Software attracted most of the start-up investment funding in 2022, with a 45 percent share of the total, followed by deeptech (leading edge) which attracted 34 percent. Photo: 123RF
The number and value of investment in start-up companies fell last year but the outlook is brighter with the industry attracting strong interest, despite an economic downturn.
A report by PWC, Angel Association and Group Capital Partners found there was an 18 percent drop in deal volume and a 28 percent drop in capital in 2022 over the year earlier.
However, it said 2021 had been an outlier in terms of the abundance of deals done, with record low interest rates and global quantitative easing amounting to a 60 percent increase in investment dollars.
Angel Association executive chair Suse Reynolds said 2022 was more in line with what the industry was hoping for as a new normal.
There were 76 deals done in 2022 and more than $112m of capital funded by early stage investors, with an additional $117m investment of venture capital, or a total of just under $230m.
Software attracted most of the funding, with a 45 percent share of the total, followed by deeptech (leading edge) which attracted 34 percent.
Of the deeptech investments, cleantech received the most funding with a 72 percent share, followed by healthtech at 13 percent and space technology at 12 percent.
PwC Legal Partner Joelle Grace said the market had been experienced a cooling compared to 2021, but the the long-term trend was for growth.
"While unsettling, a slowing economy can actually be a good thing for some companies, as it forces businesses to focus on what is important," Grace said.
"This means these startups will be built on strong foundations, with a focus on creating long-term value and will thrive in the long run."
Reynolds said the record levels of investment in 2021 were a hard act to follow.
"As investors, we remain very optimistic about the future of startups and their potential to drive growth and innovation in our economy," she said.
"Startup founders are by definition optimistic, and the best ones have deep reservoirs of resilience and tenacity.
"Even in challenging economic conditions, they remain defiantly ambitious for huge change and the value and impact they want to create."
Group Capital Partners associate investment director Jacques Richter said challenging market conditions would likely continue to apply pressure to the early-stage ecosystem in the short to medium term, making it harder for young companies to grow and raise funding.
"Investors should support founders who have bold ideas that can transform industries globally," Richter said.
"This is one of the key lessons from the 2008 Global Financial Crises and dot.com bust and we need to keep backing early-stage ventures to build our pipeline.
"Now is the time for investors to roll up their sleeves and help ambitious founders build a thriving ecosystem for the long term."