Unicorns are going through a birth crisis with numbers similar to the time when their presence was just beginning to gain ground in the market. The creation of these technological companies valued at more than 1,000 million is in low hours.
According to data from the first quarter, just 18 startups won this title worldwide, compared to 153 in the same period of the year 2022 or 119 in the financial year 2021. It is a result that is practically at the level of first quarter of 2017, according to data collected by the Pitchbook consultancy. “We are facing a stage of correction after the investor euphoria of the pandemic years and low interest rates. Investors have introduced caution in the face of an unfavorable global context”, points out Jaime Novoa, partner of the investment fund K-Fund.
As the chart shows, the landscape for startups has changed virtually overnight. Coinciding with the war in Ukraine and skyrocketing inflation in major developed economies, the birth of new unicorns began to collapse in mid-2022 and the results worsened with rising interest rates, falling stock markets and the crisis in consumer demand.
“The era of easy money is over, and that’s why operations are now analyzed with a magnifying glass and profitability is prioritized over growth”, points out Jordi Vidal, investor in the Kibo Ventures fund.
It’s symptomatic that many tech companies have seen massive layoffs due to investor demands. And also that large companies that at the beginning of 2022 were at the peak have adjusted their valuations significantly downwards. Among the most recent cases is Stripe, a payment processing platform that has seen its value fall in half in the last round of investment, as it has gone from 95,000 to 50,000 million dollars. Or also Klarna, the Swedish giant of installment payments, whose valuation has collapsed by 85% and has gone from 46,000 to 6,700 million.
Among venture capital funds there is a reluctance to use the word bubble to designate the euphoria experienced in 2021 and part of 2022. “It is a very ugly word”, admits Vidal, but at the same time ensures that many operations that were closed in they didn’t make sense during that period and that now the market is reaping the benefits. “Currently, the situation is healthier for both investment funds and entrepreneurs. Business viability is better analyzed and meaningless valuations are not carried out. Therefore, we have returned to a more normalized situation”, points out Novoa, who admits that during the pandemic months valuations of up to 100 times sales were attributed while now the multiples are from 6 to 15 times, following trends in the stock market .
How long will the situation last? It is an unknown that no one can answer for sure. According to Vidal, it will extend throughout 2023 and prudence will even last in 2024. “Startups will have a hard time raising money and this will not interest them too much either, since their valuation will be low and the money they will get will be more limited In fact, if a year ago they raised money to spend in one year, now the term is extended to two years”. Instead, the funds, which say they have no difficulty in continuing to raise money, have before them an opportunity to invest at a good price.
