Even as Y Combinator reveals the latest startups in its catalog for this winter, we have bad news for founders: the global VC market shrank in the first quarter of 2023, and it would have been even worse if not for some mega deals, according to Crunchbase y others in PitchBook reports. In the United States, things look bleak.
Startups aren't the only ones suffering. Venture capitalists are also seeing their ability to raise funds hampered as they digest a series of poorly marked startup deals and a dearth of exit volume. This drop in funding from venture investors means that the current downturn in investment in emerging companies may not change course any time soon.
Some growth companies may be the first companies to seek IPOs when the market reopens. But for now, you're all stuck watching the money flow en start ground, not the other way around.
The numbers aren't good, sure, but they aren't either. so bad as feared for 2023 last year.
Global venture capital is in retreat during the first quarter of 2023
Crunchbase data indicates that the total funding for startups in the first quarter globally it fell to $76 billion from $162 billion a year earlier. Given that the first few months of 2022 weren't that far from the peak of the last startup cycle, this comparison is somewhat misleading: we all know things have slowed down since then.
Zooming in, the total value of the initial investment in the first quarter of 2023 actually increased by 1% compared to the fourth quarter of 2022, which is a more recent and therefore more useful comparison. Risk totals no longer point downward.
That is how Gene Teare described the nuance in the first-quarter numbers, writing that the small gain in first-quarter dollar totals includes:
"a $10 billion investment in OpenAI, largely from Microsoft, and a $6,5 billion round for payments giant Stripe. Without those two big deals, first quarter venture funding would have been down even more, close to $60.000 billion."
Taking a closer look at these deals: Microsoft's isn't a traditional corporate VC deal, and Stripe's round was raised not for growth, but for tax purposes, and the small increase that Q2023 XNUMX brought to the totals of global companies is appreciated that it simply disappears.
Crunchbase also reports that business volume fell in the first quarter, continuing the downward trend that began in the first quarter of 2022 and has persisted ever since. It also indicates that the value and number of seed, personal, and initial stage they decreased compared to the first quarter of 2022 and the fourth quarter of 2022. Late-stage deal volume also fell in both time frames.
Results in the United States
Given the importance of the US venture capital market, there is not much difference between the two data sets in the first quarter of 2023.
Preliminary PitchBook data for the US indicates that VC volume in the first quarter continued to decline, meaning it was another quarter in which less money was invested in fewer deals compared to the previous three months. The value of transactions in the country has now decreased every quarter since the fourth quarter of 2021. Transaction volume peaked in the first quarter of 2022, but has fallen every quarter since.
There are also two other data points to watch: venture fundraising and exit volume.
According to PitchBook, only “$5.8 billion in value output in the first quarter” in the United States. That, the company notes, is less than 1% of the total value of VC-backed exits recorded in 2021. Put another way, if the volume of exits from VC-backed companies stays at the same level for the rest of 2023, we would have less than 4% of the results of 2021 this year.
That is a disaster. So much money has been poured into startups in recent years that seeing exits dwindle to zero means every investor's performance metrics are falling, and their marks on past deals are getting trickier over time. The opening of the IPO market will be crucial for startups that can finally go public; For its backers, cash will be worth the same as dirt in "Waterworld."
The previous liquidity crisis is supposed to be part of the reason why venture capital find it difficult to raise funds. PitchBook reports that 99 funds raised about $11,700 billion in the first quarter of 2023. Two of those funds were worth $1,000 billion or more, which is a marked deviation from the average of nine funds that were worth at least that much per quarter last year. In addition, last year an all-time record of $170.800 was registered. million raised in 892 funds. Such numbers now clearly belong to a different era.
In summary, the global venture capital market is in retreat, and the picture is worse if you exclude the few big deals that probably don't fit the "risk" profile anyway. Exits are bad and venture capitalists are raising much less capital than before. By all the metrics we care about, the startup investment game gets less healthy by the quarter.
For the startups launching this week on Y Combinator, it's a market that has changed drastically and is tougher than the one they faced in the past.
