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Q2 Saw A 38% Drop In Startup Funding In Europe: What Next?

It was recorded at the beginning of Q3 2022 that the funding experienced by North American startups in the previous quarter was, in fact, 25% lower than the figure of the previous year, in Q2 2021 and 27% lower than the amount raised by startups in Q1 of this year (2022).

Additionally, funding for startups across the pond in Europe saw a drastic 38% fall when compared to the previous year.

This begs the question; as we further escape the age of Covid-19, surely funding should, if anything, be on the rise, so why are we seeing such drastic drops in the investment level?

In previous years, raising capital from investors, whether it be Venture Capitalists, angel investors or other private investors, used to be considered relatively straightforward to achieve.

Well, we can start by assessing the overall market; public and cryptocurrency markets are decidedly down, and the VC funding-fest of 2021 is over. As a result, startup founders are having to deal with the hangover-effect.

Early-stage funding fell by 18%, suggesting that the trouble in public markets has now trickled down to smaller startups, which tend to be more sheltered from economic calamities. The sudden change has given some founders whiplash and has left others regretting they did not start their funding rounds a year or two earlier.

One factor for the decline in startup funding could be attributed to the lower valuations of the startups in question. According to a report from Pitchbook, valuations in early-stage rounds dropped 16% in the second quarter of 2022, which marked the first decline since the start of the pandemic. If a startup is valued too low, founders can be tempted to give up too much equity to increase their total funding, and face problems fundraising in the future.

However, that is not to say it’s all doom-and-gloom for startups, with some biotech, deep tech and e-commerce companies all achieving big exits in Q2.

The largest disclosed-size deal of the quarter was British pharma giant GSK’s purchase of Affinivax, a Cambridge, Massachusetts-based developer of pneumococcal vaccines, for $2.1 billion upfront and up to $1.2 billion in potential milestone-based payments.

Overall, Q2 2022 was not the happiest time for venture-backed startups and their investors. With crashing public market comps for unprofitable tech companies, startups are facing rising pressure to save money, reduce burn and enable existing cash reserves to last longer.

However, as of the beginning of Q3, investors appear more confident about prospects for early- and seed-stage deals, which have a chance of reaching maturity under more upbeat market conditions.

Moreover, the biggest barriers seem to be the overall market conditions and valuations, which are two obstacles that are completely possible to overcome. The remainder of 2022 may not reach the heights for startup funding as seen in 2021, but the consensus is that recovery is probable.

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