The digital sector begins the year with hopes of leaving behind everything that happened in 2023, one of the worst years of the last decade, if not the worst.
Investment has slowed down severely on an international scale and one of the most obvious consequences has been the plummeting creation of new companies valued at more than $1 billion, known in the jargon as unicorn companies. These high-profile start-up companies are considered the spearhead of the innovative sector and also mark the prestige of a country’s entrepreneurial ecosystem. For example, Spain has 10, while the United Kingdom, one hundred, and Germany, 54.
Due to the drop in investment, barely 88 unicorns were born in 2023. According to data compiled by PitchBook, this is almost four times lower than in 2022 and seven times lower than in 2021. Without updated results for December, the number of births of this kind of companies is among the records of five years ago: in 2017 there were 87, and in 2018, 156. The sharp drop, reflected in the graph, it is explained by a change in the investment cycle of venture capital funds, since these companies determine the valuation of emerging companies when they raise capital.
“Caution has set in among investors due to the rise in interest rates and the drop in stock market valuations of technology companies in the United States”, points out Hugo Arévalo, investor in large Spanish digital companies such as Glovo, Tuenti or Cabify.
Another relevant consequence is that, given this scenario, the funds have been dedicated to investing in the emerging companies that were already participating to ensure that the business survives and, more especially, to keep the valuation intact until the next round of investment But not all have succeeded. Many companies that were considered a unicorn a year or two ago have ceased to be so, as they have needed financing and have closed rounds that have significantly lowered their valuation. One of the most paradigmatic cases has been that of the emerging British company Hopin. Its valuation has gone from 1,440 to 14 million euros in just two years. The company is dedicated to streaming video services, which were booming during the pandemic, but there are other cases. In Spain, for example, Wallbox and Glovo have also lost the prestige of being a unicorn company. And, as a result, Barcelona has lost two figures who were born in the city.
Investment data in emerging companies confirm the caution of the venture capital sector. According to a report by the Atomico investment fund, in Europe investment has fallen by 45% in 2023, to 41,000 million euros, compared to 82,000 in 2022. In Spain, the fall has been slightly lighter, from 42%, up to 1.4 billion. “As a result, the funds have been more selective when it comes to choosing emerging companies to invest in and we have demanded that they prioritize profitability over growth in order to get the return on investment as soon as possible”, comments Aquilino Peña, co-founder of the fund Kibo Ventures.
Faced with the bearish situation, IPOs of emerging companies have also slowed down, as have sales to other companies, two key moments in which funds make cash and obtain capital to then invest. “We hope that in 2024 the context will improve and the financing wheel will be reactivated. Technological values ??on the stock market have started to recover and there may be significant IPOs that will reactivate the cycle”, points out Peña.
In this sense, the investor explains that the context of austerity will not last forever, since the sector behaves cyclically. For this reason, in the medium term, the euphoria of the pandemic years will return (then any digital business traded up) or, at least, the optimism of the years before will return. “Artificial intelligence and cyber security could be the propellants”, concludes investor Hugo Arévalo.
