How will events in Ukraine affect the startup investment market
Finance, Freedom, Fellows (fff.club)
Private investment club in the Baltics & Nordics.
Russia's war against Ukraine is not only taking thousands of innocent lives, destroying infrastructure and forcing people to flee their homes. But it also has a negative impact on the global economy, including the startup investment market.
From day one of the Russian invasion, the European venture capital market has mobilized its forces to support Ukraine. While Swedish startups are coming together to help war victims, countries like Estonia, Latvia and Lithuania are making it easier for Ukrainian startup founders to get visas and help relocate their headquarters.
Long story short, startup founders and investors across the whole world are doing what they can do best – they are looking for new practical solutions to help Ukraine fight the complexities of this new sad reality. But very soon they may face some challenges themselves.
The startup investment market also has to pay a high price for freedom and democracy. Palm Drive Capital investor Henry Woram identified 4 key impacts of the events in Ukraine for the venture capital landscape. And we want to address those here as well:
Less capital for VCs and, as a result, for startups
Before the global economy had time to rehabilitate from the consequences of the pandemic, 2022 brought a real war to the center of Europe. This obviously has exacerbated inflation and the fragility of financial markets, which in turn leads to rising interest rates.?
And then we got a domino effect: due to rising interest rates, institutional investors will invest more money in bonds rather than stocks. This means that less capital will go to the private market, including startups.
Startup valuations will drop significantly compared to the previous year
The combination of factors that we have just mentioned above will certainly affect the cost of startups.?
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As falling markets make it harder for companies to raise funds for investment, we are already starting to see declines in startup valuations. Ultimately, less money in private markets means smaller funding rounds for startups.
Tech startups need Ukrainian tech talents
One in five Fortune 500 companies such as Microsoft, Google, Oracle and Samsung use Ukrainian IT services, and the Ukrainian IT development sector exported its services worth $6.8 billion in 2021. Now, startups such as Grammarly, Ajax, People AI and Preply are struggling to just support employees and operations.?
The Russian invasion of Ukraine is destroying a pool of vital tech talent, which due the current insatiable need for software engineers and developers has become even more prominent now than ever.
The IPO market will slow down
The IPO market has significantly slowed down – Q1 2022 global IPO volumes fell 37% with proceeds down by 51% year-on-year. This slowdown has been happening primarily due to geopolitical uncertainty and global conflict, which almost always have a negative impact on the stock market.?
As a result, many private companies waiting to go public are likely to put their IPO plans on hold until the public markets stabilize.
To sum up, the startup investment market will have to be more courageous in facing modern risks, quickly adapt to the new agenda and remember that the crisis creates not only difficulties but also opportunities.
Connecting startups and investors more efficiently around the world
2 年All very valid points but, it might not be as "gloomy" as it seems. Most experts initially thought that the pandemic and the multiple lockdowns worldwide would be disastrous and the exact opposite happened; from 2020 to 2021, there's been record investment numbers. In the event there's less VC money, entrepreneurs will find other ways to grow. Remember, it used to be the norm to first bootstrap before raising capital, we might have to go back to that. Other than that while Europe and other major powers are crumbling, LATAM and even some African countries are starting to produce various UNICORNS. Savvy investors will look to those markets for (continued) strong returns. You know, those other areas that nobody really thought about until they started to generate strong returns. As for valuations dropping, European valuations weren't that high to begin with, US based startups might feel that burn more than others but it just means there's another BOKM coming up with the major markets stabilize again because the savvy true founders will continuously gain more traction in the meantime. With regards to the "braindrain" on Ukraine developing talent. Ukrainians are very resilient and I don't see them staying down for the count for long