Biweekly VC Insights by Uniborn #27

Inside: A ride-or-die hack for AI-focused investors and new research on sentiment in the European VC market
Barbara Krassner
🇬🇪 Uniborn Team
3 min read

It’s been two weeks since our last update and felt like an eternity (with so much distressing news about wars these days, no wonder). In that time, we've gathered some captivating investing data. Subscribe — and let's start exploring.

🔥 European investors' pulse has been taken again

While the current landscape is certainly not the most VC-welcoming, there is a glimmer of hope piercing through the clouds. A comprehensive survey of 472 venture capitalists conducted by the EIF and Invest Europe reveals hope is just around the corner.

Here are the key findings:

- In the first half of 2023, European VCs secured €7 billion in funding, half of what they accomplished last year. Similarly, in comparison to 2022, investment in startups also fell by half — to €6 billion.

- Two-thirds of venture capitalists are witnessing a devaluation of their portfolio companies. A notable 43% express concerns about the potential insolvency of 1% of their portfolio.

- The investment downturn has made the search for co-investors an even more daunting task, with nearly 40% of respondents characterizing it as "very difficult" or "difficult." Fortunately, we at Uniborn and other networking and syndication services are well-equipped to provide solutions to this predicament 😉. 

European fundraising environment. (Image: EIF)
European fundraising environment. (Image: EIF)

In a nutshell, an astounding 70% of venture capitalists surveyed have labeled today's fundraising environment as "bad" or "very bad." However, nearly 80% of them remain optimistic about the prospects over the next 12 months. In stark contrast to the previous year, when only 15% expressed hope or caution.

On the bright side, in a sense, the industry is becoming more accessible and less competitive. Notably, 45% of venture capitalists attest to a decrease in startup competition, and a remarkable 77% report a decline in entry prices. Moreover, half of the venture capitalists have faith that exit conditions will improve in the upcoming year.

The full EIF report can be found here.

🔥 Venture spring heralds are: SaaS, clouds, and Gen AI

Funding for European SaaS and cloud startups is returning to the pre-Covid era levels. In fact, it's slightly above the decade-long average.

In 2023, European and Israeli cloud services managed to attract $11 billion in investment, marking a return to form. True, this is down significantly from 2021's $31 billion, which was inflated by the pandemic-induced tech frenzy. But it's also a jump from 2020's $9 billion, thanks mainly to generative AI. Despite geopolitical and economic uncertainties, the technology is boosting startups that rely on cutting-edge software and customization. 

So among the prominent players in the European VC industry, Gen AI and vertical SaaS ventures are emerging as the darlings, outpacing their previous year's funding. Besides them, only the "security" category has seen an upswing. 

Image: Accel
Image: Accel

Yet, experts are sounding a warning: Europe must intensify its investments in transformative technologies such as Gen AI to secure a future.

The full Accel study can be found here.

🔥Not only startups attract investors with the technology. Investors do the same with startups

In today's data-driven landscape, venture capitalists are undergoing a transformation. Their role extends beyond financial investment; they must also focus on delivering tangible value to the startups in their portfolios.

And one of the most critical pieces of value for participants in the AI marathon is the graphics processing units (GPUs) needed for computation.  As you know, the two ways to get them are to (1) build your own computing infrastructure or (2) rent access through cloud providers such as industry giants like Amazon Web Services or smaller players like Lambda. However, these options come at a significant cost, especially for startups. Furthermore, the demand for chips and processing infrastructure is so high that emerging companies cannot afford the wait.

As highlighted by Sifted, this leads to an intriguing shift: investing in companies associated with chip manufacturing and supercomputing is becoming the new strategic move for venture capitalists. By doing so, they can offer other core startups within their portfolio preferential access to critical computing power. 

The full Sifted article can be found here.

Cover image: Unsplash

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