Hey Insiders, I, Karan, along with my colleagues Jigney and Courtney, recapped the 10 biggest startup stories for 2022 in today's issue. Look out for our 2023 predictions, which will be published on Dec. 30. Happy holidays! | |  Karan | |
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Institutional venture firms that had started moving away from early-stage investing and focusing more on late-stage funding in recent years are beginning to focus on seed-stage and early-stage funding once again. Tiger Global was a prominent growth-stage investor and shifted focus back to seed and Series A rounds as soon as the dip started. Seed-stage funding showed the most resilience to the funding dip, and investors are once again focussing on long-term plays. More: - Many of the venture firms launched new funds to back early-stage startups.
- In March, Tiger Global committed $1B to invest in seed funds.
- 645 Ventures raised $348M for its fourth fund to back seed and Series A stage startups.
- Index Ventures launched a $300M pre-seed and seed-stage fund to back fintech, gaming, marketplaces, and SaaS startups globally.
- Australian venture firm nabbed $640M towards a new fund targeting early-stage investments across Australia and New Zealand.
Zoom out: - According to Decibel Partners’ estimates, venture firms currently have $290B in dry powder available for deployment, of which $162B is designated for new investments.
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Multiple fintech startups saw their valuations fall amid rising inflation, interest rates, and a broader decline in public tech stocks. In July, payments firm Stripe, once the most valuable startup in the world, lowered its internal valuation by 28% to $74B. More: - In July, buy now, pay later firm Klarna raised $800M in a "down round" that saw its valuation fall by 85% (compared to its previous funding round in June 2021) to $6.7B.
- In November, Stripe let go of 14% (1,100 employees) of its workforce, with CEO Patrick Collison admitting the company "overhired."
- Klarna has let go of ~800 employees across two rounds of layoffs as part of cost-cutting measures.
- Klarna is aiming to return to profitability in the summer of 2023 after continuously posting losses since 2020.
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The venture funding pullback, tightening monetary policies, rising inflation, and tough macroeconomic conditions resulted in a tough funding environment for startups in 2022. Unfortunately, that resulted in many startups having to shut operations after running out of capital. Moneyzine’s claims that running out of money was the primary cause behind 82% of the startups that closed in 2022. More: - Real estate and fintech platform Reali closed operations in late August, citing the “challenging real estate and financial market conditions.” The company had raised $290M in debt and equity at the time of closing.
- Alternative banking startup GloriFi shut down operations in Nov. 2022.
- Air taxi startup Kittyhawk, backed by Google co-founder Larry Page, shut down in September.
- Argo AI, a self-driving tech firm backed by Ford and Volkswagen, had to wind up operations and let go 2,000 of its employees in late October.
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Quick commerce startups, which raised billions in 2020-2021, began to shut down as VCs became reluctant to back firms in the sector. In March, Fridge No More and Buyk, founded during the COVID-19 pandemic, shut down after they ran out of money and could not raise additional funds or get acquired. More: - Demand for instant delivery services soared during the early days of the pandemic but has fallen as the economy re-opened.
- The market saw the entry of multiple startups like Jokr and Gorillas, which offered the same service and relied on VC funding to subsidize their growth and weaken their margins.
- VCs became more reluctant to invest in unprofitable startups with high burn rates.
- The decline in venture funding forced some firms like Jokr to pull out of unprofitable markets.
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The State Small Business Credit Initiative (SSBCI) initiative was reauthorized and expanded under the $1.9T American Rescue Plan. The government earmarked $10B for the revised SSBCI initiatives, which it intended to distribute to all states to back small businesses and entrepreneurs through grants, loans, collateral support programs, and venture capital. The program was announced in 2021, and the distributions started in 2022. More: - The U.S. Treasury Department distributed $940M to nine states in July.
- The federal government approved plans for four states worth $750M in August.
- In December, it distributed an additional $1.5B to seven states, bringing the total amount distributed to states to date to $6.3B.
- From the $97M awarded to the State of Minnesota under the SSBCI initiative, it provided $34.5M to the University of Minnesota to fund early-stage startups in the state.
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With Twitter, Meta, Lyft, Stripe, and more laying off workers, several startups jumped at the opportunity to hire the newly available talent. At one point this year, startups claimed that most job candidates were recently-laid off tech workers. More: - This year, Twitter cut over 7,000 staff members, Lyft laid off about 700 people, and Meta dismissed about 11,000 employees.
- Startups like Streamline AI told reporters that the layoffs allowed the company to attract candidates it would otherwise be able to.
- In October, the labor market, in general, proved more competitive than expected.
- In October, employers posted 317,000 job openings, 10,000 more than the month before.
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Day One Ventures allocated $5M from its $52.5M flagship fund for a new initiative called “Funded Not Fired.” The new initiative is set out to back recently laid-off tech workers that aspire to establish their own startups. The firm will invest $100,000 in each startup. More: - By the end of the year, the firm hopes to back 20 startups.
- The firm will commit to making a pre-seed follow-on funding of $1M into the startups it deems has the most potential.
- The firm may add $5M more to the initiative from its flagship fund if it intends to make further follow-on investments.
Zoom out: - Crunchbase data shows that more than 90,000 workers have been laid off from U.S.-based tech firms this year.
- Netflix, Amazon, Meta, Robinhood, Better, and Adobe have all announced layoffs this year.
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Major tech companies, including Meta, Mozilla, and Google, spent big on acquisitions this year. The organizations spent millions buying up startups, such as Alter, Audio Analytic, and Pulse. More: - Sometime between Aug. and Oct. 2022, Google purchased the AI startup Alter for $100M.
- The startup’s technology helps brands develop avatars.
- Despite laying off 13% of its workforce, Meta acquired Audio Analytic to help build its metaverse.
- Mozilla did not disclose the terms of its deal to purchase Pulse.
- Mozilla’s chief product officer told TechCrunch that they decided to acquire the company because of the “incredible team they have built.”
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Macroeconomic conditions led to a decline in the number of companies going public in 2022. There were 992 IPOs globally in the first nine months of 2022, a 44% decline YoY, according to EY. Companies that went public raised $146B, a 57% drop YoY. More: - Rising interest rates and inflation, and geopolitical issues such as the Russian invasion of Ukraine forced companies to scrap IPO plans.
- 17 companies went public via a SPAC merger in Q3, collectively raising $900M, the lowest amount in a quarter since Q3 2016.
- Stripe, which signaled it was going to go public in 2022, scrapped those plans.
- A list of all the companies that scrapped their IPO plans is available here.
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The U.S. Federal Reserve found that Black founders receive two-thirds less venture capital than their peers during the first five years, after which the disparity shrinks. Researchers believe the funding gap could be caused by “taste-based discriminations,” meaning investors are wary of working with Black founders. More: - According to a National Bureau of Economic Research study, Black founders often have smaller teams, attend universities further from VC centers, and are less likely to have patented their products.
- While geography may affect startups generally, researchers did not find a correlation between decreased funding for Black founders and the location of those founders.
- After Series B rounds, the funding discrepancy between Black and non-Black founded disappears.
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 |  | Karan Chafekar is a Management Consultant, Business enthusiast, and Licensed Pilot.
Jigney Pathak is a Business Researcher at Inside who loves technology, finance & sports. He has a Bachelor of Business Administration with a finance specialization & has previously worked at Salesforce.
Courtney Rawlings is an Inside Research Analyst living in Los Angeles, California. She has returned to her hometown of LA after spending several years working at Emory University in Atlanta, Georgia, where she is completing a Ph.D. in Art and Architectural History.
| | | | Editor | Vibha Chapparike is a Freelance Writer & Editor at Inside.com. With her post-graduation in Management and Finance completed, Vibha is expanding her knowledge in venture capital, business, startups, and technology. She has had a career in public relations and communications. An ardent reader and writer currently residing in Singapore, you can follow Vibha on Twitter @VChapparike. | |
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