After the euphoria, tech start-ups are coming back to earth

“We’re back on the ground”, said Charlie O’Donnell, founder of the investment company Brooklyn Bridge Ventures, after the 2021 vintage in which “investors were carried away”. (Photo: 123RF)

New York — After a euphoric year, marked by record fundraising, tech start-ups are navigating between more expensive, less abundant money and a recession in sight.

“We’re back on the ground”, said Charlie O’Donnell, founder of the investment company Brooklyn Bridge Ventures, after the 2021 vintage in which “investors were carried away”.

Last year, venture capitalists raised about US$311 billion, meaning investment in high-growth start-ups, more than double 2020, which was already a record year, according to CB Insights.

“There are many external factors affecting the market,” said Sunita Patel, business development manager at Silicon Valley Bank, citing rising interest rates, geopolitical conditions and sluggish financial markets.

Last May, the investment and consulting company Y Combinator warned start-ups looking for short-term financing: “Your chances of success, even if your business is doing well, are very low. We recommend that you change your plans” and wait.

Because of this deteriorating climate, “we are seeing valuations of companies melting”, especially those close to an IPO, says Sunita Patel.

The Instacart shopping delivery platform is now estimated to be worth 13 billion dollars, according to some media, against 39 billion in March 2021.

As for the self-driving software flagship, Mobileye, it went from $50 billion to $17 billion between last December and its debut on Wall Street last month.

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However, the state of affairs is far from being as alarming as it was in 2000, or even in 2008, the two dark ages of technology since the advent of the Internet.

Not all the amount raised since 2020 has been invested, “so there is still a lot of capital available to companies in the sector”, assured Sunita Patel.

“It helps to still be far enough away from a possible IPO,” says Rob Devlin, co-founder of Metalenz, a start-up specializing in metaoptics, which dramatically makes it possible to reduce the size of a smartphone camera. .

This small company in Boston just raised 30 million US dollars from investors. It has several characteristics that venture capitalists seek: one product on the market, the next in boxes and customers ready to buy.

It also depends on the sectors.

Securiti, a company specializing in data management and IT security, raised US$75 million in early October, with a valuation increase from its last funding round in 2019.

For Rehan Jalil, its director general, cybersecurity is “not affected, at the moment”, by the bad wind blowing social network companies, in particular.

“Many mainstream platforms raise funds based on arguments like ‘it’s trendy, it’s cool, it’s fun’. Like the Clubhouse for example”, notes Lee Edwards. “It became more difficult for them.”

According to this investor of the Californian fund Root Ventures, innovation in services and tools for businesses, from productivity software to task automation, is increasing.

“Basics”

“When you have less money to recruit employees, productivity becomes important,” he explains.

“And when you think about our tensions with Russia, or between China and Taiwan … a lot of people are talking about shifting industries, including President Joe Biden, who is encouraging investment in microchip manufacturing in United States. United”.

But even for growth sectors, there is a “return to basics”, summarizes Sunita Patel – especially discipline and austerity of rigor in economic models.

Venture capitalists “take a long time” to decide, and often take three to six months to close a deal, “which used to be the norm”, describes Jenny Rooke, of the investment company Genoa Ventures.

“We need to do more meetings in Silicon Valley and talk to more people,” said Rehan Jalil.

And the climate could still cool, according to start-ups and experts.

“There is chaos at the global level, (…) so we chose to raise funds now,” said Mr. Jalil.

Not every business will survive the storm.

“A lot of entrepreneurs will tell themselves that if they can’t find financing, it’s because of the crash,” says Charlie O’Donnell, “but in reality, they can’t find anything without context.”

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