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December 31, 2023
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Europe’s startups split as AI keeps investors spellbound, defying gravity.

European Tech’s Great Bifurcation Takes Hold in 2023

Key Points:

  • European tech ecosystem is experiencing a great bifurcation
  • Investors remain infatuated with AI despite a wider slowdown in VC funding

Europe’s tech ecosystem is going through a great bifurcation. VCs have piled into AI startups like Aleph Alpha and Mistral despite a wider slowdown in VC funding. The hype around once red-hot sectors like fintech, Web3, and rapid delivery has waned in 2023.

Funding to European startups has dropped by 45% this year to $45 billion, according to Atomico. But AI, buoyed by the launch of OpenAI’s ChatGPT in November 2022, has continued to capture investors’ attention. French upstart and OpenAI rival Mistral raised $400 million earlier this month, while the likes of London-based generative AI firms Sythesia and ElevenLabs convinced some of the world’s biggest venture capitalists to fund their expansions. Similarly, sizable bets on German firms Aleph Alpha and DeepL contributed to AI taking almost a fifth of all funding to European startups this year.

Outside of AI, Europe’s early stage has been another area of investor interest in 2023, with exciting teams coming out of growth-stage businesses very much in the bracket of companies raising competitive funding. On the flipside, sectors that attracted strong levels of VC investment in recent years like consumer fintech, Web3, crypto, rapid grocery delivery, and online events have all fallen into the camp of have-nots. Investment into European fintech, for example, has dropped well below the wider slump, declining 70% to $5 billion from $17.1 billion in the first half of 2023, compared with 2022, according to Finch Capital. Companies that have more middle-of-the-road characteristics are finding it much harder to raise.

As 2023 draws to a close, it’s unclear whether 2024 will see the gap widen or shrink for European tech’s possible winners and losers.

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