Berlin The pressure in the start-up industry has intensified again. This is shown by the current report by venture capitalist Atomico. Accordingly, German and European start-ups have significantly less money at their disposal. The venture capital invested in young companies in Germany is likely to fall by 44 percent in the first half of the year, as Atomico has extrapolated on the basis of available data.
However, the German start-ups did even better than their British and French counterparts, who had to make do with 57 and 55 percent fewer grants, respectively.
In view of the ongoing economic weakness and the turnaround in interest rates, venture capitalists are now much more cautious than they were during the corona crisis, when large sums of money flowed in – pushed by the zero interest rate policy and the pressure to go digital. This has consequences: Financing talks now drag on or end in vain, which in turn leads to insolvencies, as happened recently with the refrigeration start-up Efficient Energy.
Atomico expects a total of $51 billion to flow into startups in Europe this year, less than half the amount raised in 2021. Less than a fifth, i.e. nine billion dollars, is likely to be available to German companies.
Start-ups in the field of generative artificial intelligence (AI) have a good chance of raising money anyway. 35 percent of AI funding now goes to this specific sector, significantly more than last year when the share was 5 percent. This change is likely to have primarily triggered the hype surrounding the ChatGPT language model from Microsoft partner OpenAI.
In the pandemic year 2021, a record was not only set for venture capital in Europe, but also for the so-called unicorns. 105 start-ups were valued at more than one billion dollars after financing rounds. In Germany, these include Flix Mobility and Celonis from Munich and Trade Republic from Berlin. Last year, 31 unicorns were added.
>> Read more here: Start-up financing crisis: Corporate offshoots could help
This year, on the other hand, only two start-ups have cleared this hurdle so far. Both work in the field of artificial intelligence. This includes the online translator DeepL from Cologne, which launched a new round at the beginning of the year, in which Atomico also participated.
The second new billion dollar start-up is Quantexa from London. The data analytics firm achieved unicorn status in April following a cash injection led by Singapore’s sovereign wealth fund GIC.
At the end of 2022, Atomico still had 352 billion start-ups in Europe. The interim report did not ascertain whether this figure is still as high. However, companies such as the greenhouse company Infarm have long since fallen off the list during the crisis. This also applies to the fast delivery service Gorillas, which was bought by competitor Getir.
Many start-ups are now reluctant to disclose the valuations they have achieved in financing rounds. Because they often have to accept devaluations. According to the Atomico interim report, this was the case in every fifth round in the first quarter and was 3.6 times more frequent than in the same period last year. Atomico partner Tom Wehmeier expects there to be more devaluations and consolidations 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 believe that European unicorns are overvalued. However, the question of whether other criteria are now used for the assessments was not investigated.
Layoffs are picking up
Many investors are now asking founders to pay more attention to their expenses. Since a large part of the fixed costs usually consists of personnel costs, a lot is turned on this lever. The number of layoffs in the sector has increased significantly this year. According to the Atomico report, more than 185,000 jobs were cut worldwide in the technology sector from January to March alone. That is significantly more than in 2022 as a whole, when less than 165,000 jobs were lost.
Only six percent of the cancellations in the first quarter were attributable to European start-ups and technology companies. However, there are some prominent examples in this country. In the past week alone, the Berlin start-ups Coachhub, McMakler and Taxfix laid off more than 200 employees. According to the Layoffs.fyi data service, the Chemnitz Einhorn Staffbase had 90 positions.
>> Read about this: Wave of layoffs at German start-ups continues
The reluctance of investors and the ongoing economic weakness are also making many people less interested in founding a company. This is confirmed by the figures collected by Atomico. While 18,000 start-ups were created across Europe in 2020, a year later there were only 14,000. Another year later, 11,000 such start-ups were counted.
Germany is no exception to this Europe-wide downward trend: According to the analysis company Startupdetector, the total number of start-ups fell by more than a fifth to 2705 last year and thus fell below the value of 2020. Atomico partner Wehmeier is nevertheless optimistic: it would created fewer but higher quality companies.
In order for more movement to come into the market again, so-called exits in the form of IPOs or sales and mergers are necessary. However, these are rare at the moment. While 166 billion dollars were flushed into the market in Europe in 2021, it was only 48 billion dollars last year. For the current first half of the year, 21 billion dollars are expected.
However, Wehmeier is also confident here: According to him, the window for IPOs could open again at the end of the year. This would then also bring urgently needed liquidity back into the industry.
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