TLDR:

A slower final quarter ended a lackluster year for global startup funding as venture capital investors continued to hold back in 2023. Global startup investment in 2023 reached $285 billion, marking a 38 percent decline year over year. Early-stage funding was down more than 40 percent, late stage by 37 percent, and seed just over 30 percent. Funding to United States-based startups in 2023 totaled $138 billion, down by 37 percent year over year. AI was the largest sector to show an increase with close to $50 billion invested last year.

Key Points:

• Global startup funding in 2023 reached $285 billion, a 38 percent decline year over year.
• Early-stage funding was down more than 40 percent, late stage by 37 percent, and seed just over 30 percent.
• Funding to United States-based startups in 2023 totaled $138 billion, down by 37 percent year over year.
• The AI sector saw an increase, with close to $50 billion invested in AI startups in 2023.

A slower final quarter ended a lackluster year for global startup funding as venture capital investors continued to hold back in 2023, Crunchbase data showed Thursday. In all, 2023 is on pace to be the lowest for venture funding since 2018. Global startup investment in 2023 reached $285 billion, marking a 38 percent decline year over year, down from the $462 billion invested in 2022. Cutbacks were deep across all funding stages globally. Early-stage funding in 2023 was down more than 40 percent year over year, late stage by 37 percent, and seed just over 30 percent. However, overall funding in 2023 was down by less than 20 percent compared to the pre-pandemic years of 2018 to 2020.

The fall in tech stocks and a slowdown of the IPO market since the beginning of 2022 has tempered the industry. Valuations set in 2021 did not hold up in 2023, and startups navigated a tough funding environment, tightening their belts and focusing on unit economics. Layoffs across tech also deepened in 2023. Investors deployed capital more sparingly, with a higher bar at each stage.

Funding to United States-based startups in 2023 totaled $138 billion, a 37 percent decline year over year. The largest sector to show an increase was artificial intelligence (AI), with global funding to AI startups reaching close to $50 billion, up 9 percent from 2022. The largest fundings in 2023 went to foundation model companies OpenAI, Anthropic, and Inflection AI, which collectively raised $18 billion. Insurtech, semiconductors, and battery tech also saw increased investment in 2023.

The manufacturing and cleantech sectors were down in 2023 year over year, but by less than 20 percent. Web3, which experienced a runup in 2021 and into 2022, fell 73 percent year over year in 2023. Other leading sectors that were down year over year include financial services (over 50 percent), e-commerce and shopping (60 percent), and media and entertainment (64 percent).

The fourth quarter of 2023 marks the lowest quarter for global venture funding. Quarterly funding totaled $58 billion, down 24 percent quarter over quarter and 25 percent year over year. Seed funding totaled $7 billion, down just over 20 percent year over year. Early-stage funding declined the most in 2023 compared to other funding stages, while late-stage funding was 25 percent of the volume of the peak in the fourth quarter of 2021.

With the increased number of companies funded in recent years and the tightening funding markets, Crunchbase expects the layoffs of 2023 will give way to more companies closing in 2024. Without a bump in exits, 2024 will continue to be tough for founders in a funders market.