The war is impacting Czech and global startups. Interest in investing has dropped by 37% since the conflict began. In February alone, the volume of investments dropped by almost a third. We believe that there will be recovery over time, but the market will change permanently. The biggest opportunities will be within sectors that have emerged to address current issues, with sectors that focus on sustainability and self-sufficiency becoming more attractive in particular.
In 2021, funding for startups from Venture Capital (VC) funds in Europe reached a record $116 billion. However, rising inflation and the war in Ukraine has brought about a change in this positive trend, in recent months. “This year has also seen a reduction in investment activity in the markets, which in turn is reflected in the situation with the startup scene,” comments Soulmates Ventures partner, Václav Gregor.
The number of investment rounds in the world has fallen
In particular, the number of investment rounds fell sharply. Before the attack, there were 1,284 of them, which works out to an average of 80 announced rounds per working day. Just 4 days after the outbreak of war in Ukraine, Crunchbase reported that there had been a drop by half. The Crunchbase server also reports that 154 startups around the world have announced seed, early-stage or late-stage venture investments since the day the invasion of Ukraine began. In total, these investments have reached $3.65 billion.
This means that, on average, $912 million was invested in 39 rounds per business day. “This is not a small number, but compared to previous results, these are rather insignificant numbers. For example, in the first 23 days of February, companies reported $30.68 billion in early to late-stage funding globally,” Gregor explains.
The impact on European startups was greater than the rest of the world
There has been a decline in the European scene as well. 33 days after the invasion of Ukraine began, European startups announced a total of 170 funding rounds (across seed to late-stage funding), raising a total of $3.2 billion, according to a March report by Crunchbase.
However, this is a drop of 37% compared to the previous week’s results. In fact, in the same time span before the invasion, European startups reported 255 funding rounds resulting in $5.1 billion.
The opportunity is in sustainability industries
Throughout Europe, in general, it is currently challenging to raise capital for pre-seed and seed-stage startups. “Of course, the slowdown in funding announcements in recent days does not necessarily mean that startups are not raising capital. It could just mean that they have made a decision that now is not the best time to announce new rounds, or they have agreed with investors to defer investment,” Gregor explains.
According to Soulmates Ventures, a complete freeze on investment rounds in the Czech Republic is not expected either. “In our country, the situation will not be affected that much. It is possible that there will be a suspension and even termination of the agreed investments. Primarily, it will only be a situation where the investor or startup has its primary activities related to Ukraine or Russia,” Gregor concludes.
Soulmates Ventures sustainability manager, Tomáš Kabeláč, outlines the current situation further, “Startups focused on climate technologies have relatively maintained their amount of investments raised, as in the last quarter of 2021. This is due to the fact that climate technologies include sectors such as energy or agriculture, which are extremely important at the moment for solving the problems caused by the war conflict,” and adds that startups in the investment accelerator’s portfolio are thriving.