- Annual value of large exits (valued over $50m) falls by 47% year on year in 2023.
- Cleantech and GenAI sub-sectors prove resilient, and outperform peer sub-sectors even as they tend to be more capital-intensive than traditional software startups.
- 18% of all VC funding went to GenAI-focused startups in 2023.
- Next wave of technological breakthroughs could originate from rural India or Africa as from traditional powerhouses like California or London.
In 2023, the global startup economy witnessed a tapestry of contrasting narratives. Despite a general alleviation of inflation and a better-than-anticipated expansion of the global GDP, there was an air of cautious optimism regarding the resurgence of growth towards the close of 2023 and into the beginning of 2024.
However, these hopeful expectations were met with the persistent chill of a tech winter, as exits and funding failed to exhibit any indications of reverting to the levels observed before the onset of the COVID-19 pandemic.
According to Global Startup Ecosystems Report (GESR) 2024, 2023 saw 58 per cent fewer new unicorns than 2022, and 87 per cent fewer than the unicorn peak of 2021.
However, there was a slight uptick in unicorns in the first quarter of 2024, with 25 new unicorns – the most since the fourth quarter of 2022.
The annual value of large exits (valued over $50 million) decreased 86 per cent in 2022 compared to 2021, followed by a 47 per cent decrease in 2023 compared to 2022.
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However, the value of large exits has shown some signs of improvement in the first quarter of 2024.
As in the past, the US led all countries in new unicorns for 2023, with 57 per cent of the global share. This was up slightly from 2022 when it had a 52 per cent share.
Though the total number is down, China nearly doubled its global share of new unicorns, from 6 per cent in 2022 to 11 per cent in 2023. The country attribution of each unicorn is based on where the startup is headquartered.
With 15 unicorns, Silicon Valley again led all ecosystems for the most new unicorns in 2023, though this was down 80 per cent from 2022.
While startup funding was down in 2023, there were several positive sub-sector stories. The cleantech and GenAI sub-sectors proved resilient, outperforming peer sub-sectors even as they tend to be more capital-intensive than traditional software startups.
While global Series A funding fell 46 per cent in 2023 compared to 2022, average Series A deal size increased in the second half of 2023 compared to a year ago.
However, the first quarter of 2024 showed signs of further improvement.
Cleantech and GenAI steal limelight
The cleantech, which provides sustainable solutions in the fields of energy, water, transportation, agriculture, and manufacturing, and generative AI (GenAI) sub-sectors offer another positive note, demonstrating that frontier innovation can still attract investor enthusiasm regardless of global funding conditions.
“History tells us that those who invest during or immediately after a downturn reap the highest benefits. Now is the time to start building, capitalising on the unique opportunities that arise in times of transition,” JF Gauthier, Founder and CEO of Startup Genome, said.
Having experienced a previous peak in 2018, the sub-sector has re-emerged, showing late-stage growth in the second half of 2023, a promising sign given the capital and innovation needed to combat the climate crisis.
“While late-stage cleantech funding has not yet fully recovered to its 2021 peak, it has proven incredibly resilient compared to other sub-sectors, including ones that far outraised cleantech in absolute funding in recent years. Late-stage cleantech startups raised 2.5x more funding in the second half of 2023 than in the first half of 2020 – a steeper increase than advanced manufacturing & robotics,” the report stated.
Unlike most other sub-sectors that tend to be dominated by US startups, Europe has taken the lead on early-stage cleantech funding. When combined, the three most active cleantech countries of Europe – the UK, France, and Germany – have overtaken the US and China.
These “Euro Leaders” increased their cleantech Series A funding amount by nearly 50 per cent in 2023 compared to 2021, while China and the US decreased by 40 per cent and 20 per cent, respectively.
“Cleantech startups, finance providers, and forward-thinking corporates globally are looking to the EU for climate innovation policy best practice in themes including circular economy, sustainable finance, and carbon accounting,” Lucy Chatburn, Principal, Ecosystem Consulting, Cleantech Group, said.
Globally, about 15 per cent of cleantech Series A funding went to startups located in the Euro Leaders, compared to just 4 per cent in both the US and China.
GenAI leads funding
One of the major startup stories of the past year was the surge of GenAI. The data certainly supports this narrative: in 2023, 18 per cent of all VC funding went to GenAI-focused startups. Even as global funding was down, GenAI had its best funding year to date by far.
GenAI VC funding increased threefold in 2023 compared to 2022. Deal counts nearly doubled. While this surge in AI funding was the result of several factors, the release of ChatGPT 3.5 for the general public on November 30, 2022, served as a launch point for the year to come as investors and enthusiasts alike turned their attention to this cutting-edge technology.
In 2023, US-based GenAI startups increased their share of all VC deals to 65 per cent, an increase from 57 per cent in 2022.
“As world leaders start to grasp the potential of this new technology, it is becoming an increasing concern for both domestic and global politics. This may place some GenAI startups in a difficult position as these considerations fall beyond the scope of the typical startup business model,” the report revealed.
Given all the investment, the GenAI space is poised to continue at its recent pace well into 2024 and beyond.
“By 2040, Frontier Technologies will be thousands of times more powerful than they are today, and many innovators are trying hard to create new, superior designs. For instance, Amazon’s R&D investment is greater than the total GDP of 40 countries,” Daniel Doll-Steinberg, Co-Founder and Partner of EdenBase, said.
At the same time, he said that innovative startups aim to leverage AI, blockchain, and other technologies to disrupt and automate entire industries and business processes.
“This is a global race with the highest stakes. Those who harness these technologies effectively will reap huge productivity gains and shape the trajectory of the 21st-century economy. New superpowers will be born.”
For the first time, he said that the playing field is levelling, opening an era in which the next wave of technological breakthroughs could as likely originate from rural India or Africa as from traditional powerhouses like California or London, heralding a new chapter of global innovation driven by accessibility.
The top three ecosystems have maintained their same positions from 2020, with Silicon Valley remaining at the top, followed by New York City and London tied for the second spot.
Tel Aviv has moved up one rank and is now tied with Los Angeles at fourth.
The top five accounted for a collective $4.4 trillion in ecosystem value, 54 per cent of the total of the Top 40 ecosystems while the remaining 35 ecosystems are collectively worth $4 trillion in ecosystem value.
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