This change suggests a more optimistic view of near-term economic prospects within the startup ecosystem.
"It appears that the economic outlook for the near future is becoming more positive for the startup ecosystem. I was cautiously optimistic a year ago when we observed an initial improvement in the balance figures. The latest survey indicates expectations have turned positive, which gives us reason to anticipate slightly faster growth and potentially higher valuations for startups in Finland," commented Youssef Zadsanoo, Chief Economist of the Finnish startup community.
Funding Challenges Persist Despite Economic Optimism
Since the rise in interest rates and the tightening of financial markets that began in 2022, the availability of growth capital for startups has diminished, leading to more modest growth and smaller funding rounds. This reduction in funding has negatively impacted startups' outlook on the economy. Many high-growth startups have found themselves in a situation where they could have accelerated their business growth with more venture capital, but investors have not been able to support such rapid expansion.
The latest survey results, which cover the second quarter of 2024, do not yet reflect the most recent changes in the global economy. For example, recent weak employment figures from the United States may indicate the beginning of a recession, and global stock markets have experienced volatility.
"Such news is likely to create uncertainty among startups and weaken their views on the surrounding economic environment," noted Zadsanoo.
Hiring Intentions Slow Down
Despite a more optimistic economic outlook, similar improvements have not been seen in startups' hiring intentions or assessments of workforce growth. Balance figures representing employee numbers have significantly declined from the highs of 2022 and have remained at lower levels.
"It is likely that while economic expectations have become more positive, we have not yet seen sufficiently large positive changes, such as in the financial markets, that would lead to increased recruitment. A slightly more positive economic situation is different from companies' ability to grow their workforce more rapidly," Zadsanoo summarized.
It should be noted that the balance figures for workforce development and hiring intentions are both positive, indicating that the number of employees in startups is generally growing.
Rapid Changes in Growth Barriers
The startup barometer tracks key growth barriers by asking respondents to list the main challenges their companies face. In early 2022, a shortage of skilled labor was overwhelmingly the most significant growth barrier. During 2021-2022, tech companies were rapidly hiring new employees, and the competition for talent was intense.
Following global economic difficulties, startup growth and hiring intentions slowed quickly, and the shortage of skilled labor became a less significant growth barrier. The primary barrier swiftly shifted to economic difficulties, lack of available funding, and insufficient demand. The most recent startup barometer still identifies the lack of funding as the primary growth barrier.
Global Interest in Finnish Startups Continues
Despite concerns about the surrounding economic environment, there have been numerous positive developments within the startup sector during the downturn. For instance, BoB W, a startup revolutionizing the accommodation industry, raised €40 million in early 2024. Satellite manufacturer Iceye secured €80 million in funding, and AI startup Silo AI was acquired by chip giant AMD for €600 million.
Positive developments continue to occur in the startup ecosystem, albeit likely at a slower pace. It is expected that the industry will resume faster growth as the general economic situation improves.
HT
