Funding down and valuations flat in Q1 for European startups
It was a difficult start to 2023 for European startups. In the first quarter of the year deal closing slowed, valuations flattened and exits remained subdued, according to new research.
Analysts of PitchBooka financial data company, found that investor priorities have shifted from growth at all costs to profitability.
Following a boom in VC activity that seeped into early 2022, reports have emerged of slower growth rates, headcount cuts and tighter financing conditions. As a result, due diligence processes have become longer, with earnings, valuations and runways under heightened scrutiny.
Nalin Patel, the report’s author, noted that investors have become more selective across the board.
“We are seeing declines across funding stages, sectors and regions,” Patel told TNW.
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Glimmers of hope were hard to find in the report, but a few shone through the darkness. Angel’s valuations have been robust, with a median pace of €3.7 million, surpassing the €3 million figure recorded in 2022.
Early adoption can be more difficult for startups in the current climate, but Pitchbook expects less mature companies to be shielded from the turbulence that hits high-cost companies.
Indeed, current market conditions could force investors to focus on ideas with the potential for long-term success.
As a result, Patel believes that seed and early stage companies in long-term sectors such as clean energy can continue to be attractive investments. Overall, however, the financial landscape remains treacherous.
“Companies have not been growing at the same rate in recent years and valuations across the market are cooling,” said Patel. “We expect valuations to become more colorful as financing needs continue this year.”
