In the ever-evolving landscape of European tech funding, the third quarter of 2023 brought challenges and triumphs. The latest data from Dealroom paints a vivid picture of the state of the tech industry in Europe, with climate infrastructure and AI startups stealing the spotlight while fintech faces a downturn.
Decline in deal count, surge in funding
Q3 2022 witnessed a significant drop in venture capital deals, hitting the lowest count since Q4 2015. Over 2,000 deals occurred in the quarter, marking a substantial 31% decrease from the previous year. However, the funding landscape exhibited a contrasting trend. Total funding, including convertibles, rebounded impressively to $18.9 billion, reaching its highest point since Q3 2022.
Sweden’s remarkable rise
While the overall deal count showed a decline, Sweden continued to make waves in the European tech ecosystem. Swedish startups secured the second-highest funding in Europe for the second consecutive quarter, raking in an impressive $3.4 billion. This remarkable achievement placed Sweden just behind the UK, which led the pack with $6.3 billion in funding. French and German startups claimed the third and fourth positions with $2.5 billion and $2 billion in funding, respectively.
Sweden’s rise to prominence can be attributed to significant climate tech investments, including the eye-catching €1.5 billion raised by H2 Green Steel and a substantial $1.2 billion convertible secured by Northvolt. Notably, Sweden’s consistent presence among the top-funded ecosystems outside the UK, France, and Germany is a testament to its growing tech prowess, making it the nation with the most frequent appearances in the top three since 2012.
However, it’s worth noting that when mega-rounds exceeding $100 million are excluded, Sweden drops to the fourth position, just ahead of Switzerland. This highlights the dependence of Sweden’s tech boom on large funding rounds.
AI dominates the investment landscape
The third quarter of 2023 marked a resurgence in investments in Artificial Intelligence (AI) startups. With $2.8 billion invested, it was the highest funding amount in AI startups seen in the past five quarters. Despite this, the number of funding rounds in AI was the lowest since Q3 2015.
Several AI startups, including Accenta, Poolside AI, and Helsing, secured impressive $100 million+ rounds during this period. Notably, Birmingham-based self-driving tech developer Conigital bagged the largest AI round of the quarter with a £400 million Series A funding in September, showcasing the UK’s AI prowess.
Climate infrastructure drives mega deals
The standout trend of Q3 2023 was the emergence of capital-intensive climate infrastructure as a dominant force in the European tech funding landscape. The four biggest deals of the year-to-date were all signed this quarter and had one common thread – their heavy focus on climate infrastructure. H2 Green Steel, Northvolt, Verkor, and battery storage facility/charging point operator Zenobe Energy raised a staggering $4.5 billion. These deals accounted for 25% of the entire European tech ecosystem’s funding in the quarter.
This highlights a growing commitment from investors and startups to address climate change challenges by investing in sustainable technologies and infrastructure.
Fintech faces challenges
Fintech faced a challenging quarter in Q3 2023 in a surprising turn of events. For the first time since 2016, the fintech sector missed out on being among Europe’s top three funded sectors for two consecutive quarters. It dropped to the fifth position, securing only €1.2 billion in funding, a significant decline from the €4.3 billion it attracted in Q3 the previous year.
The largest fintech deal of the quarter was Dutch challenger bank Bunq’s €100 million Series B funding in July 2023. However, this fell short of the €193 million Series A raised exactly two years prior, indicating a potential slowdown in fintech investments.
As the European tech funding landscape continues to evolve, Q3 2023 showcased a shift in priorities, with climate infrastructure and AI emerging as the dominant sectors. Sweden’s consistent performance underscores its growing influence in the European tech ecosystem, while fintech faces challenges in maintaining its momentum. With climate tech and AI at the forefront, the tech industry in Europe remains dynamic and responsive to the pressing challenges of our time.
