Berlin The pressure on the start-up industry is once again intensifying. A current report from venture capitalist Atomico shows this. As a result, start-ups in Germany and Europe have much less capital at their disposal. Venture capital invested in young German companies could have fallen by 44% in the first half of this year, as Atomico extrapolates from available data.
However, German start-ups did better than those in the UK and France, which had to reduce their funding by 57% and 55% respectively.
Driven by the zero interest rate policy and digital pressures, venture capitalists are more cautious now than they were during the corona crisis, when money was pouring in, given continued economic weakness and a shift in interest rates. This has consequences: financing talks are now delayed or fruitless Eventually, this in turn led to insolvency, as happened recently with refrigeration start-up Efficient Energy.
Atomico expects $51 billion to flow to European startups this year, less than half of the amount raised in 2021. German companies may get less than a fifth, or $9 billion.
Regardless, there are good funding opportunities for startups in the field of generative artificial intelligence (AI). Thirty-five percent of all AI funding is now going to this particular area, up from 5 percent last year. The change is likely largely fueling the hype surrounding the ChatGPT language model from Microsoft partner OpenAI.
In the pandemic year of 2021, not only is there a record for venture capital investment in Europe, but also for so-called unicorns. 105 startups were valued at more than $1 billion post-funding. In Germany, these include Flix Mobility and Celonis from Munich and Trade Republic from Berlin. Last year, 31 new unicorns were added.
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On the other hand, only two startups have cleared that hurdle so far this year. Both work in the field of artificial intelligence. This includes DeepL, an online translator from Cologne, which launched a new round at the beginning of the year, with Atomico also participating.
The second multibillion-dollar startup is Quantexa from London. The data analytics firm achieved unicorn status in April after Singapore’s sovereign wealth fund GIC led a capital injection.
Atomico still has 352 billion startups in Europe by the end of 2022. The interim report did not determine whether that number was still high. However, companies such as greenhouse company Infarm have already fallen off the list during the crisis. This also applies to fast-delivery service Gorillas, which was acquired by rival Getir.
Many start-ups are now reluctant to disclose the valuations they received in funding rounds. Because they often have to accept depreciation. According to the Atomico interim report, this happened once every five rounds in the first quarter, which is 3.6 times the frequency of the same period last year. Atomico partner Tom Wehmeier expects more depreciation and consolidation in the second half of the year.
Another study, jointly produced by financier Speedinvest and the Technical University of Munich, shows that the vast majority of investors now think European unicorns are overvalued. However, the question of whether other criteria are now used for assessment was not investigated.
Layoffs are accelerating
Many investors are now asking founders to pay more attention to their spending. Since a large portion of fixed costs often consists of personnel costs, many turn to this lever. There has been a sharp increase in layoffs in the industry this year. From January to March alone, the global tech industry shed more than 185,000 jobs, according to Atomico’s report. That’s significantly more than all of 2022, when just under 165,000 jobs will be lost.
Only 6% of cancellations in the first quarter were attributed to European start-ups and tech companies. However, there are some prominent examples in this country. In the past week alone, Berlin start-ups Coachhub, McMakler and Taxfix have laid off more than 200 employees. According to the Layoffs.fyi data service, Chemnitz Einhorn Staffbase has 90 jobs.
>> Read related content: German start-up layoffs continue
Investor reluctance and continued economic weakness have also made many less interested in starting a company. Data collected by Atomico confirms this. In 2020, 18,000 start-ups were created across Europe, compared to just 14,000 a year later. Another year later, 11,000 such start-ups were counted.
Germany is no exception to this Europe-wide downward trend: According to the analytics firm Startupdetector, the total number of start-ups fell by more than a fifth last year to 2,705 and thus below the figure for 2020. Still, Atomico partner Wehmeier is optimistic: It will create fewer but higher-quality companies.
So-called exits in the form of IPOs or sales and mergers are necessary in order for more action to enter the market again. However, these are currently rare. In 2021, US$166 billion will flow into the European market, compared with US$48 billion last year. In the first half of this year, it is expected to be 21 billion US dollars.
However, Wehmeier is also confident here: According to him, the IPO window may open again by the end of the year. It will also bring much-needed liquidity to the industry.
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