A strong slowdown for the startup community

October 21, 2022
4
min read
Link copied !

In recent months, there has been a very sharp decrease in news related to startups, which are experiencing hard times with much less investment.

A sharp decrease in the number of unicorns

After a year 2021 which filled with hope many actors of the tech and startup world, the year 2022 has to face many constraints that made investors more cautious. We can take for example the generalized inflation, the various geopolitical conflicts that have marked this year but also the increase in energy prices, both for oil and electricity.

Let's compare the 2 recents months of 2022 with the same months of 2021"

there were only 11 new unicorns in the month (worldwide, including 6 American) which is less than 3 per week. To put this in perspective, in 2021 there were no less than 61, or 50 more!

And in October, the trend seems to be confirmed:

At the end of the 3rd week of October, only 7 unicorns have appeared, still representing a rhythm of about 3 unicorns per week, when October 2021 had seen 48 new unicorns appear. The number of unicorns this month will probably be divided by 4 and this slowdown may last for a few more months.

This may also prove to be a brake on innovation for startups, which will have to postpone their fundraising and lower their valuation requirements, which may jeopardize their growth plans.

How do unicorns deal with this?

Unicorns are mostly financed by fundraising (they sell shares of the company to investors in exchange for immediate financing). This allows them to finance their growth and especially their establishment in new countries and new infrastructures. This step-by-step progression is slowed down during periods like these and startups find themselves with budgetary problems for their future projects.

Unicorns therefore turn to other financing solutions, which allow them to continue their growth.

This can be done in the traditional way, via borrowing, so debt financing. This was done by Bolt, Flexport and Tempus this week.

This can also be done through public investment grants, where the state recognizes the utility of the company and its desire to support innovation. But the amounts seem small compared to a fundraising in hundreds of millions of euros.

Finally, some founders may choose to resell part of their shares, this is called a secondary market: it allows to free up cash quickly and to bring in new investors to help the company

By
Arthur
Unicorns analyst
Share this post