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The European tech industry saw $400-billion in value wiped out this year and an 18 per cent decline in venture capital funding, according to a report from venture capital firm Atomico.

The combined value of public and private tech firms in Europe fell to $2.7-trillion, down from $3.1-trillion in late 2021. High interest rates, the war in Ukraine, and a shrinking talent pool were among the reasons cited for the drop.

Market pressures forced a number of Europe’s best-known companies to raise funds at a discount to their once sky-high valuations. For example, Swedish payments firm Klarna Bank AB raised $800-million at a valuation of $6.7-billion, an 85 per cent drop from its 2021 price tag of $46-billion.

“The European tech ecosystem is facing the most challenging macroeconomic environment since the global financial crisis,” Tom Wehmeier, partner at Atomico, told Reuters.

Venture capital funding in Europe was down to $85-billion for the year, based on data collected across 41 countries, an 18 per cent decline from the $100-billion raised in 2021.

The number of new “unicorns” – firms valued at $1-billion or more – also fell this year, down from 105 to just 31 in 2022.

Despite these challenges, Atomico found industry insiders remain enthusiastic. In a survey of founders and investors on the continent, 77 per cent said they were either as enthusiastic, or more so, about the future of the European tech industry than in 2021.

“This is a new reality,” Wehmier added. “The financial markets have changed, and with that, the expectations of everyone working within the European tech industry need to evolve.”