“Life can only be understood backwards, but it must be lived forwards.”
The approach to life suggested by the Danish theologian and philosopher Søren Kierkegaard could, in some way, also be adopted in trying to interpret the evolution and the dynamics of the VC market.
We are far from the figures that characterized VC funding in 2021 and actually 2023 has shown a significant decline in VC commitments, with nearly 70% fewer investments compared to the average of the previous decade, as indicated by a comprehensive analysis of over 10,000 limited partner (LP) commitments to VC in Europe and the U.S. from PitchBook Data.
High-interest rates, uncertainty about the economy due to the geopolitical situation, in particular the Russia-Ukraine war, inflation spiking, and the lingering aftermath of bank failures are among the reasons for this slowdown. These factors have had a deep impact on society, the economy in general, and, obviously, the startup ecosystem too.
As far as Spain is concerned, especially in the last years, the startup ecosystem has been particularly active, attracting significant investment and managing to remain stable even in critical periods such as the aftermath of the COVID-19 pandemic.
In January 2013, in Spain the Law for the Promotion of the Startup Ecosystem came into effect, encouraging the creation of startups in the country and contributing to a vibrant and robust startup scene.
Homegrown unicorns such as Factorial, Domestika, and TravelPerk, have driven the country to rank 6th in Europe and 16th in the world for total investment raised in 2022.
What does Q4 2023 have in store for the startups’ ecosystem in Spain?
Miguel Arias, General Partner at K Fund and the leader of Leadwind, has shared his views about the Spanish VC scenario. Miguel is positively convinced that Q4 will bring a resurgence of VC in Spain..
The resurgence of VC in Q4
How corporations and tech giants are acquiring startups
A few days ago, I was writing about the possible evolution of financing rounds in Q4 2023, but there’s an interesting effect I didn’t mention. It’s highly possible that we will witness a resurgence of M&As: the acquisition of startups by corporations and tech giants.
Companies with healthy balance sheets and hundreds of millions of dollars in cash will have a significant strategic card to play in the coming months by acquiring startups. Coinciding with the wave of fundraising efforts that will be attempted starting in September, many startups will have no choice but to seek early exits, and corporations will be able to find interesting technologies and strong teams at reasonable costs.
Although it won’t be imaginable to engage in the multiples arbitrage as in past years –where it was possible to buy startup revenues at multiples lower than those of publicly traded companies – the increase in Nasdaq valuations in 2023 (+40%) and, above all, the fact that many investors will want to provide some liquidity to LPs who are a bit more stressed than usual, will shift the negotiation power into the hands of buyers.
The case of scale-ups
Likewise, scale-ups that have raised tens of millions and are encountering some difficulty in maintaining annual growth rates of 2-3x can use part of that cash, or their shares at the last valuation round (effectively using favorable multiples arbitrage) to acquire struggling companies or those without access to funding.
They can also use that cash to make stronger bets on marketing and sales (as long as the business’s unit economics support it and with an eye on profitability) and thus gain market share at a time when many competitors will have to make adjustments. Capital has once again become a strong competitive advantage.
Market maturity
In Spain, the startup ecosystem has matured by leaps and bounds in the last decade, and Spanish startups, known for their creativity and adaptability, have become attractive targets for large companies and international funds. Acquisitions in the Spanish market offer an entry into a market of not only more than 40 million consumers but also the possibility of serving as a bridge to Latin America.
The return of summer promises to be exciting.
