Global economic uncertainty slows down new unicorn startup births in 2022

The global startup ecosystems faced a tough year in 2022 as a result of various challenges including slow hiring activity, increasing interest rates, rising inflationary pressure, and falling public tech valuations. In addition, the fears of a looming recession and the subsequent reduced consumer spending has hit the new unicorn startup births, says GlobalData, a leading data and analytics company.

Kiran Raj, Practice Head of Disruptive Tech at GlobalData, comments: “While 2021 was a blockbuster year for the unicorn creation, 2022 faced a funding crunch resulting in around 65% year-on-year decline in unicorn births. The slowing pace, especially in the second half of 2022, is reflective of the trickle-down effect of venture financing slowdown that significantly impacted the late-stage funding rounds in early 2022, gradually crept into the early rounds in the second half.”

Shagun Sachdeva, Project Manager of Disruptive Tech at GlobalData, comments: “The unicorn boom in 2021 driven by investments in sectors that had tailwinds from COVID-19 led consumer behavior such as edtech is interrupted and reversed in 2022, whereas funding across new-age technology, enterprise software and financial service sector has experienced growth.”

GlobalData’s Disruptor Intelligence Center, which offers AI-driven predictive startup intelligence to spot tomorrow’s winners today, correctly predicted 118 startups out of 264 that turned unicorns in 2022.

GlobalData’s latest report, “Spotting Future Unicorns in 2022: Predicting Startup Success Using GlobalData’s AI Model,” reveals that in the midst of a venture pullback, 2022 saw a significant slowdown in unicorn creation with 264 unicorns as compared to 523 in 2021. North America and APAC regions that managed to create triple-digit new unicorns in 2021, suffered setback in 2022.

The US, China, India, and the UK remained as key unicorn hubs. However China is expected to slow down from the current levels of unicorn birth for various reasons ranging from the subdued investor sentiment, zero-COVID policy and the crackdown on technology firms due to antitrust and security concerns.

The fourth quarter (Q4) experienced a massive dip in unicorn births to 20 from 127 in the first quarter (Q1) 2022, primarily driven by slowdown in late-stage funding activity and low investor confidence index.

Sachdeva concludes: “With the funding winter expected to worsen in the coming months and investors revisiting their investment strategies, GlobalData expects increased  consolidation and mergers and acquisition activities between well-funded startups that are approaching profitability and smaller startups either being acquired by larger counterparts or reorganizing their cost structures through layoffs to enhance cash flow and brace for potential down rounds in 2023.”