The UK's lead as the number one destination for European tech investment has been eroding over the past three years, a new report has found, as the race to become a major European tech hub intensified.
The UK's share of all European capital investment between 2021 and 2023 has declined by almost three percentage points compared to 2018-20, according to new data from venture capital firm Atomico, the steepest decline in Europe, while other major economies such as Germany and the Netherlands gained share over the same period.
While it remains the biggest single economy for tech investment with more than $12.5 billion in funding so far in 2023, it also suffered the greatest number of 'dehorned unicorns', that is, tech firms which have ceased to be worth $1 billion or more.
It follows a report by PitchBook last week which found that the proportion of ‘down rounds’, in which a firm accepts investment on worse terms than in previous funding rounds, increased to 21.3% from 14.8%. Since the start of the year, scores of tech firms from food delivery business Gousto to fintech giant Revolut have seen their valuations cut by investors.
Priya Oberoi, founding general partner at Goddess Gaia Ventures said: "I think it's got tougher for everyone -- you really have to prove that you are top of your class. Meetings are getting longer, decisions are taking longer and there's more due diligence.
"The idea of hyper growth at all costs is something that we won't return to. The silly money won't exist going forward -- founders and portfolio companies must demonstrate that their unit costs are down so that they can actually create a profitable company."
But Max Bautin, managing partner of tech venture capital firm IQ Capital, cautioned that investment levels were still high by historic standards, while there was good reason for optimism.
"There are corrections to valuations because things just went to high to unsustainable levels, and there will be more corrections to come," he said.
"[But] investment activity is holding up well and the overall environment is pretty good. For late-stage funding there is a significant drop off, but the anecdotal evidence we're seeing is that a lot of investors from series-B funding have gone down a stage to A, and series-A are more focused on seed rounds [so] that means more investment opportunities for entrepreneurs."
