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New reports from PitchBook-NVCA Venture Monitor and Crunchbase Inc. reveal that 2023 was a challenging year for venture capital funding of startups. Global startup funding dropped 38% from 2022, reaching $285 billion. This decline was evident across all stages of funding – early-stage, late-stage, and seed funding. The US also experienced a 37% decrease in total funding, with only $170.6 billion invested across 15,766 deals. The tech sector, in particular, faced difficulties, with a scarcity of initial public offerings and unicorns struggling to deliver returns. However, there were some bright spots, such as artificial intelligence startups, which raised close to $50 billion in 2023. Conversely, investments in Web3 decreased by 73%.
New reports released today by PitchBook-NVCA Venture Monitor and Crunchbase Inc. detail just how grim 2023 was for venture capital funding of startups, both in the U.S. and globally. The year saw global startup funding plummet to $285 billion, down 38% from 2022, according to Crunchbase. The poor figure highlights a broader trend of reassessment and cautious progression in the market amid ongoing global conflict, macroeconomic concerns and high interest rates.
The downturn in funding was across all stages: Early-stage, late-stage and seed funding all saw substantial declines, indicating a pervasive sense of caution among investors. In the U.S., the scenario was no different from the rest of the world. The country, which traditionally accounts for about half of all venture funding, saw a 37% decline in total funding. The PitchBook report notes a stark decrease in U.S. VC deal activity, with $170.6 billion invested across 15,766 deals, roughly half the amount in 2021.
The European venture scene saw a similar decline in money invested and dealmaking. Despite maintaining high median deal sizes, the continent saw its lowest annual exit value in a decade, further confirming a global VC slowdown. By exits, the market followed the VC trend, with only $61.5 billion being returned to investors in the U.S. this year, as reported by PitchBook. The decline was particularly noticeable in the tech sector, where large initial public offerings, once a staple of the VC exit strategy, became sparse. The scarcity of public offerings underscored the difficulties faced by unicorns in delivering returns.
Globally, the exit market was similar with one notable exception — Asia, which bucked the trend and saw more than $143 billion in exit value generated over the year, more than the combined values of exits in the U.S. and Europe. There was also a huge drop in the amount invested into VC funds in 2023. After a record year in 2022, only $66.9 billion was committed to VC funds in the U.S. 2023, the lowest amount since 2017. Globally, the figure was $160 billion, or $200 billion less than in 2021. The lower amounts are noted by PitchBook as likely to hamper a potential rebound in dealmaking in 2024.
The news wasn’t all doom and gloom, however. Certain sectors showing resilience and, in some cases, growth. To the surprise of no one who follows tech, artificial intelligence startups stood out in 2023, raising close to $50 billion, a modest increase from 2022. Conversely, the last “next big thing,” Web3, saw a 73% year-over-year decrease in investment.
