Investment in European tech start-ups is expected to fall another 39% this year as the international tech ecosystem continues to suffer. Venture capital funding for European startups is expected to fall from $83 billion last year to $51 billion in 2023, according to a related report from Atomico. US investors are largely responsible for this downturn. In particular, US funds have been a key source of funding in Europe in previous years, with some of them opening offices in the bloc to boost their activities in the region.

But the tech industry was hit hard last year, with startup funding in Europe falling 22 percent to $83 billion from $106 billion in 2021, according to data from Atomico.

Of course, the report also points to signs of resilience in the specific European sector. Among other things, the total valuation of public and private companies in the sector again exceeded 3 trillion. dollars, which is a major milestone reached in 2021.

However, according to Atomico’s report, funding for new companies was less affected. By contrast, 93% of the total $28 billion loss between 2022 and 2023 is at an advanced stage of development.

AI startups continue to attract investment capital.

Funding cuts are ultimately forcing tech companies to focus on profitability over growth as investors rethink the industry. Companies that had the highest valuation a few years ago are under strong pressure from international factors such as the Russian invasion of Ukraine, as well as monetary tightening.

The U.S. Federal Reserve (Fed) and other central banks around the world have raised lending rates and have begun to cut back on pandemic support measures to bring down inflation. As such, investors have been forced to re-evaluate their positions in money-losing technology companies, whose valuation usually depends on future funding expectations.

Despite the significant challenges facing the industry, the field of artificial intelligence has grown at a rapid pace in the past year. Those startups that deal with artificial intelligence and especially productive AI have benefited significantly from the investment frenzy. In particular, 35% of total AI funding went to productive AI startups. This is the highest percentage ever achieved and is a jump over previous years.

“We’re at the start of what’s called a new AI technology supercycle,” Tom Wemeyer, a partner at Atomico, told CNBC. He added that productive AI is driving “a lot of innovation” and that Europe is “sitting at the negotiating table”. “It is very important to create an environment that allows European talent to fulfill the expectations of the next supercycle,” he added.