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In this week’s data… climate tech & AI are the future, startup investments are set to rebound, and Estonia is the land of unicorns.

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European Startups in 2024

Happy New Year! Last week we presented the key insights of European startups in 2023. Missed our 2023 roundup? Catch up here

This week, we turn our focus to the anticipated trends and movements in the European startup market for 2024. We will explore the high-growth sectors of AI, fintech & health, a recovery in startup funding, and the emerging European startup hubs.

Startup Insights

Future Startup Sectors 📊

As Europe looks towards 2024, startup funding patterns are likely to continue the shift towards sustainability and tech innovation. Climate Tech has been a key sector for 2023 with the percentage of total investment increasing from 18% to 26.5%, driven by Europe's environmental commitments and government funding.

The increase in AI & Software investments from 16% to 20.5% and Health sector from 13% to 14.5% suggests a strategic pivot towards tech-driven solutions and digital health—a trend that will likely continue to shape Europe's innovation landscape in 2024.

Key Insights

> Sustainability startups are set to lead, due to Europe's commitment to environmental goals and supportive regulations.

> AI & Software's funding growth, from 16% to 20.5%, points to a tech-centric shift in Europe’s startup economy.

> The Health sector's increased funding share suggests ongoing momentum for innovation in digital health and medical technologies.

Featured Startup Digest

How Mistral AI became the tech unicorn of Europe

French start-up Mistral AI emerges as a leader in European artificial intelligence. The AI startup, co-founded in early 2023 has swiftly become a leading competitor to US-based Open AI which launched ChatGPT in 2022. Within eight months, the French startup raised an impressive $385 million with investments from A16Z & Salesforce, valuing it at nearly $2 billion.

The unicorn status of Mistral reflects Europe's growing ambition to establish itself as a key player in AI, challenging the dominance of Silicon Valley. It signals a shift towards growing European AI talent, fostering innovation, and attracting startup investments. Mistral AI's success in a regulated market shows that significant growth and innovation remain achievable within the EU's regulatory framework.

Forecasted Startup Investments 📊

The investment climate for European startups is showing signs of positive momentum heading into 2024. Despite the 45% decline in overall funding during a tough 2023, the quarter-by-quarter data reveals an increase in late-stage investments.

This pattern suggests investor confidence is gradually restoring, particularly in ventures that are primed to scale, with capital likely to funnel into startups positioned for significant expansion and market impact in the coming year.

Key Insights

> With large funds underpinning the investment rebound, an increase in Series C and beyond rounds will likely drive larger investment rounds.

> An upward trend in late-stage investments indicates confidence in the maturing European startup ecosystem.

> The gradual recovery across quarters, despite macroeconomic headwinds, points towards a more robust funding landscape in 2024

Recent Startup News

• CEE Startups Adapt– Central and Eastern European startups focus on profitability amid a funding drought in 2023.​
   

• Robin AI's Major Raise – GenAI legaltech startup Robin AI raises £18m with Temasek's backing.
   

• Startups We Lost in 2023 – Remembering startups that closed in 2023, reflecting on the reasons behind their failures and broader economic impacts.​
   

• Nordic Climate Tech Preference– The Nordics favoured climate tech over AI in 2023 as the more promising sector.

Emerging Hubs 📊

Estonia's emergence as a hub with the highest concentration of startup unicorns in 2023 shows a growing trend where smaller European nations are rapidly becoming focal points for innovation and investment.

Alongside Estonia, Sweden and Switzerland continue to build their reputations as emerging hubs for high-growth startups. This pattern indicates a potential shift in venture capital dynamics for 2024, with investors increasingly looking beyond traditional markets to capitalize on regional talent and favourable regulation in emerging hubs.

Key Insights

> Estonia leads with the highest unicorn-per-capita ratio, indicating a favourable environment for startups, likely to attract increased investment in 2024.

> Sweden and Switzerland, with 2.4 and 2.2 unicorns per million inhabitants, are set to be positioned as key players in the European startup scene.

> The UK's presence on the list despite its relatively large size highlights its scalable startup culture, poised for continued growth.

SearchVentures Insights

In 2024, Europe's startup landscape is set to embrace a significant focus towards sustainability and technological innovation. This shift comes in the wake of a 45% decline in funding during 2023 but is counterbalanced by a noticeable upswing in late-stage investments and the emergence of new innovation hubs, as evidenced by Estonia's notable success.

With a more diverse venture capital distribution, startups in emerging sectors and regions are likely to see greater growth opportunities. As an effect, this will result in a more competitive startup ecosystem across Europe. For investors & founders, the diverse venture capital distribution in 2024 opens up strategic opportunities to navigate emerging hubs and diversify geographical investments.

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See you next week

Cheers,

Odin Lund & Hariprasad Mohandas