Europe's VC Market's 2-Year Boom May Be Over - What Can You Do As a Founder?

I recently read PitchBook 's Report on the European Venture Market in 2023. The headlines that promoted this report read "European VC Simmers Down" and "European VC logs a disappointing year."

Intrigued, I had to download and review the report myself. Here are the key takeaways I think European founders should focus on, along with strategies to deploy against the 2024 backdrop of the European VC market.

The European VC Market: A Closer Look

At first glance, the headline "European VCs simmer down" may not accurately reflect the current state of the European VC market. I've been deeply involved and active in the community, engaging in various events (such as the Valencia Digital Summit) and working closely with several large VCs in London. My take from being in the trenches? The European VC market is still doing well.

The broad strokes of the report do acknowledge this to a degree, stating that while the venture capital in Europe plateaued a bit in 2023 after a highly inflated two-year boom, it still landed above the 10-year average. In this way, the decline in deals and deal size was more of a correction from the pandemic-era boom rather than a jarring decline. The report also denotes this happened amid a more challenging macroeconomic environment that rocked many markets, not just Europe.

So why the decline in 2023?

Europe continues to invest in later-stage companies. The graph from the report below underlines that reality:

That's a challenge for European VCs, because while early stage offers higher risk, it offers much higher reward. Because of this, they're missing out on bigger deal sizes. This is why we continue to see unicorn companies coming for the US, China, and other markets.

The report also states that the "EU agreed on a provisional deal on the use of AI, the first of its kind globally. Such laws will be pivotal in ensuring the industry develops ethically and safely for consumers."? While this is noble and has the right intent, the reality is it may delay deals as investors wait to see what happens with AI before making riskier investments.?

Additionally, as the report highlights, Europe tends to regulate first and allow for innovation second, which can be inhibitive to growth. This is in contrast to the more risk-tolerant culture in the United States, China, and Israel, where I believe we'll continue to see the largest exits.

What's a European Founder to Do?

Despite the decline in the European VC market, I firmly believe that there are still great opportunities for founders.

Here are 3 strategies for founders to not only survive but thrive in this downturn:

Creative Problem Solving

One of my favorite quotes from my former boss, Marissa Mayer, is "Creativity loves constraint!"

In a challenging climate, founders have the opportunity to be more efficient and focused on long-term planning. They should avoid being reactionary and short-term thinking. By staying in touch with your customers and solving their problems, you can have a personal relationship that big tech companies often lack.

Talent Acquisition

The number one need for many founders is talent. In this competitive environment, it can be extra tough to nail. As a founder, focus on building relationships with highly talented individuals early on and help them understand the mission and vision of your organization.

Additionally, with the recent layoffs in big tech, there is an opportunity to attract experienced individuals who can bring their expertise and playbooks to early-stage organizations.

Efficiency and Innovation

As companies grow, innovation becomes harder. From the beginning, you should focus on efficiency and streamline decision-making processes. This will keep you leaner longer.

Building robust systems for internal communications and fostering a culture of drive and ambition will ensure innovation is baked into every aspect of your company.

The Takeaway?

While the European VC market may be experiencing a downturn, there are still plenty of opportunities for founders to succeed. By embracing creative problem-solving, attracting top talent, and prioritizing efficiency and innovation, founders can navigate the current climate and ultimately thrive in the industry.

If you're a founder struggling with these challenges, I'm here to help. I specialize in working with fast-growth companies to grow, scale, and innovate to increase revenue, attract the right investors, hire competitive talent, and align internal growth strategies.