Two years ago, the venture capital sector denied that it had caused a bubble in the world of startups. Today the data shows that there was. So far in 2023, financing has been corrected downward to reach pre-pandemic levels.
According to a recent report by the British fund Atomico, investment in funds will plummet by around 45% this year, to 45 billion dollars (41 billion euros), compared to 82 billion dollars (75 billion euros) in 2022. , and will sink 55% compared to the 100,000 million in 2021. In Spain, the fall will be somewhat softer, 42%, to 1,400 million euros.
“In the previous two years there was excess liquidity in the market that attracted American and Asian funds to invest in Europe. As the economic situation changed due to the rise in interest rates, these have been withdrawn,” comments Carlos Trenchs, founder of the Barcelona fund Aldea Ventures. According to the report, the weight of US funds in European startups has fallen from 66 to 33% in two years, almost half. “They are the so-called ‘tourist’ funds, which usually do not invest in technology but then did so because the context was right,” adds Jordi Vidal, from the Kibo Ventures fund.
As the graph reflects, the fall is precisely due to the collapse of financing in advanced stages, led by this type of large funds. On the other hand, early-stage investment has held up better. In fact, this has caused the number of new unicorns (startups valued at more than $1 billion) to be reduced to a minimum, with 7 this year, compared to 48 in 2022, 108 in 2021 and 32 in 2020.
“This type of investment may recover in the second half of 2024, as the stock market does as well. The large funds behave at the same time as the stock market, since their objective is that the startups they invest in end up going public,” says Trenchs, who recalls that large IPOs like Arm's are beginning to be seen.
Despite this drop in financing, the Atomico report highlights that the sector is robust, since if the data for 2023 is compared with that of 2020 and 2019 (see graph), investment has grown slightly. Furthermore, the study highlights that the wave of staff cuts has stabilized, motivated by the unfavorable context and the demands of the funds to achieve profitability as soon as possible.
Both investors consulted agree that after the major adjustment in the sector, the funds are acting more rationally. “Now any proposal is analyzed more closely. In previous years, it didn't matter if startups didn't reach profits in 4 or 5 years. Now, although we continue to invest in startups that record losses, we validate that their business is capable of generating cash and has an easy path to becoming profitable,” says Vidal.
According to the investors consulted, the sectors that arouse the greatest interest are those related to deep tech technologies, which are developed in research centers, such as quantum computing, robotics or generative artificial intelligence. Furthermore, they say that the prominence of marketplaces and consumer-focused businesses has been left behind, in favor of products for corporate clients.
