Venture capital punctures the bubble in European start-up valuations

The European digital ecosystem is beginning to notice the turbulence that the technology sector in the United States is experiencing, which has seen the Nasdaq fall by 30% so far this year and has seen massive layoffs in Silicon Valley start-ups (the last of which , Caravan, with the cut of 2,500 jobs).

NewsEditor
NewsEditor
22 May 2022 Sunday 15:51
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Venture capital punctures the bubble in European start-up valuations

The European digital ecosystem is beginning to notice the turbulence that the technology sector in the United States is experiencing, which has seen the Nasdaq fall by 30% so far this year and has seen massive layoffs in Silicon Valley start-ups (the last of which , Caravan, with the cut of 2,500 jobs).

In Europe, the situation has not reached the same seriousness, although investors warn of a change in cycle. "We have reached the end of the bubble," says Lina Chong, an investor in the Berlin fund Target Global, with a branch in Barcelona. Chong says that start-up valuations had reached highs in recent years. “The high liquidity in the market and the interest in digitization as a result of the pandemic had swollen the operations. If it was usual to value a technology software start-up by multiplying its income by 10 or 15 times, in the last two years these values ​​had been doubled or even more”. The trend is over. In recent months, the multiples are 5 or 6”.

This is verified by Carlos Blanco, founder of Ecomenda VC. “Valuations are falling by half in software (SAAS) and business services (B2B) start-ups. In the last two years, the multiples were between 30 and 50 and now they are between 8 and 15”. However, for the Barcelona investor, the ecosystem is not experiencing the end of a bubble but the market's own corrections in the face of "exaggerated growth" in valuations.

The investment funds, key to financing the growth of these digital companies, are sensitive to the situation, and especially to the evolution of the stock markets. “The venture capital that invests in start-ups is nourished by contributions from investors of all kinds: from family companies and also large corporations, who at the same time allocate part of their resources to investing in the stock market. If this falls, it is normal for them to demand more prudence in the rest of their investments”, reasons Chong. For Aniol Brosa, ICT partner of the management company Inveready, "macroeconomic contractions always end up having an impact on venture capital, that is why we are now more cautious."

The prudence demanded by investors translates into falling valuations, but also "in demanding a more conscious spending policy from entrepreneurs," says Chong.

In Europe, there have not been massive layoffs like in Silicon Valley, but there have been some cases. Like that of Hopin, a British video call platform that has cut 138 jobs (12% of the workforce) or the also British Pollen (200) and the Swedish firms Kry, Trustly or Storytel, with more than a hundred layoffs each. , according to the portal Layoffs.fyi.

In Spain, there have been no redundancies at this level yet, but investments are being made more cautiously. Carlos Blanco explains it and also Oriol Pinya, partner of Abac Capital and president of the venture capital association SpainCap (formerly Ascri). “It is clear that the private market is experiencing a moment of corrections due to its links with listed markets. The uncertainty now causes the investor to think more about the investments and look at each operation in more detail, ”he points out.

Despite the new scenario of prudence and less access to financing, the funds believe that it is a good time to invest. "Now, we can carry out operations at lower prices in projects that are just as interesting," concludes Chong, while admitting that now, the most affected will be the start-ups because they will receive less money.


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