Global VC funding down 43% in 2022
2022: A tough year for startups globally as the CVC funding river dries up. The amount of money deployed in startups by corporate venture capital firms (CVCs) fell 43% to USD 98.9 bn in 2022, as investors scaled back activity on rising borrowing costs and fears of an oncoming recession, according to data gathered by business analytics platform CB Insights.
On the bright side: More money into funding rounds. Although the amount of funding disbursed almost halved last year, the number of funding rounds remained more or less the same y-o-y at around 4.9k — the second-highest year for CVC-funded transactions.
IN PERSPECTIVE- 2021 set the bar high: Funding deployed in 2022 was still comfortably above the pre-pandemic norm which saw USD 60-70 bn in annual investment between 2018 and 2020. 2021 was an anomaly year, which saw the huge amounts of monetary and fiscal stimulus deployed in response to the pandemic push CVC investment to a record USD 173.8 bn.
US startups got the biggest chunk of funding, with around USD 7.6 bn spanning across 310 funding rounds. Africa saw only 13 funding rounds, raising just USD 100 mn.
Funding fell across the board: No sector was spared from the funding drought: fintech, retail tech and digital health startups all saw significant drops in funding. Fintech funding dipped 48% y-o-y to USD 18.6 bn while retail tech and digital health both saw investments fall 54%.
VC vs. CVC: VCs obtain funds from institutional investors (or “limited partners”), while CVCs involve companies directly investing their own capital into startups.
It has been a rocky year: Recession fears pushed everyone to cut down on their spending and VCs were no exception. Investors are faced with “geopolitical instability, inflation being more endemic, and having rising interest rates and recessionary fears,” Jeff Grabow, a VC expert at EY, told CNBC.
And the unstable stock market didn’t help: Tech valuations came under severe pressure last year as share prices fell, making it more difficult for startups to raise funds and forcing them to make cutbacks.
Locally, it was a different story. Total funding raised by Egyptian startups grew 35.7% y-o-y in 2022 to reach USD 506.8 mn, despite the economic turmoil of several currency devaluations, rising borrowing costs, and uncertain global conditions.
That doesn’t mean that everything was rosy: StartupLand was met with rising interest rates, falling valuations and the demise of one high-profile startup, which together pushed VCs to ration their investments and adopt more selective positions. Startups had a hard time navigating the economic challenges, with many having to cut costs and restructure their operations.
A better 2023 ahead? Investors are expecting current market challenges to ease off during the second half of the year as VCs face pressure to deploy their capital. Startups are also expected to use up their funds more efficiently, prioritizing steady growth in efforts to avoid the cash crunch many startups struggled with last year.
Not everyone is that optimistic: Grabow tells CNBC that many VCs are bracing for a two-year down period and that startups should not hold their breaths for a lifeline before then. “The hope is in two years, we’ll be through the uncertainty … and you can come out on the other side and catch an uptick,” Grabow said.