2023 was a whirlwind year for the VC industry. Funding for venture-backed startups plunged more than 40% and VCs themselves saw fundraising down over 40% through the end of November, according to PitchBook data.
But just because the heady days of 2021 are over doesn’t mean we didn’t see some very bubbly activity — particularly in, you guessed it, AI.
Europe saw some of its largest AI funding rounds last year, with VCs ploughing $500m into Germany’s Aleph Alpha in November and French OpenAI competitor Mistral securing two massive rounds last year — most recently its €385m fundraise in December.
VCs faced their own set of challenges, with some firms opting not to raise another fund and laying off staff. And VC M&A also started to pick up.
What will 2024 bring? Some of Europe’s top VCs share their predictions — from when we might see a dealmaking rebound to a rise in female founders. The following quotes have been edited slightly for clarity.
Sophia Bendz, partner at Cherry Ventures
The theme for the upcoming year, like the rest of Europe's ecosystem, will likely read "B2B SaaS". Excitingly, we're seeing a clear increase in female founders across the European ecosystem, especially at the early stage. I believe that the trend will continue into 2024, even if we at Cherry would like it to go faster.
Jan Miczaika, partner at HV Capital
One of the key challenges in frontier technology, especially around greentech and renewables, is financing first-of-a-kind (FOAK) plants. While investors are willing to back early-stage companies with seed funding for promising technological approaches, raising €20 to 40m+ for a FOAK plant remains a significant challenge. But there is a whole batch of exciting startups that have raised seed rounds and are now demonstrating technological readiness. I predict we will see a series of large Series A and B rounds across novel materials, chemicals and plastics, to name a few.
Helga Valfells, founding and managing partner at Crowberry Capital
We anticipate a moderate rebound of VC investment in the Nordics in 2024. There is a lot of dry powder for early-stage investment and funds are definitely open for business. However, the fundamentals that led to the cooling of the VC market in 2022 are still in place. LPs’ risk appetite continues to be impacted by geopolitical uncertainty and high interest rates.
In the Nordics, we expect to see continued opportunities around AI and quality data management. AI governance, compliance and ethics will become increasingly important as the new EU AI legislation is adopted. It will also be interesting to see if the launch of the Apple Vision Pro and the recent launch of Meta Quest 3 will create opportunities in spatial computing. Finally, we predict that digital health will remain strong in the Nordics as consumers continue to demand more efficient health solutions.
Nirwan Tajik, growth equity investor at Revaia
We will see more VC consolidation in Germany — with mergers and some shops closing up. As fundraising has peaked, most funds flow to large established managers that are multi-product/strategy houses. It is particularly challenging for first- and second-time managers to raise funds right now as nearly all of new inflows go to the previously mentioned large players. Particularly in Germany, smaller asset managers might struggle where the domestic LP landscape is underweighting the VC asset class. However, it is these firms that have to be especially economical with their limited management fees. If they cannot raise their AUM, they might seek strategic options, like mergers, to keep growing as they cannot fund growth themselves. Naturally, buyers for German VCs might be international players who seek access to German dealflow and/or might want to acquire talent for a new strategy/product.
Jeannette zu Fürstenberg, founding partner of La Famiglia
2024 will be the year of enterprise adoption in AI. The majority of enterprises plan to adopt AI for both internal and external use cases, but so far, only 10% have done so. This might be due to the typical planning cycles of three to six months and a pilot and testing phase for up to one year. As ChatGPT only emerged in December 2022, we will see a major wave of adoption in the upcoming year.
I also believe that this will be the year of the "multi-model", meaning we will see the monopoly of OpenAI broken up with the first open-source large language model at the GPT-4 level launching in 2024. This leads to a more diversified supplier landscape, enabling new customised, on-prem use cases and will allow the infrastructure and tooling space to flourish.
I think we will also see a range of well-funded companies that won’t make it and hopefully, we will see seed valuations readjust as a function of more metrical-priced Series As this year.
Mike Turner, London emerging companies partner at law firm Latham & Watkins
In 2024, investors will start to deploy their dry powder, but only slowly in [the first half of the year]. Macroeconomic uncertainty has lasted longer than expected, with interest rates now expected to stay at their current levels for some time, and business and consumer adoption of new technologies has accordingly been a little slower to pick up. [The second half of] 2024 will see far more investment activity as economic conditions ease (with public and M&A markets opening up), and because fund managers will simply have to get funds deployed.
Taos Edmondson, principal at DMG Ventures
Consumer sector fundraising was quite slow for large parts of 2023 but Q4 saw a marked uptick. The companies now arriving at seed and Series A were launched after the 2020-21 "bubble" and are being much smarter about marketing channels and overheads, whilst still achieving strong growth.
Many of the consumer startups in our network enjoyed a bumper Black Friday, which suggests that consumer confidence is returning, in line with easing inflation. Though I see market confidence returning, I believe founders and investors in Europe have learned important lessons (myself included!) during the 2022-23 market downturn and I think that the desire for relatively near-term profitability and sensible valuations will persist. In terms of hot consumer sectors for 2024, I would earmark travel, as well as generative AI, where I’m finally starting to see some applications that will resonate with everyday consumers.
Ekaterina Almasque, general partner at OpenOcean
The VC industry saw an exodus of women investors in 2023 due to an unrelenting, demanding and [non]inclusive culture. There will be no immediate recovery in 2024. As portfolios struggle across the industry, women in leading/partner positions will continue to face immense pressure to deliver for their firms. Women will again be judged more harshly as very often they have entered the industry recently, and won’t have the same chance to demonstrate a track record as some men in the same positions did 15 years ago.
I expect more of a focus [this] year industry-wide on putting capital into the hands of women. …[2024] will see the launch of a higher number of new women-led VC funds and funds with partners from much more diverse backgrounds. For those unable to raise a full fund, women investors will carve out niche coverage areas overlooked by traditional VCs. Capital will keep flowing into promising spaces that mainline firms are not prioritising, such as deep tech. While VC culture remains challenging for women, those who have exited big funds will find opportunities by banding together and identifying emerging pockets of opportunity.
Pawel Chudzinski, partner at Point Nine Capital
The early/mid-VC market will continue to improve at a steady pace, and maybe we will also witness an acceleration in IPOs. However, activity will stay well below the unhealthy 2021 levels. Many of the companies heavily funded around 2021 will need to get back to market for more capital — and many might not make it without a major restructuring. This will all be accompanied by volatile geopolitics.
Hendrik Brandis, cofounder and partner at Earlybird
Lessons from the crises of 2000 and 2008 have shown that economic downturns typically unfold over a three-year span, from the initial fall to the onset of a strong recovery. Considering that the decline began in November 2021, we can expect the current tech cycle to conclude in the latter half of 2024.
Gemma Bloemen, principal at Creandum
VCs still have capital and appetite to deploy but standards will remain high, similar to in 2023. Startups will need to think carefully about the best financing options and strategy.
From a talent perspective, the market remains strong, both for companies hiring new talent and for people deciding to build their own businesses.