Vestbee published the ‘VC Transactions In CEE Report – 2022‘, revealing that VC investments in the CEE region exceeded €5.9B in total funding across more than 1100 transactions.
Ewa Chronowska, CEO of Vestbee and General Partner at Next Road Ventures, underlines the incredible progress in VC investments and the number of startups successfully raising funds, resulting in rapid ecosystem development. ‘The CEE region has been on a roll in recent years, with record-breaking growth in venture capital investments, attracting numerous VC funds from across Europe and the United States. With early-stage VC funding reaching unprecedented levels, the region is making significant progress’. – underlines Ewa Chronowska.
Although VC funding reached record levels, the report indicates that 2022 has been a turning point for the startup ecosystem, with a decline in investment growth rates if compared to €5.4B in 2021 and €2.2B in 2020. “The data shows that after record-breaking 2021 when VC investments in CEE doubled, 2022 has been a defining moment for both global and the regional VC landscape, signaling the end of the period of the rapid growth seen in previous years” adds Ewa Chronowska.
Paweł Maj, Investment Director of Warsaw Equity Group, also confirms deteriorating investor sentiment. “Between Q2 2020 and Q2 2022, global venture capital investment reached a record high, which can be compared only to the dotcom bubble of 1999-2000. The next few years will be a period of return to normality. The trend of declining VC investment, smaller rounds, and lower valuations are expected to continue over the next few years, particularly between 2023 and 2024. “
The impact of these changes can already be seen in the valuations of private startups and tech companies, particularly in later-stage rounds, which have seen a more significant drop in valuation. Currently, only pre-seed rounds are valued above pre-bust levels globally and in the CEE region. CEE SaaS Index, a benchmarking tool based on the revenue multiples of listed SaaS companies in the CEE region recently developed and launched by Vestbee and Warsaw Equity Group, is above pre-pandemic levels and has not yet seen such a dramatic decline. “This is because the valuations of listed SaaS companies in the CEE region were much lower than their US counterparts and are slowly closing the gap. In addition, the median revenue multiple for listed SaaS companies in the US has fallen sharply, by 66% since the record high in Q2 2021, and currently stands at around 6.5x, well below pre-pandemic levels” adds Paweł Maj.
According to experts, startups and VC funds need to brace themselves for a difficult road ahead. “As we face new challenges and uncertainties, it’s challenging to predict how the market will evolve in the coming months and years. The pace of deal-making is slowing down, valuations are trending downward, and VCs are becoming more cautious and selective with their investments. Although the top teams will still be able to secure capital, it will be a more demanding process, and many firms may struggle to survive. VC funds will also face challenges as they struggle to raise funds for new ventures, exacerbating the overall decline in investments. Nevertheless, new investment opportunities will also emerge, making new funds better positioned,” adds Ewa Chronowska.