In March 2022, the future of Muni, a Colombian e-commerce startup, looked bright.
Since its public launch nearly two years earlier, the company, which enabled community leaders to place group-shopping orders for their neighbors, had amassed a team of more than 500 employees, and was serving over 40,000 customers across Brazil, Colombia, and Mexico. In 2021, Muni raised $20 million in a series A round led by the U.S. venture capital firm Lightspeed Venture Partners, making Muni’s founder, María Echeverri Gomez, one of the few female CEOs in Latin America to ever raise VC funding.
Eight months later, Muni was dead.
A farewell post on the company’s website in November explained the shutdown. “Although we worked very hard and had an incredibly talented team, current circumstances prevented us from raising the capital we needed to continue our growth,” the note read.
Muni is just one casualty of the tech downturn that has shocked startups and multinational giants around the globe. The frothy optimism of the last decade — powered by low interest rates and the pandemic-era demand for digital services — has given way to cooling IPO markets and dwindling financing. A combination of geopolitical conflict, inflation, and rising interest rates has made investors more conservative, prompting pandemic darlings and big tech firms alike to retrench, cut costs, and, in some cases, close up shop almost overnight.
Between 2021 and 2022, the total value of venture capital deals fell by 38% globally, according to data from the London-based research firm Preqin. That trend was driven partly by the fact that two of the world’s largest tech venture funds, Tiger Global Management and SoftBank Vision Fund, dramatically reduced their investments over the course of the past year.
Other metrics look as bleak: According to market research platform CB Insights, over the course of 2022, the number of new unicorns — startups with a valuation over $1 billion — fell 85% from the first quarter to the fourth. Less than a third as many startups went public compared to the previous year, and less than half as many funding rounds reached $100 million or more.
That’s to say nothing of the waves of layoffs that have left more than 280,000 tech workers from Silicon Valley to Bengaluru job-hunting in the midst of continued downsizing and hiring freezes, according to Layoffs.fyi, a website that tracks tech layoffs through media reports.
“Lack of capital and the desire to extend your runway as long as possible because you don’t know when else you’re going to get capital have resulted in layoffs,” Shu Nyatta, founder and managing partner of the Latin America-focused investing firm Bicycle Capital, told Rest of World. Nyatta previously helped lead SoftBank’s Latin America fund.
“The [pandemic] lockdown basically explains quite a lot of the gloomy expectation among entrepreneurs and among investors about China’s overall economic record,” Xin Sun, a senior lecturer in Chinese and East Asian business at King’s College London, told Rest of World.
The tech downturn has been global, but its effects haven’t been felt uniformly around the world. Local factors, including the maturity of the existing tech sector and the regional political environment, have played key roles in mitigating or exacerbating the extent of the damage in different regions.
To get a full picture of the downturn’s impact, Rest of World gathered and analyzed data on venture funding, layoffs, and exits throughout 2022, and found that almost no corner of the world has been spared. But while the downturn of 2022 appears stark compared to the boom of 2021, the data also paints a more optimistic picture of long-term growth in emerging tech markets around the world.
The venture crash
North America led globally in terms of the biggest collapse in total venture funding, which fell from roughly $329.5 billion in 2021 to $191.5 billion in 2022. But Asia — whose total venture deal value dropped from about $227.2 billion to $136.8 billion — wasn’t far behind. The slump in Asia was driven almost entirely by the precipitous decline in venture investment in Chinese companies. In fact, between 2021 and 2022, venture capital investment in China plummeted nearly 46%, according to Preqin.
These numbers are partly due to the severity of China’s zero-Covid policies. The government’s recent decision to lift many of its Covid-19 restrictions could ease some of those stressors, but according to Sun, there is another, more stubborn challenge facing the region that seems unlikely to go away soon: the tension between the Chinese government and the domestic tech sector. “That’s a consistent and persistent concern faced by both investors and entrepreneurs,” Sun said, referring to the recent bruising crackdown on tech giants including Alibaba and Ant Group.
Some Chinese tech companies, including Tencent and ByteDance, have cut staff and shut down lines of business, downsizing in response to the political environment. “Part of the concern for the Chinese government is that many of these tech giants in China have grown into huge business empires,” said Sun. Since the regulatory crackdown, those same giants have realized that the strategy of bringing so many services under one umbrella is “no longer politically viable,” he noted.
Latin America has also been hit hard by the downturn. According to Preqin, total venture funding in the region fell by 58% — from nearly $18.3 billion in 2021 to almost $7.7 billion in 2022, the biggest percentage drop of any region. It has a lot to do with the fact that Latin American countries lack a dense network of local late-stage venture firms, which created an enormous gap in funding when global firms retreated, André Maciel, founder of Brazil’s Volpe Capital, told Rest of World.
“Latin America has been an overflow of what has happened in developed markets,” Maciel said. “I think as markets have retrenched, that overflow is the first thing to go away.”
85% The percentage drop in 2022 of new unicorns with a valuation of over $1 billion.
In fact, according to Volpe’s data, three-quarters of the 290 late-stage investors who spent more than $50 million on Latin American companies in 2021 were based outside the region. In the first nine months of 2022, the number of late-stage investors in Latin America fell by 72% compared to 2021.
And yet, the story in the region isn’t all bad. Despite the struggle in 2022, overall, Latin America’s tech sector still drew more funding last year than it did in 2020, and the total deal value has nearly tripled since 2018, according to Preqin data. A similar picture emerges in other regions, when looking at a longer timeline. In fact, in every market except North America, both the number and value of venture deals in 2022 were up compared to 2020.
Bicycle Capital’s Nyatta told Rest of World that 2022 merely represented a “return to our senses collectively,” compared to a very active funding year in 2021. He cautioned against casting the situation in Latin America as overly grim. “There’s no drying up. It’s just a return to some kind of steady state growth,” Nyatta said.
In Africa, the picture is even sunnier. Aside from the Middle East, it was the only region where total venture funding actually grew between 2021 and 2022, from $2.32 billion to $2.84 billion, according to Preqin. That is, to some extent, due to the fact that the market was already substantially smaller than other regions, so there was less excess investment to lose. “This is really the very beginning, which really helped the overall ecosystem to weather those crises very differently than others,” Cyril Collon, a general partner who co-leads the investment firm Partech’s Africa Fund, told Rest of World.
An increase in investors in African tech reflects the maturation of the region’s tech and investment landscape. For the first time last year, there were more than 1,000 unique investors, notes Partech’s 2022 Africa Tech Venture Capital Report. “For a long time actually, any entrepreneur raising a series A in this part of the world had to go to Silicon Valley,” Ory Okolloh, a partner at Verod-Kepple Africa Ventures, told Rest of World. “That’s starting to slowly shift, and I think the downturn is accelerating that.”
The current job market may also inspire more entrepreneurs, according to Fridtjof Berge, co-founder of the early-stage investing firm Antler, which has offices in 25 cities on six continents. He told Rest of World that while growth-stage startups in Singapore, where Antler is based, have taken a hit, the company received nearly twice as many applications for its accelerator last year, compared to 2021. “There’s a lower opportunity cost to start companies,” Berge said. “Maybe the offers from the big tech companies are not there in the dozens anymore, or maybe the salaries that you are getting are lower.” The only difference now, he said, is that founders who expected to raise money three to six months after Antler’s investment will “probably have to wait a lot longer.”
Berge is also encouraged by the number of cities around the world that are minting unicorns today, compared to a decade ago. “The growth of places where new companies pop up is just amazing,” he said. “It’s interesting to see going forward how much that shift will continue.”
Eyeing the exits
As far as initial public offerings (IPOs) go, there weren’t many Cinderella stories in 2022. According to Ernst & Young, nearly every region in the world saw both the number of IPOs and the value of those IPOs slump significantly in 2022 compared to 2021, with the number of tech IPOs globally falling by just over half. Meanwhile, the amount of money generated from unicorn IPOs — which typically include mostly tech companies — fell by a staggering 94%.
In some countries, the drop-off was particularly steep. For instance, after a record year of 45 IPOs in 2021, including the wildly successful debut of Nubank, Brazil had no IPOs last year. (Nubank has since delisted from the São Paulo stock exchange).
“The patient is in a coma,” Nyatta said of the Latin American IPO market.
But these lackluster global numbers only tell part of the story. It’s true that compared to the billion-dollar-plus IPO spree of 2021, last year’s performance looks weak. But compare 2022 to 2020, and the picture looks radically different; 2021 was the outlier. In Europe, Latin America, and the Middle East, the number of exits and the value of those exits actually grew between 2020 and 2022, according to Preqin.
“We as a society always look very short-term. Like it’s a boom year and everything is up 20%, and then everything is suddenly down 40%,” said Berge. “That will always happen.”
In 2022, mainland China did manage to eke out a win, raising a record amount through IPOs. Despite its crackdown on the broader tech ecosystem, the Chinese government had cleared the way for substantial investments in the domestic semiconductor industry. That led to a flood of venture capital in the sector and a rush of semiconductor IPOs in China, which ended up accounting for more than a third of all global tech IPO proceeds last year, according to Ernst & Young.
And yet, globally, such successes were rare, and the crunch on returns between 2021 and 2022 still spooked investors. “People didn’t want to put new money in, because we haven’t gotten money out,” Nyatta said.
Perhaps the most painful part of the recent downturn has been the toll it’s taken on tech workers. Startups, suddenly unable to raise new funding, have sought to dramatically limit their burn rates by slashing staff, while U.S. tech giants that had increased their head counts during the early days of the pandemic have laid off employees by the thousands all around the world.
According to Layoffs.fyi, since 2022, more than 280,000 employees have been laid off globally across more than 1,300 tech companies. But the tracker’s creator, Roger Lee, acknowledges that this is likely an undercount, given language barriers and different media environments across countries, which may limit the scope of the data. “East Asia is notably underrepresented,” Lee told Rest of World.
Outside of the U.S., India leads the world in tech layoffs, according to Lee’s data. Since the start of 2022, more than 18,800 people have been laid off from the country’s sizable tech workforce. The Indian tech news site Inc42 estimates that the number might be even higher, hovering around 22,900. These layoffs have impacted workers at some of India’s most promising companies, including edtech unicorns like Byju’s and Unacademy that had experienced explosive growth in the early days of the pandemic. “Having expanded exponentially in the past four years, it is now time for us to grow sustainably,” Byju Raveendran, the company’s founder and CEO, wrote in an email to employees, explaining the layoffs.
Udayy, another promising Indian edtech startup that had raised global venture funding, shut down altogether last year. The company’s co-founders made the decision after it became clear that the demand for remote learning services had dwindled, with no signs of returning. “After several failed pivots in the last 6–8 months, we took the hard call to shut Udayy,” co-founder Mahak Garg wrote in a LinkedIn post. “Despite having several months of runway in front of us, we made this decision because neither did we want to burn investors’ and LPs’ [limited partners’] hard earned money nor did we want to waste teams’ time on a business which we knew was doomed to fail.”
U.S. tech giants, including Meta, Alphabet, and Microsoft, meanwhile, have pointed to pandemic-related overhiring to justify plans to cut 10,000 employees or more apiece. The full impact of those layoffs may not yet have been felt globally. Alphabet has notified international employees that due to different labor laws across regions, they will be notified later than their U.S. counterparts. A Microsoft spokesperson told Rest of World that employees would continue being notified through the end of March. Alphabet did not respond to a request for comment. Meta directed Rest of World to a statement made by CEO Mark Zuckerberg in November 2022, in which he explained that the company was laying off about 13% of its staff due to lower revenue following accelerated growth during the pandemic.
Despite the brutal cuts, however, these companies still ended 2022 with a significantly bigger workforce than they had had before the pandemic began. Since 2019, Meta, Alphabet, and Microsoft have all grown their head count by 50% to 90%, leaving them with thousands more employees, even with the reported layoffs.
There is, of course, one glaring exception: Twitter. Elon Musk’s takeover of the company last year has left it with a fraction of the more than 7,500 employees it had at the end of 2021. By early March, there were reportedly fewer than 2,000 employees remaining. In some cases, entire international offices were virtually wiped out overnight. In Ghana, where Twitter had announced plans to set up its African headquarters to much fanfare in 2021, the company laid off all but one employee. Now, the laid-off workers are accusing the company of failing to adhere to local laws regarding the layoffs.
“There was a feeling of a mix of disappointment and ‘I told you so’ from the African people,” one former Twitter employee in Ghana, who asked to speak anonymously for fear of retribution, told Rest of World. “When Twitter was coming in, most people were happy, but there was also a group of people who said this is just a facade or a charade. They really don’t care about Africa.”
Jobs at Twitter had been considered plush, the worker said, and tech talent throughout Ghana and Nigeria had competed fiercely for the limited number of positions there. Now, those same workers are all struggling to find similar roles elsewhere. “It’s been more of a nightmare than we thought,” the worker said. Twitter did not respond to Rest of World’s request for comment.
‘Year of efficiency’
The question now is how long the tech downturn will last. There are already signs that 2023 has more bad news in store for tech companies and workers around the world. Tiger Global has reportedly reduced the target size of its latest venture fund to $5 billion, which is less than half the size of its last fund. And U.S. tech giants are already indicating there are more job cuts to come, with Zuckerberg dubbing 2023 the “year of efficiency” at Meta.
In China, meanwhile, the government has extended some olive branches to the tech industry recently, driving at least some optimism among investors. But Sun, the King’s College lecturer, expects the strained relationship between the government and the tech sector to continue in the long term. He added that growing tension between the U.S. and China is “a concern for many of the big guys.”
In other regions, though, there’s more optimism about the year ahead. In Preqin’s November 2022 investor survey, investors cited India as the market with the best opportunities for venture capital, beating China, which had held the top spot in 2021.
In Africa, both Collon and Okolloh are encouraged by the sustained growth of the continent’s tech sector, despite the odds. They argue that while other parts of the globe with more established tech ecosystems are already saturated with copycat companies, in many African countries, there are still basic services that would benefit substantially from digital transformation. “There’s a long list of problems still to be solved in this part of the world,” Okolloh said.
There are similar opportunities in Latin America. A wave of innovation in the fintech space, for instance, hasn’t just been a nice-to-have, said Nyatta; it’s been critical to promoting financial inclusion in the region. “A market like Latin America is not allowed to just speculate and experiment,” he said. “Nobody will give you capital to just kind of play around.”
But just because there’s potential in these emerging markets doesn’t mean the money will follow, and there’s no telling when investors’ risk appetites will return. “This year could be lower still … I think it’s too early to tell,” Nyatta said. But if companies begin pursuing IPOs again later this year, he added, “then all bets are off. We’re back to the races.”