Investment in European tech startups is expected to shrink by a further 39% this year as the global tech ecosystem continues to take a hit.

According to a report by Atomico, venture capital funding of European startups is expected to decline from 83 billion. dollars last year at 51 billion. dollars in 2023. American investors are primarily responsible for this slide. In particular, US funds have been a major source of financing in Europe in recent years, with some of them setting up offices in the bloc in order to increase their activity in the region.

But last year the tech industry was hit hard, with European start-up funding being declines by 22% to 83 billion. dollars from 106 billion. in 2021, according to data from Atomico.

Of course, the report also identifies signs of resilience in this European sector. Among other things, the overall valuation of public and private enterprises in the sector exceeded again the 3 trillion euro mark. dollars, a milestone that was reached in 2021.

However, funding to new companies was less affected, according to the Atomico report. On the contrary, 93% of the total losses of 28 billion Dollars between 2022 and 2023 affects companies at an advanced stage of development.

Shrinking funding is finally forcing technology companies to focus on profitability over growth as investors reassess their attitude towards the industry. Businesses that a few years ago were highly valued are under strong pressure from international factors, such as the Russian invasion of Ukraine and the tightening of monetary policy.

The US Federal Reserve (Fed) and other central banks around the world raised lending rates and reduced the stimulus measures injected during the pandemic in order to reduce inflation. This has forced investors to reassess their positions in loss-making technology companies, whose valuation usually depends on expectations of future funding.

Artificial intelligence is a bright exception of Startups

Despite the significant pressures on the industry, the AI sector has been growing rapidly over the last year. Those startups that are involved in AI and specifically in production AI have benefited significantly from the investment frenzy.

In particular, 35% of the total funding channelled towards AI was channelled towards productive AIstart-ups. This is the highest percentage ever achieved and a leap from previous years.

"We are at the beginning of the so-called new AI technology super cycle," Tom Wehmeier, partner at Atomico, told CNBC. He added that productive AI is driving "a large degree of innovation" and that Europe "has a seat at the table". "It is crucial to create the kind of environment that allows European talent to realise the aspirations of the next super cycle," added Wehmeier.