The downturn is unlikely to decimate Europe’s tech industry again

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So far, investment in European startups is holding up. But 2023 will show whether Europe’s startup ecosystem has genuinely become more robust

Save time by listening to our audio articles as you multitaskThe sharp drop reminded some of the period after the dotcom bubble burst at the start of the century, and of the financial crisis of 2007-09, which also decimated the European tech scene. So far, however, Klarna looks to be the exception, rather than the rule.

2021 was a bumper year for European startups, even by frenetic global standards. For the first time, venture-capital investments on the old continent exceeded €100bn in a single year, according to PitchBook, another data provider. Valuations soared accordingly, creating many new unicorns. In early October 2022 there were 159, 13% of the world’s total .

Most of these companies are not household names, but they are growing powers in their respective industries. Celonis helps firms identify and improve business processes; Personio manages human resources for smaller companies; and Northvolt is a fast-growing maker of lithium-ion batteries for electric vehicles.

The quality of Europe’s startup ecosystem and its context has also changed. For one thing, it benefited from the rapid growth of cloud computing, particularly during the coronavirus pandemic. Until it became possible to offer all sorts of computing services over the internet, big software firms tended to cluster in a few hubs, particularly in Silicon Valley. Now, with computing power on tap anywhere, location matters less.

None of this means that Europe’s startup scene is immune from the effects of a prolonged tech downturn. But it is more protected from what is happening elsewhere in the world than it was in the past. And in this it is not alone: other regional ecosystems, such as those in India and South-East Asia, are increasingly becoming startup islands of their own. In a way they all have declared independence from the mother of all ecosystems, Silicon Valley.

 

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