The euphoria that the entrepreneurial world experienced in the wake of the digital boom of the pandemic has completely faded this year.
Not because digital habits have ground to a halt, but because the months of easy money have come to an end. One of the main indicators that demonstrates this is the drop in the birth rate of unicorns, start-ups that investors value at more than 1,000 million dollars. It is a symbolic label, but in the entrepreneurial sector it is a milestone.
According to data from the CB Insights portal, reflected in the attached graph, the creation of these companies has fallen to 2018 levels, after experiencing a true record 2021.
The macroeconomic situation has changed, the fall in the stock markets, added to hyperinflation and the rise in interest rates, has caused investors to increase caution, the consultancy report points out. Investor Aquilino Peña, a partner at Kibo Ventures, confirms this: “I don't like to say that there was a bubble, but it is true that start-ups were going through a period of overvaluation. In addition, the times between financing rounds were shortened. If the usual thing was to carry out a capital increase every 18-24 months, in this same period of time two were closed. That triggered the valuation of the companies while they were getting huge sums of money”.
In Europe, the most notorious cases were those of the Hopin (video conferencing) and Cazoo (online car sales) companies, which in just one year of life managed to reach a valuation of 1,000 million. A record that put them in the world spotlight.
But just a year later, Cazoo has lost its unicorn status and in both cases they have announced massive layoffs, with cuts of more than 15% of the workforce. A decision that has spread across the big European start-ups (Gorillas, Klarna).
“Investors are now more demanding and ask investees to reach profitability as soon as possible. When investing money, they also make it more difficult for them, the valuations are lower and, therefore, it is normal that the number of unicorns has fallen, ”says Peña, who acknowledges that now is a good time for funds, since there are opportunities at cheaper prices.
According to CB Insights, the phenomenon has been more pronounced in the United States and Asia, while in Europe the fall has not been as severe. In addition, the consultant indicates that the decrease in investments and operations has occurred in larger companies. On a global scale, the rounds of more than 100 million euros in advanced phase have fallen 30% this year compared to the total of 2021. On the other hand, the type of operations that have resisted better have been those of small size, in companies in initial phase. Guillem Sagué, partner at Nauta Capital, explains that it is logical that mature start-ups suffer more than younger ones: “When the stock market corrects, the companies that notice it the most are those that are closest to a possible IPO . On the other hand, operations in the initial phases are not so affected, since their valuation is determined using more qualitative factors than quantitative ones”.
According to Sagué, there will now be a natural selection in the ecosystem. "Start-ups with solid business models and that have used capital efficiently will come out stronger." Others, on the other hand, "will be forced to close because they will not be able to adapt to the new cycle," he concludes.
