The venture market downshifts further in 2023, with dealmaking and funding totals falling to 6-year lows, according to an update shared by CBInsights.
Q4’23 was the “harshest” quarter for global VC in 6 years, the CBInsights team noted.
However, the down market has “revealed a handful of areas that remain notably resilient, from AI- and sustainability-focused startups to M&A deal flow in Europe.”
Based on their deep dive below, here is the TLDR on the state of venture:
- Venture funding falls to $248.4B in 2023, the lowest since 2017. Global deal volume also tumbled 30% YoY to 29,303 in 2023, a 6-year low. The declines were felt across most major global regions and sectors. However, the fintech and retail tech sectors saw modest gains in funding in Q4’23.
- US deal volume at a 10-year low. The venture downturn has had a chilling effect on the US tech ecosystem. US-based companies raised just 2,182 equity deals in Q4’23 — down 21% QoQ to the lowest quarterly level since 2013.
- Late-stage deal size has fallen more than 50% since 2021. Investors have become more selective and are shying away from large, late-stage rounds. The median late-stage deal size is now $21M, a far cry from 2021’s $50M. Similarly, the number of mega-rounds (deals worth $100M+) in Q4’23 fell to its lowest level since 2017.
- Fewest annual VC-backed IPOs since 2013. With less than 200 VC-backed IPOs globally in 2023, the market for VC-backed IPOs remains mostly closed, especially in the US.
Meanwhile, at 8,351 deals in 2023, M&A volume has “fallen from a 2021 peak but remains elevated historically.”
2023 sees 71 new unicorns — “a 7-year low, and down 73% from 2022.’
The number of private companies “reaching $1B+ valuations remains well below where it was even before the pandemic.”
However, 23 hit that mark in Q4’23, “a rebound from the previous quarter’s 14. Among 2023’s new unicorns, roughly half (35) came from the US. Asia and Europe contributed 18 and 12, respectively.”
Generative AI and sustainability tech companies “take the majority of top deals in Q4’23. Investors are looking to ride the AI wave to potentially substantial long-term returns.”
This is fueling a funding frenzy among generative AI developers, which “dominated the list of top equity deals in Q4’23, alongside sustainability tech players.”
The venture downturn accelerated in 2023, “with global VC funding falling 42% — 8 percentage points more than the previous year’s decline — to $248.4B. This marked the first time annual venture-backed funding slipped below the $250B mark since 2017.”
Venture deals faced similar headwinds. Deal count “fell 30% YoY to reach 29,303 in 2023 — a 6-year low.”
At $51B across 6,169 deals, Q4’23 marks the worst quarter for VC in 6+ years
The onslaught is even more apparent on “a quarterly basis. Q4’23 saw $51B in equity funding across 6,169 deals — the lowest quarterly figures since Q1’17 and Q4’16, respectively.”
Globally, deal volume is now “less than half what it was at its peak in Q1’22, as macroeconomic uncertainty continues to rattle investors.”
The US, Asia, and Europe each see funding declines of 20%+ in Q4’23
The US, Asia, and Europe all saw double-digit percentage “declines in quarterly funding in Q4’23. However, funding in the US has fallen further than in other major regions since the start of Q1’23.”
Additionally, while the US led in global deal share “with 35% in Q4’23, it lost several percentage points compared to the prior quarter, while Asia (33%) and Europe (25%) each picked up a few points.”
Elsewhere in Q4’23:
- Canada funding grew 20% QoQ to $1.2B
- LatAm funding fell 33% QoQ to $0.8B
- Oceania funding held steady at $0.7B
- Equity deal volume in the US falls to a 10-year low in Q4’23
Venture investors are now being “much more sparing with their dry powder than they were in the FOMO-driven tech boom of 2021/early 2022. They’ve also doubled down on due diligence, which is driving up the time it takes to close any one deal.”
All this has taken a toll on the US venture market. In Q4’23, total deals “to US-based companies slipped to a 10-year low of 2,182 deals.”
Investors are also shifting their portfolios “toward early-stage companies. Across 2023, early-stage deal share hit a recent high of 65% in the US. In Silicon Valley, that level was up to 74%, or roughly 3 in 4 deals.”
Among US metros, Silicon Valley still “reigns supreme, consistently accounting for 20%+ of US deals every year for the past decade.”
This figure has trended down slightly “over time, but Silicon Valley’s share is still over 7 percentage points higher than that of New York, the next-largest metro for deal volume.”