The digital sector starts 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 been severely slowed down internationally, and one of the most obvious consequences has been the plummet in the creation of new companies valued at more than $1 billion, known in jargon as unicorn companies. These large startups are considered the spearhead of the innovative sector and also mark the prestige of a country’s entrepreneurial ecosystem. For example, Spain has ten, while the United Kingdom has one hundred and Germany has 54.
Due to the drop in investment, only 88 unicorns will have been born in 2023. According to data collected by Pitchbook, this is a figure that is almost four times lower than that of 2022 and seven times lower than that of 2021. In the absence According to updated results for the month of December, the number of births of this type of company is among the records from more than five years ago: in 2017 there were 87 and in 2018, 156. The resounding fall, reflected in the graph, is explained by a change in the investment cycle of venture capital funds, since these companies determine the valuation of startups when they carry out capital increases.
“Caution has been established among investors due to the rise in interest rates and the fall in stock market valuations of US technology companies,” says Hugo Arévalo, an investor in large Spanish digital companies such as Glovo, Tuenti or Cabify.
Another relevant consequence is that, given this scenario, the funds have dedicated themselves to investing in the startups that were already participating to ensure that the business survives and, more especially, to keep its valuation intact until the next investment round. But not all of them have achieved it. Multiple companies that were unicorns one or two years 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 British startup 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 that comes with being a unicorn company. And, consequently, Barcelona has lost two references who were born in the city.
Investment data in startups confirms the caution of the venture capital sector. According to a report by the Atomico investment fund, in Europe investment has plummeted by 45% in 2023, to 41,000 million euros, compared to 82,000 million in 2022. In Spain, the fall has been somewhat lighter, 42% , up to 1.4 billion. “As a consequence, the funds have been more selective when choosing the startups to invest in and we have demanded that they prioritize profitability over growth to obtain the return on investment as soon as possible,” comments Aquilino Peña, co-founder of the Kibo Ventures fund.
Given the bearish situation, IPOs of startups have also slowed down, as well as sales to other companies, two key moments during which funds make cash and obtain capital to invest. “We hope that in 2024 the context will improve and the financing wheel will be reactivated. Technology stocks in the stock market have begun to recover and there may be significant IPOs that reactivate the cycle,” says Peña.
In this sense, the investor points out that this context of austerity will not last forever, since the sector behaves in a cyclical manner. Therefore, in the medium term, the euphoria of the pandemic years will return (back then any digital business was trading upwards) or at least the optimism of previous years will return. “Artificial intelligence and cybersecurity could be the two driving forces,” concludes Arévalo.