The most recent Global Startup Ecosystem Index from StartupBlink reports a downturn in start-up investment around the world, thanks to factors such as rising inflation, increasing interest rates, banking sector instabilities and unstable geopolitics.
“High interest rates have ended the era of cheap money, slashing valuations and forcing start-ups to focus on what really matters: profitability and sustainable business models”, says Eli David, CEO of StartupBlink.
The report also points to the fact that the 2021 start-up valuation bubble is currently undergoing a major recalibration, and the impact of those rising interest rates can’t be overstated.
“The general expectation is that as long as interest rates stay high, more and more start-ups will run out of money, and we will enter into a winter period in start-up funding,” the report says.
When the report is drilled into, London has held its own this year and remains in third place, behind San Francisco and New York, in a ranking of the top 100 countries and 1,000 cities around the world known for their start-up ecosystems.
The UK as a whole ranks second in terms of VC funding, with only the US pipping it to the post. Further investigation reveals wins and losses for other UK cities too. Leeds dropped 74 spots to 200th place, Birmingham’s 40 spot decline places it in 170th position, and Edinburgh’s is down to 117th place.
But it isn’t all bad news: Gloucester and Colchester showed the most significant improvements, with Gloucester jumping 520 spots to 314th globally, and Colchester increasing by 416 spots to 272nd. Aberdeen, too, moved up the ranks with a 303-spot jump, now positioning it at 255th globally.
Despite all that, the fact is that there is less money to go around this year. Crunchbase figures point to the fact that while funding at all levels dropped in 2022, the seed stage showed the least decline at 11 per cent, compared to other funding stages.
In the UK, it was the investment crowdfunding platform Crowdcube which topped the list in 2022, funding more than 80 seed investments. However, this was lower than its 2021 seed funding count, which stood at more than 200 investments.
Seed funding trends
Due to the uncertainties arising from the current environment, Crunchbase says that safer bets are trending in 2023.
Alternative proteins, consumer products, fast delivery, e-commerce aggregators and cannabis companies are seeing less investment, while unsurprisingly, generative AI and esports are proving popular.
Additionally, companies which are developing energy sources that are greener, cheaper and more easily deployable, and start-ups focusing on work related areas, are all in vogue.
Data management start-up XetHub makes it easy for businesses to use Git for data management and was the recipient of a $7.5m seed financing round. It allows developers to work with data in the same way they work with code, using the collaboration features enabled by Git. The result is the ability to create custom visualisations so everyone can understand data in context.
A ChatGPT-detection tool, GPTZero is designed to detect AI-generated text. Its AI detection model contains seven components that process text to determine if it was written by AI, utilising a multi-layered approach that aims to produce predictions that are as accurate as possible. It’s no surprise then that the company has received $3.5m in seed financing.
Australian company Endua is building the next generation of clean multi-day energy storage solutions to power communities, remote industries and off-grid infrastructure. Designed to be anytime and on-demand, Endua will provide 100 per cent clean energy. This year, it has raised $7.5m in seed funding.
Esports is in growth thanks to a variety of factors including live streaming of games, gaming investments, rising viewership, ticket sales, engagement activity, and demand for league tournament infrastructure. Matchday is a rising company that combines video games, sports, and web3 in order to create an ecosystem of casual soccer games. As a result, it has raised $21m this year.
Engin Sciences develops AI-Driven HR software Recruitment marketing software specifically for the emerging cannabis industry. Its tech can plug into any ATS, and gives companies access to a virtual talent management system. One of a number of “Future Of (Finding) Work” companies to receive seed funding this year, Engin Sciences has received in excess of $6.5m.
Kirstie McDermott works for our job board partner, Jobbio. Based in Dublin, she has been a writer and editor across print and digital platforms for over 15 years.
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