Startup whiplash hits some sectors harder than others | PitchBook

Startup whiplash hits some sectors harder than others | PitchBook

There is no denying that 2022 has been a challenging year for startups. But it has not been equally difficult for every sector of the VC-backed ecosystem.

We used PitchBook data to examine how the deal value, deal count and valuations of 11 verticals have fared in 2022. Although investor interest in most sectors has been higher than in all years prior to 2021, our analysis shows that, through December 9, just about every vertical declined in value and count from 2021.

But for some verticals, the pullback in investment activity was much larger than for others.  

 

 

Relative laggards

Edtech, a pandemic darling, registered the most dramatic decline from 2021 to 2022. The vertical’s deal value and count dropped 57% and 24%, respectively. Investors slowed their allocations toward education technologies as many students returned to in-person learning. Despite the slowdown, the median valuation for edtech startups that raised funding in 2022 was 9% higher than last year.

Ecommerce is another sector that has lost much of its pandemic-induced luster. VCs have decreased their investments in online shopping and delivery businesses by 45% and 27% on a deal value and count basis, respectively. The slowdown in ecommerce activity is likely a function of macroeconomic headwinds—consumers are believed to be under pressure—as well as a reversal of pandemic trends when shopping in person increased the risk of catching COVID-19. Nevertheless, the median valuation of ecommerce businesses rose 12% in 2022.

Agtech is another vertical that experienced less interest from investors than in 2021. It is the one vertical in our analysis where all three metrics—deal value, deal count and valuation—dipped. The declines are likely due to general macroeconomic pressures, as other factors such as climate change, the war in Ukraine, supply chain disruptions, and growing population should, in theory, have been helping elevate investments into this vertical, said Alex Frederick, a PitchBook analyst focused on agtech and foodtech.

Lastly, investors became more cautious with their investments in fintech. The vertical had an outstanding year in 2021. Companies like Robinhood, Affirm and Nubank hit the public markets, and capital flowed freely into their copycats and other fintech startups. But by the second half of 2022, it became clear that many companies in this vertical had gotten ahead of themselves. Bellwethers such as Stripe, Plaid and Brex have laid off double-digit percentages of their workforces. Investors realized that “many fintechs have yet to demonstrate that their business models are profitable,” said Rudy Yang, a fintech analyst at PitchBook. 

Relative leaders

Crypto- and blockchain-focused startups had a strong year in 2022. The vertical had only a slight drop in deal value, and it’s the only sector in the dataset with an increase in deal count in 2022. But this year’s relative winner has a high chance of turning into next year’s loser. A string of bankruptcies in this space will likely have a chilling effect on investments in crypto and blockchain startups for some time.

Healthtech deals have also fallen this year compared to 2021. While healthtech is not immune from macroeconomic pressures, it was more resilient on a deal value basis than most other verticals in the dataset. “People will continue to get sick and seek care; families will continue to grow, and there’s only expanding need for solution, particularly in overlooked areas that have been underfunded, including women’s health,” Deena Shakir, a general partner with Lux Capital, said via text message.

While investors have poured considerably less capital into and backed fewer climate tech startups in 2022, they have been willing to pay much higher prices for companies in the vertical. Deals in this vertical fetched a median valuation 41% higher than in 2021. Prices in climate tech have been heating up, in part in response to the Inflation Reduction Act, which committed about $370 billion to combat climate change.

Featured image by Yellow_man/Shutterstock

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