Sifted - Economic downturns don't hit evenly

Good morning there,

European tech still has a way to go to recover from the icy funding environment in the last two years. In some parts of the continent, like central eastern Europe (CEE) things seem to be in the ‘getting worse’ phase before — and if — they get better. Today my colleague Zosia Wanat digs into fresh Q1 funding data for the region — where countries like Poland saw the biggest drop in the number of funding rounds since 2018 — and examines one key reason why the region might be struggling. 

Elsewhere today, we take a look at fresh investment for a startup founded by former JPMorgan and UiPath execs that’s working on measuring the effectiveness of conservation projects, a German battery storage startup’s new round and the 20 quantum computing startups to keep an eye on.

— Anne Sraders, senior reporter

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Economic downturns don't hit evenly

The slowdown in VC investment has been acute across Europe — but in some parts more than others. 

In CEE, startup funding fell by 68% from $3.5bn in 2022 to $1.2bn in 2023, according to Dealroom. In Europe as a whole, funding dropped by 38%.

This year isn’t looking any better. In the first quarter of 2024, CEE startups raised $292m — putting the region on track to raise a similar amount to last year. 

It’s not just VCs that have pulled back from investing in CEE startups — public funds have too. 

In Poland and Hungary — ecosystems which have been hugely reliant on public funds — government investment in VCs and startups almost completely dried out in 2023. In Poland, 81% of VC rounds between 2013 and 2023 had government involvement. Meanwhile, in 2021, 70% of VC-backed teams in Hungary raised money purely from government or EU-backed funds, according to the Hungarian Startup Report 2021.

In Poland, Q1 2024 saw the largest drop in the number of investments since 2018. Only 30 startups raised VC funding, in comparison to 128 in the same period last year, according to PFR Ventures, the country’s largest state-owned fund of funds. The amount raised, 173m złoty (€40m), was also one of the lowest totals in the last five years. 

Maciej Ćwikiewicz, PFR Ventures’ CEO, tells Sifted that “one of the main [reasons for the slowdown] is certainly the delay in the implementation of EU-funded schemes for VCs”.

PFR Ventures allocated the last batch of EU funds to 34 early-stage VCs, to the tune of €347m between 2017-2023. The next set of funding, which was meant to go live by the end of 2022, was supposed to pump €426m into another 40 investors. But it was held up by the Polish ministry responsible for allocating EU funds, which left many VCs struggling to close their funds, and early-stage startups unable to find investors. 

In Hungary, investment raised fell by 60%, from a record €180m in 2022 to just €65m in 2023, according to the report. Deal count also dropped from 30 to 23. According to a report published this week by Startup Hungary, the country’s startup association, that downturn coincided with the end of several crucial government and EU-backed funding programmes.  

Hiventures, a government fund, has almost completely shut down most of its programmes focusing on early-stage investments, says Csongor Bias, managing director of Startup Hungary — partly due to frozen EU funding.

Can the odds change in 2024? In Poland, PFR Ventures should soon start deploying EU money again — its selection process is ongoing and the first VCs should receive investment by the end of Q3. But it will take months, if not years, before its impact will be seen on the market. Ćwikiewicz says that he “is not expecting any substantial increase in the Polish VC market in 2024”. 

Bias also doesn’t expect to see startup investment in Hungary return to 2022 levels anytime soon — despite a hot early-stage fundraising scene. “Although there are fewer deals, the total value of early-stage deals was twice as much as in 2022, and we see an increasing number of pre-seed and seed rounds that are more aligned to regional benchmarks with the participation of international investors, ex-founders and operators,” he says. Startups such as text-to-video generative AI startup Colossyan, cloud-based collection and curation provider Axoflow and food waste startup Munch are good examples of that trend. 

This leaves me wondering: are the public money schemes, which are supposed to boost local VC ecosystems, doing their job well? Could this financing gap be an opportunity for international VCs? Should GPs in developing ecosystems wean themselves off public capital? I’m all ears. 

 — Zosia Wanat, senior reporter

💰 Former Grover CFO’s battery storage startup Terra One raises $7.5m. The round was led by PT1 and neosfer. Aleph Alpha backer 468 Capital, N26 cofounder Maximilian Tayenthal, as well as Andreessen Horowitz and Hedosophia’s scout funds also participated. 

• Terra One is tackling the issue of inefficient energy grids. Its solution is storing renewable energy generated during periods of low demand, and releasing it to the grid when demand is high.
• Other battery storage companies in Europe include Field in the UK, and Sweden’s Polarium and Ingrid Capacity. 

💸 Scoop: Treefera, a forestry data platform founded by former JPMorgan and UiPath execs, has raised $12m in funding, led by AlbionVC. The platform measures the effectiveness of conservation projects and the impact of carbon-credit related schemes. 

• Treefera uses satellite and drone images, from sources including NASA and the European Space Agency, to map the world’s forests. It’s branching out into mapping kelp and algae blooms too. 

• It’s one of several new startups that popped up hoping to restore trust in carbon credits after a series of investigations last year questioned the schemes’ validity.

👀 Sifted has identified Europe’s 20 startups to watch in quantum computing, based on the strength of the companies’ investors, founding teams and their hiring progress. The research is available to Sifted Pro subscribers, but you can also get a free trial by filling in this form.

🤝 Why investors have a rare opportunity to back startups on their terms. (Sponsored by Moonfare)

💪 I’m an ex-founder — here’s how I’d build my company again with GenAI. (Sponsored by AWS)

Is your startup one of central Europe's fastest-growing?

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Berlin-based Parloa, which uses AI to automate customer service in call centres, raised $66m in Series B funding. Altimeter Capital led the round and was joined by investors including EQT Ventures, Newion, Senovo, Mosaic Ventures and La Famiglia.

Esslingen, Germany-based MARK-PILOT, a pricing software that helps companies price and sell spare parts, raised $43m in Series A funding. Insight Partners led the round and was joined by Capnamic.

Oss, Netherlands-based Flindr Therapeutics, which is developing precision cancer treatments, raised €20m in Series A funding. V-Bio led the round and was joined by investors including Johnson & Johnson Innovation, QBIC Fund, Flanders Future Tech Fund, Curie Capital, Oncode Oncology Bridge Fund, Swanbridge and BOM.

Munich, Germany-based neurocare, which provides a mental health digital platform for clinicians to provide personalised treatment, raised €16m in funding from TVM Capital Healthcare.

Berlin-based goodcarbon, an investment platform that enables companies to support nature conservation projects in exchange for carbon credits, raised €5.3m in funding. Ocean 14 Capital led the round and was joined by investors including Silverstrand Capital, Planet A Ventures, 468 Capital and Greenfield Capital.

Cardiff-based PeppercornAI, which develops conversational AI for the insurance industry, raised £3.3m in funding from investors including Wealth Club, EHE Ventures and Angels Invest Wales.

Copenhagen-based Rodinia Generation, which develops software and technology to combat clothing overproduction, raised €3m in funding from investors including Climentum Capital and the Export and Investment Fund of Denmark (EIFO).

London-based Camion, which helps real estate and infrastructure investors assess property to develop for electric vehicle charging, raised €2.7m in pre-seed funding. EQT Ventures led the round and was joined by investors including First Look Capital and RitMir Ventures.

Berlin-based Cultimate Foods, which is developing an alternative fat ingredient for plant-based meat products raised €2.3m in seed funding. High-Tech Gründerfonds led the round and was joined by Life Science Valley Wachstumsfonds, b.value AG, Kale United and Big Idea Ventures.

London-based Blue Skies Space, which is launching low-Earth orbit satellites to provide scientific space data, raised £2m in funding from investors including SPARX Group and SFC Capital.

Tallinn-based 10Lines, which is developing autonomous pavement marking robots, raised €1.5m in funding. Tera Ventures and Karistaled the round and were joined by investors including Butterfly Ventures.

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