Venture Capital: Pulling Back On Tech Deals

The difficult economic environment is deterring investors from pumping money into unprofitable, high-stakes tech ventures.

Venture capital (VC) firms are pulling back on investing in tech companies, as the difficult economic environment curbs investor appetite.

Europe’s tech scene is floundering, with deal count for the third quarter down to its lowest level since 2015, according to data compiled by Sifted. Venture capital spend in September was around a third lower than in July—a typically sleepy time of year—and down by around half  year-on-year.

Even the UK, the heart of VC in Europe, sustained a hit between July and September. Quarter-on-quarter VC funding fell by three-fifths versus the previous quarter. The 500 deals inked over the summer represent the fewest in a single quarter in eight years.

The difficult economic environment is deterring investors from pumping money into unprofitable, high-stakes tech ventures. Tech stocks’ fall from grace has also tempered investor hunger. South-East Asia’s largest listed tech firm, Sea, has a market capital today of around $26 billion, a far cry from over $200 billion a year ago.

Meanwhile, companies like Swedish payments firm Klarna have had to rethink growth plans. In July, Klarna raised $800 million citing a valuation of $6.7 billion, down 85% from $46 billion a year ago. The company noted that its peers are down 80%-90% from their peak valuations.

There are some bright spots though, notably in Italy and Sweden. Italy scored its first two unicorns this year. The “boot of Europe” had a record quarter over the summer with $840 million of VC money flooding in—more than the entire amount for 2020. Fintech Satispay closed a €320 million Series D round, proptech firm Casavo raised €100m and mobile app maker Bending Spoon raised $340 million, most of which was debt.

Across the pond, according to broad figures from PitchBook and the National Venture Capital Association, VC dealmakers in the US committed $151 billion to venture funds for the first nine months of the year, more than for the whole of 2021. However, it’s a mixed bag, with VCs flocking to cyber, artificial intelligence, and cloud infrastructure while cooling on consumer tech.