Global VC investments drop to levels not seen since 2019 - KPMG Denmark (2024)

Over the course of 2023, economic conditions and increasing pressure from investors had startupsadjustingtheir growth plans and turning their attention to strengthening their paths to profitability. In Q4’23, VC investors continued to pressure companies within their portfolios to become more efficient and to adjust their business plans to focus more intensely on achieving profitability.

There has also been increasing recognition over the last few quarters that some startups simply cannot survive in the current environment. Many sectors that saw rapid acceleration under pandemic conditions have been decimated by the rapid shift in economic conditions, including high levels of inflation and rapidly rising interest rates that have not yet begun to come down. Companies focused on last mile delivery and buy-now-pay-later offerings have been particularly hard hit. Already, some companies, including unicorns, have disappeared — with more likely to become extinct as they fail to attract new funding.

AI attracted strong investment in Europe during Q4’23, accounting for a number of the largest deals of the quarter, including a $486 million raise by Germany-based large language model focused company Aleph Alpha, a $434 million raise by Mistral AI in France and a $208 million raise by Israel-based enterprise AI systems company, AI21 Labs.

In addition to AI, the energy and ESG space continued to see good momentum during Q4’23, with investments ranging from Seed deals to those with larger ticket sizes — such as Sweden-based battery manufacturer Northvolt’s $145 million raise and Estonia-based energy storage company Skeleton Technologies’ s $114 million raise. Given the commitment to net zero targets and the need to rapidly scale funding in order to address the energy transition, the sector is likely to remain on the radar of investors for the foreseeable future.

Given the current headwinds, including the ongoing conflicts in Europe and the Middle East, the continued lack of exit opportunities for VC-backed companies, and uncertainties related to a number of elections planned or anticipated to occur in 2024, VC investment in the region is expected to remain relatively soft heading into Q1’24. VC investors will likely continue to focus on ensuring companies have a strong path to profitability so that they are better positioned to return capital to their LPs. While more companies will likely fail in Q1’24, this will likely drive attention to quality companies able to contribute to a heathy ecosystem long-term.

Collaboration is expected to be top of mind for many participants in the VC market in 2024, particularly between CVCs existing VCs, and accelerator programs looking to make headway on their strategic objectives while also managing their costs more effectively. The number of joint CVC funds could also rise as large CVCs look to bolster their ability to invest capital by working in tandem with others.

• Investment remains cool in Europe — with $13.8 billion invested on 1,750 deals

• Down rounds tick up to highest levels since pandemic

• First-time financing volume returns to pre-boom levels

• Capital remains concentrated on mid-sized funds

• AI, Ecommerce and Fintech dominate top 10 deals