The venture capital sector denied two years ago that it had caused a bubble in the world of startups. Today the data shows that it did. In the year leading up to 2023, funding has been corrected downwards to reach pre-pandemic levels.
According to a recent report by the British fund Atomico, the funds' investment will fall by around 45% this year, to 45 billion dollars (41 billion euros), compared to 82 billion (75 billion euros) in in 2022, and it will sink by 55% compared to the 100,000 million in 2021. In Spain, the fall will be a little softer, by 42%, to 1,400 million euros.
“In the previous two years there was excess liquidity in the market which attracted US and Asian funds to invest in Europe. After the economic situation changed due to the rise in interest rates, these funds were withdrawn", comments Carlos Trenchs, founder of the Barcelona fund Aldea Ventures.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 at the time they did so because the context was supportive", adds Jordi Vidal, from the Kibo Ventures fund.
As the chart reflects, the decline is precisely due to the decline in late-stage funding, led by this type of large-scale fund. In contrast, 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 drop to the bare minimum, with 7 this year, compared to 48 in 2022, 108 in 2021 and 32 in 2020 .
"It may be that in the second half of 2024 this type of investment will recover, as the stock market does as well. The big funds behave in a similar way to the evolution of the stock market, since their objective is that the startups in which they participate end up going public", says Trenchs, who remembers that they are starting to see big exits like that of Arm.
Despite this drop in funding, Atomico's report highlights that the sector is robust, as if you compare 2023 data with 2020 and 2019 (see graph), investment has grown slightly. In addition, 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.
The two investors consulted agree when they say that after the big adjustment in the sector, the funds are acting more rationally. "Any proposal is now analyzed more carefully. In previous years, it didn't matter if startups didn't turn a profit in 4 or 5 years. Now, even though we continue to invest in loss-making startups, we validate that their business is capable of generating cash and has an easy path to profits," comments Vidal.
According to the investors consulted, the sectors that arouse the most interest are those related to deep tech technologies, which are developed in research centers, such as quantum computing, robotics or generative artificial intelligence. In addition, they say that the role of marketplaces and businesses focused on the consumer has been left behind, in favor of products for the corporate client.
