After a euphoric year, marked by record revenues, technology start-ups are sailing between more expensive, less abundant money and a recession in sight.
“We’re back down to earth,” notes Charlie O’Donnell, founder of investment firm Brooklyn Bridge Ventures, after a 2021 vintage during which “investors got carried away.”
Last year, around $311 billion was raised by venture capitalists, that is, companies investing in high-growth start-ups, more than double what 2020 was, already a record year, according to the company CB Insights.
“There are many external factors impacting the market,” said Sunita Patel, business development manager at Silicon Valley Bank, citing rising interest rates, geopolitical conditions and sluggish financial markets.
As early as last May, the investment and consulting firm Y Combinator warned start-ups looking for short-term funding: “Your chances of success are extremely low, even if your business is doing well. We recommend that you change your plans.” and wait.
Because of this deteriorating climate, “we see companies’ valuations melting”, particularly those close to an IPO, says Sunita Patel.
The Instacart shopping delivery platform is now estimated to be worth $13 billion, according to various media, up from $39 billion in March 2021.
As for self-driving software flagship Mobileye, it went from $50 billion to $17 billion between last December and its debut on Wall Street last month.
-ends up laughing-
However, the situation is nowhere near as alarming as it was in 2000, or even 2008, the two technology dark periods since the advent of the Internet.
Not all the amounts raised since 2020 have yet been invested, “so there is still a lot of capital accessible to companies in the sector”, guarantees Sunita Patel.
“It helps that we’re still a long way from a possible IPO,” notes Rob Devlin, co-founder of Metalenz, a start-up specializing in meta-optics, which makes it possible to noticeably reduce the size of a smartphone camera.
This small Boston company just raised $30 million from investors. It had several qualities sought after by venture capitalists: a product already on the market, next in boxes, and customers ready to buy.
It also depends on the sectors.
Securiti, a firm specializing in data management and IT security, raised $75 million in early October, at a valuation above its last funding round in 2019.
For Rehan Jalil, its managing director, cybersecurity “is not affected, for now”, by the bad wind blowing at social networking companies in particular.
“A lot of mainstream platforms were raising funds based on arguments like + it’s trendy, it’s cool, it’s fun +. Like the Clubhouse, for example”, observes Lee Edwards. “It became more difficult for them.”
According to this investor from the Californian fund Root Ventures, innovation in services and equipment for companies, from productivity software to task automation, is on the rise.
– “Fundamentals” –
“When you have less and less money to recruit employees, productivity becomes essential”, he explains.
“And when you think about our tensions with Russia, or between China and Taiwan … a lot of people are talking about relocating industries, including President Joe Biden who is encouraging investment in microchip manufacturing in the US.”
But even for growing sectors, there is a “return to fundamentals”, summarizes Sunita Patel – that is, discipline and austerity of rigor in economic models.
Venture capitalists are “taking longer” to make up their minds, and it often takes three to six months to close a deal, “which used to be the norm,” describes Jenny Rooke of investment firm Genoa Ventures.
“We need to do a lot more meetings in Silicon Valley and talk to more people,” says Rehan Jalil.
And the weather could still get cold, according to startups and experts.
“There is turbulence at a global level, (…) that’s why we chose to raise funds now”, says Jalil.
Not all companies will survive the storm.
“Many entrepreneurs will tell themselves that if they couldn’t find funding it’s because of the crash,” says Charlie O’Donnell, “but really they wouldn’t have found any in any context.”