European tech valuations fall again as storm clouds gather for start-ups

Valuations of European tech firms continued to decline in the third quarter, figures out today show, as start-ups battled for survival amid weaker consumer sentiment, scant venture capital investment and slower growth.

The median venture growth deal value declined 17.4% in the three months to end September compared to the same period 2022, according to data from PitchBook, while median valuations slumped by 26.1%. 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.

But there were early signs the UK was bucking the trend in Europe, being the only major economy to have seen venture deal size increase.

PitchBook said the downturn reflected a change of investor sentiment in which “valuations, particularly at mature financing stages, are facing renewed scrutiny.”

“Investors have become cautious with their capital deployment, and mature companies that were previously burning through cash have had to focus on costs, with valuations recalibrated based on flatter revenue growth trajectories.”

James Clough, CTO and co-founder of Robin AI, told the Standard: “There is more focus now on profitability whereas it used to be on companies that can scale really quickly.

“There were lots of tech layoffs earlier this year – investors are often coming in with money but asking for that kind of restructure.”

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."