more in lockstep with the US and reflective of macro trends.  

That trend spills into mainland Europe too. The number of open job positions at private startups in the region is down 43% since the beginning of February, according to NGP Capital data. The decline has been even more severe in countries like Germany and Sweden.

Money still flowed into startups: the biggest rounds in H1

In the first half of 2022 the largest round went to payments giant, which raised $1bn in January at a $40bn valuation — which now makes it Europe’s most valuable private company (though some might dispute that price tag now). 

The other largest rounds in Europe in H1 were continent-wide. Estonia’s mobility startup Bolt raised €628m in January in a round led by Sequoia Capital. Swiss carbon dioxide removal company Climeworks saw the largest investment round ever for a carbon capture startup when it raised $620m (CHF600m) in April.

In Croatia, electric car manufacturer Rimac Automobili raised a $536m Series D round that valued the company at more than $2bn. And in France, neobank Qonto became a unicorn when it raised a €486m Series D in January. 

There was also a whopping Series A raise in the first half of the year with carbon recovery startup Perpetual Next — one of Sifted’s climate tech soonicorns — raising €320m and hitting unicorn status. 

Sifted's take on the tech downturn

Investors are pulling back in Europe but that doesn’t necessarily mean that you can’t raise. Instead of the growth-at-all-costs approach prevalent during the last decade the focus during the tech downturn will be on traction and tangible business models.

Investors say they are deploying cash more carefully, and so will be putting even more scrutiny on key metrics like traction and product-market fit, as well as team dynamics. 

As the data shows, the downturn is here, and the likelihood is that things will worsen across the coming quarters — all round types will be affected. The sense among founders and VCs, however, is that after the days of indiscriminate funding in 2020 and 2021, some caution might be a good thing.

Tom Nugent

Tom Nugent is Sifted’s digital editor. Follow him on X and LinkedIn