The Party’s Still Over: The VC Downturn In 6 Charts (2024)

For VC investors and startups alike, this year’s first quarter was a painful hangover from 2022, the stunning year that ended the glitzy venture funding party that was 2021.

For Q1 2023, the operative word is down: funding is down, deal flow is down, overseas investment is down. The only soaring numbers in the first quarter are those displayed in our Crunchbase Tech Layoffs Tracker.

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As for how we all got here, there are plenty of factors to choose from — rising interest rates, tumbling tech stocks, a war in Ukraine, weakening valuations, a stalled IPO pipeline, and let’s not forget Silicon Valley Bank. Now the question is: Has VC funding hit bottom, or do round sizes and deal counts have further to fall? We dive deeper into this year’s first-quarter numbers to find out.

The pain continues

The downward march of VC funding numbers that began in Q1 2022 and accelerated in the third quarter continues to drag on into the current year. Global VC funding fell 53% year over year in Q1 2023 to $76 billion — and that’s counting two mighty lifts by OpenAI and Stripe, which each raised billions in recent months. Even early-stage numbers dropped as investors continue to hoard their record levels of dry powder.

Nowhere to hide

Sometimes in a down market, certain regions will enjoy a surge due to local factors or investment in a particularly strong sector.

But there was nowhere to hide in first-quarter 2023. The only region to show a real uptick in venture funding was North America, and that was likely due to the OpenAI and Stripe multibillion-dollar deals. North American funding in the first quarter reached $46.3 billion — a decline of 46% from the same period last year. And without those two large deals, Q1 venture funding would have been down even more dramatically, with a more than 60% decline from the same period last year.

Latin America hardest hit

Latin America was impacted by the downturn more than any other region in first-quarter 2023, year over year. Venture investment in Q1 was down 84% from the year-ago quarter, per Crunchbase data. That puts Central and South America, which just over a year ago ranked as the fastest-growing startup investment region in the world, on the short list for the fastest shrinking.

Active investors in the region have cut back sharply this year, such as SoftBank Latin America Ventures, which participated in 34 rounds in 2021 and 2022. The firm joined just two rounds this year. Jumbo-sized rounds of $100 million and up are also apparently a thing of the past, with a single venture round of $100 million or more closed in Q1. Late stage, early stage, seed — they all struggled to raise funding.

Europe’s U.S. investors pull back

European startups raised $10.6 billion in funding in Q1, down 18% quarter over quarter and a whopping 66% year over year, as American investors pulled back.

Seed funding saw a dramatic 25% collapse last quarter — a signal that VCs aren’t big on making long-term commitments right now. While late-stage startups experienced the worst funding pullback year over year, early-stage funding performed the best of the three stages (though funding was still down 7%).

The pullback by U.S. venture firms landed a telling blow on the region. Not only are deal counts the lowest they’ve been in a three-year period, Europe’s first-quarter funding is the lowest the continent has seen since Q1 2020, when the region garnered $9.9 billion.

Asia funding falls in biggest markets

Venture funding in Asia also got off to a brutal start in 2023, declining 33% from the previous quarter and a massive 57% from the first quarter of last year. Total venture funding in the region fell to $15.2 billion — the lowest in at least the past three years.

As in other regions, late-stage and growth rounds suffered the most, both in terms of dollars and percentage. Late-stage and growth rounds only saw $7 billion in investment — a 64% drop from Q1 2022, which saw $19.7 billion. Seed and angel funding rounds also weakened, with the first quarter this year seeing only $1.4 billion raised in 723 rounds.

Downturn shakes up investor ranks

In such a reeling and volatile market, it’s no wonder that the ranks of the most active global venture investors were shaken up in Q1 2023.

Andreessen Horowitz and General Catalyst rose to the top of our list as past VC leaders such as Tiger Global Management and SoftBank Vision Fund didn’t even crack the top 20. The quarter saw muted activity at seed and early stage, and fewer big late-stage rounds amid a lackluster IPO market.


Looking to the immediate future, it’s hard to see what will start the music playing again. Overall, venture and seed firms are putting less capital to work in fewer deals, and most of the negative factors that prompted investors to pull back are likely to linger like a bad headache into second-quarter 2023.

Illustration: Dom Guzman

The Party’s Still Over: The VC Downturn In 6 Charts (1)

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The Party’s Still Over: The VC Downturn In 6 Charts (2)

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The Party’s Still Over: The VC Downturn In 6 Charts (2024)

FAQs

Why is VC funding drying up? ›

Debt financing, which surged by a whopping 300% last year, accounts for a hefty chunk of this total. Excluding this debt, the picture becomes bleaker, with a near 35% drop in actual equity investment compared to 2022. The decline isn't limited to investment amounts.

Is VC funding slowing down? ›

The slowdown in VC deal activity, which started in Q3 2022, has continued into Q1 2024. In Q1, $36.6 billion was invested in 3,925 deals, which was at a level comparable to 2023. For all of 2023, $165.8 billion was invested across 15,580 deals.

How many VC investments fail? ›

Experts from The National Venture Capital Association estimate that 25% to 30% of startups backed by VC funding go on to fail.

Why is venture capital struggling? ›

Just like startups, VCs are struggling to attract new capital from their backers, known as limited partners, such as endowments, foundations and pension funds. The drastic decline in IPO and M&A activity over the last couple years meant that LPs had meager cash distributions from their investments in VC funds.

How hard is it to raise VC funds? ›

The process is stressful and can drag on for months as interested investors engage in “due diligence” examinations of the founder and the proposed business. Getting a yes can easily take six months; a no can take up to a year.

Do VC funds beat the market? ›

Several articles and research papers have been published on the PME and the comparison of VC versus public stock performance. These studies often show that top-tier Venture Capital funds outperform public markets, while the median or average VC fund may underperform.

What is the average return on a VC firm? ›

The outperformance of venture capital funds is also evident using an IRR (Internal Rate of Return) metric. The average annual IRR return of VC funds between 2005 and 2018 was 22%, compared to 16.6% for all other PE funds.

Do most VC firms make money? ›

VC investments can be vital to startups because their business concepts are typically unproven and pose too much risk for traditional funding providers. While most VC ventures lose money, the profits from their "home runs" should outpace these losses for a fund to be successful.

How long do VC firms last? ›

Most venture funds have a 10 year time horizon to invest all of their capital and then return the profits to the fund's investors. There are exceptions to this 10 year life cycle, but that is fairly standard.

What is the dark side of venture capital? ›

Limited transparency: VC firms often have limited transparency in terms of their investment strategies and portfolio performance. This can make it difficult for investors to assess the risk and potential return of their investments and can lead to mistrust and lack of confidence in the industry.

What are VCs looking for in 2024? ›

The following are ten key venture capital trends that startup founders should be mindful of in 2024:
  • Tech mergers. ...
  • Cross-border payments. ...
  • Bridge rounds for later-stage startups. ...
  • Investment amounts. ...
  • Private equity. ...
  • Socially responsible ventures. ...
  • Unicorns. ...
  • VC secondary increases.

What is better than venture capital? ›

An angel investor may be right for you… When you're still building a business case. Founders typically find it easier to get angel investors on board than venture capital investors because angels are more prepared to invest in a company that may not bring a return.

Is venture capital on the decline? ›

Since 2021, when venture capitals amassed $555 billion, fundraising activities have sharply decreased. Last year, they gathered only a third of that amount, and the downward trend continues, setting venture capitalists on track for their least successful fundraising year since 2015.

Why do corporate venture capital funds fail? ›

Misaligned Expectations: Pressure for immediate results conflicts with early-stage ventures' long-term, unpredictable nature. Pressure To Deploy Funds: This can lead to compromised due diligence and lower-quality investments. CVC's potential advantage is the execution of a long-term vision.

What is the outlook for VC fundraising? ›

U.S. VC fundraising is expected to increase, making it stronger than 2023 and comparable with 2020 figures. The number of insider-led rounds as a proportion of all U.S. VC deals will be on par with or exceed the 2023 annual level.

Why is VC fund performance so persistent? ›

Another explanation is that early VC success “leads to investing in later rounds and larger syndicates,” which means that top-quartile VCs have greater access to deal flow. This preferential access gives them an informational edge, leading to better returns.

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