The Global Startup Ecosystem Report 2023
A Note From a Founder
There’s no way to sugarcoat it: The technology sector is in the midst of an unprecedented slowdown. After a period of exuberant inflation in valuations, a correction was inevitable. And it’s proving to be dramatic.
Silicon Valley’s VCs and their limited partners (LPs), a nexus of the global startup ecosystem, have all but stopped investing. When the financial markets crashed in 2008–2009, total Series A funding dropped 31% (from 2007 to 2009). Compared to the records achieved in 2022, Series A funding in February 2023 was down more than 60%, while exits over $50 million are down 80%. The dramatic shutdown and nail-biting rescue of Silicon Valley Bank in March only underlined the level of the turmoil in the sector.
We’ve been here before. The 2001 dot-com crash was billed as “the end tech.” Within a few years we had already proven that prediction to be completely wrong.
How the Downturn Differs from Earlier Crises
Unlike in 2000, when a website’s great popularity justified sky-high valuations despite the lack of a revenue model, we have since together proven that we can build hugely profitable companies and the fundamentals of late-stage startups are sound.
Looking back at the Great Recession years, Series A investments made in 2008 and 2009 actually produced a much higher ratio of exits per dollar invested than in 2006 and 2007 — 35X vs. 25X! This is arguably because valuations come down during a recession while fewer startups close Series A deals, leading to a less crowded competitive landscape and much easier access to top talent.
Data-driven analysis of historical returns does not show a rationale for the current dramatic contraction of LP and VC investments. Keen investors want to go against the flow and invest aggressively while others sit on the sidelines.
The COVID-led growth in tech impacted countries to very different degrees — explained at least partially by how restrictive local health guidelines were — and this is reflected in movement in the global rankings. India is up due to its world-leading growth in 2021 and 2022, and this trajectory may well continue — up to now it is experiencing less of a slowdown than elsewhere. China however, grew at a significantly slower pace.
Some critics have been rooting for the crisis to take Silicon Valley down a peg or two. But anyone vested in entrepreneurial innovation should root for a Silicon Valley that can continue to lead and strengthen the global startup revolution by investing in and partnering with great people and organizations all around the world.
Why We Need to Maintain Investment in Startups
Given current challenges, the world needs the tech sector to continue to produce innovative solutions. Technology doesn’t just drive economic growth and job creation, it stands to save the planet too. This mission cannot be put on hold while we wait out rocky economic times. Join us in thanking Europe for leading and maintaining the flow of Cleantech investment despite the downturn and in calling for all other regions to join in a bigger way. As a community, we must continue to develop and scale innovative solutions to our pressing environmental challenges.
The same urgency applies to the need for our community to build a more equitable startup revolution by broadening the reach and use of technology to include those who are currently underrepresented or underserved by innovation. To some, diversity, equity, and inclusion might appear less urgent during a crisis. It isn’t. Whatever the economic situation, all of us need to pause and think. Are we changing and resisting our natural tendency to hire and invest in people who look like us and have a similar background? And are we supporting programs that retrain and upskill a broader spectrum of people so they can too participate in the great economic opportunities we produce? Programs like Tech Grounds in Amsterdam and SNC’s Scale-up Velocity in Israel have proven it can be done. Such programs are needed in every startup hub around the world.
As threatening as the slowdown appears, let’s remember the old saying “never waste a good crisis” applies. As tech stakeholders keep level heads and continue to build innovative companies that make a positive contribution, our sector will emerge from the current turbulence stronger and more impactful than ever.