VC Funding for Startups Plummets by 55%
Lede
Venture capital funding to startups has declined sharply, and investors are exercising caution towards investment, sending a fresh wave of concern through the community.
Summary
- US startups raised $37 billion from venture capitalists in Q1 2023, the lowest amount in 13 consecutive quarters.
- Investors have reduced both the size and number of checks they write, with the lowest number of deals, fewer than 3,000, in over five years.
- The sudden collapse of Silicon Valley Bank, an industry institution that funded or provided services to nearly half of venture-backed startups and many venture firms, sent a fresh wave of concern through the community that may have slowed its pace of investing for years to come.
- Funding to tech companies has slowed at the same time that investors have found it harder to make money by backing startups.
- Exit activity, comprising initial public offerings and sales to other companies, dropped to $71.4 billion in 2022, the first instance of a dip below $100 billion in six years.
- The sharp slowdown in exits is expected to pose challenges for more mature companies this year, which will need additional cash, even after cost-cutting measures such as layoffs.
- Some startups could struggle or even shut down if the downturn lingers, with interest in the sector having cooled from non-traditional startup investors such as private equity firms and hedge funds.