European Venture Funding Drops 44% as Early Stage Weakens

European venture funding for third-quarter 2022 continues to fall, sliding to its lowest point in nearly two years as early-stage investment shows clear signs of weakness.

Funding for the third quarter in Europe totaled $16 billion, down 44% year over year from $28 billion and down 35% quarter over quarter from $24 billion, per an analysis of Crunchbase data. 

This downward trend for European venture funding in the past quarter is in line with global and North American funding trends. We find the largest quarterly decline on a global basis year over year since Crunchbase started tracking venture funding in the mid-2000s.  

Funding in Europe is at its lowest since the fourth quarter of 2020, which totaled $13.4 billion. 

The biggest dip quarter over quarter was at early-stage funding, while late stage fell by a greater proportion year over year.

Early-stage funding dropped

The most significant shift in European venture in the third quarter was at early-stage funding which dropped below $5 billion for the first time since the beginning of 2021. 

Early-stage funding declined by more than 40% quarter over quarter and year over year, a signal that European venture capital firms have scaled back their investment pace due to the global economic downturn. 

In the first half of 2022 early-stage funding remained high, in defiance of the economic downturn.

Late-stage funding

Late-stage funding continued to fall further from the second quarter into the third quarter. It reached $9.4 billion in the third quarter, down by almost a third quarter over quarter and close to half of Q3 2021 funding. 

Late-stage funding in 2021 in Europe grew over 200% year over year, as global investors sought out growth companies in Europe. Those investors have scaled back since the second quarter of 2022. 

However late-stage funding into European startups has remained a larger proportion of funding at 60% this past quarter compared to around 50% in 2020.

Seed-stage funding

Seed-stage funding dipped below $2 billion for the first time since the beginning of 2021. Year over year seed-stage funding fell by a lesser proportion compared to other funding stages but still down 29% quarter over quarter and 20% year over year. 

The larger drop quarter over quarters is an indication of investors declining appetite for new investment opportunities in the current climate.

New unicorns 

Only four companies from Europe joined The Crunchbase Unicorn Board this past quarter, compared to 21 new European unicorns in the second quarter of 2022. 

Cryptocurrency companies 21.co from Zurich and Copper from London joined the list. Also new to the board is sustainable blockchain provider 5ire headquartered in London. Payments company Satispay, which helps consumers and merchants avoid fees from traditional credit card providers, is the fourth European company to become a unicorn. 

It’s been a chilly time for unicorns all around: Buy now, pay later payments provider Klarna shed $39 billion in value in the second quarter and dropped off the list of the top 10 most highly valued private companies. 

In summary

While overall funding is down from the peak in 2021, European startups still garnered funding amounts above 2020 quarterly totals. 

In the meantime median and average seed and Series A funding have held up compared to 2021 amounts. Median and average fundings from Series B onwards declined. 

European venture firms have continued to raise record funds into 2022 including Northzone, Felix Capital, LocalGlobe, Creandum alongside settlers from the U.S. venture markets who raised record funds in recent years and set up shop in Europe.

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Methodology

The data contained in this report comes directly from Crunchbase, and is based on reported data. Data reported is as of October 3, 2022.

Note that data lags are most pronounced at the earliest stages of venture activity, with seed funding amounts increasing significantly after the end of a quarter/year.

The most recent quarter/year will increase over time relative to previous quarters. For funding counts, we notice a strong data lag, especially at the seed and early stages, by as much as 30 percent to 40 percent a year out.

Please note that all funding values are given in U.S. dollars unless otherwise noted. Crunchbase converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events are reported. Even if those events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historic spot price.

For M&A transaction analysis, we include venture-backed companies and exclude companies that previously went public. 

Glossary of funding terms

Seed and angel consists of seed, pre-seed and angel rounds. Crunchbase also includes venture rounds of unknown series, equity crowdfunding and convertible notes at $3 million (USD or as-converted USD equivalent) or less.

Early-stage consists of Series A and Series B rounds, as well as other round types. Crunchbase includes venture rounds of unknown series, corporate venture and other rounds above $3 million, and those less than or equal to $15 million.

Late-stage consists of Series C, Series D, Series E and later-lettered venture rounds following the “Series [Letter]” naming convention. Also included are venture rounds of unknown series, corporate venture and other rounds above $15 million.

Technology growth is a private-equity round raised by a company that has previously raised a “venture” round. (So basically, any round from the previously defined stages.)

Illustration: Dom Guzman