Key Points:
- 2023 has been a tough funding year for European startups, with low VC exit value and decreased activity and deal value.
- The volume and value of VC-backed IPOs are not expected to see a meaningful recovery in 2024 due to macroeconomic factors and cautious stakeholders.
- VC fundraising levels are expected to match or exceed those of 2023, with larger funds leading the recovery.
- PE fundraising is expected to be lower in 2024 compared to 2023, but the top three funds are projected to raise a significant amount of capital.
- The UK is expected to continue being a leader for private capital, but Germany and France could close the gap in deal value.
The funding landscape for European startups in 2023 has been described as the most depressed in VC exit value in a decade. The uncertainty and macroeconomic environment led to a decrease in VC activity and deal value. Looking ahead to 2024, analysts do not expect a meaningful recovery in the volume or value of VC-backed IPOs. Public markets are heavily influenced by macroeconomic factors, and stakeholders remain cautious. This could result in companies finding alternative ways to extend cash runways, such as cost-cutting, consolidation, follow-up rounds from existing investors, or venture debt.
However, potentially profitable startups may still see valuations upon IPOs, with investors willing to pay higher multiples. On a positive note, VC fundraising levels are projected to at least match those of 2023. Recovery has already begun, primarily supported by larger funds. This could result in investment capital exceeding the depressed levels of last year, potentially driven by a higher number of smaller fund closes throughout 2024.
On the other hand, PE fundraising is expected to be lower in 2024 than in 2023, despite 2023 being on track for a record year in terms of capital raised. The number of fund counts has been the smallest in over a decade, but the top three funds have contributed significantly to the total capital raised. In 2024, analysts predict that the top three funds will raise €45bn, potentially resulting in a record concentration of funding if Europe’s overall PE fundraising drops below €100bn.
The UK is expected to continue leading in private capital, both in VC and PE. However, Germany and France may close the gap with their combined deal value in 2024. These two EU member states have implemented policies to strengthen their tech ecosystems. The uncertainty of the political landscape in the UK may deter investors from making major decisions until a clearer legislative landscape is established. Investors may also target less saturated nations with fewer competitors.
