Despite a slower final quarter, global startup funding faced a challenging year in 2023 as venture capital investors remained cautious, according to Crunchbase data.
The year 2023 stands out as the least impressive for venture funding since 2018, with a total global investment of $285 billion. This reflects a significant 38% decrease compared to the $462 billion invested in 2022.
Cutbacks were widespread across all funding stages on a global scale, with early-stage funding experiencing a more than 40% decline year over year, late-stage funding down by 37%, and seed funding decreasing just over 30%.
However, it’s crucial to maintain perspective; despite the challenges, overall funding in 2023 only decreased by less than 20% when compared to the pre-pandemic years of 2018 to 2020.
As US goes, so does the globe
Two years into the economic slowdown, the venture markets are resiliently grappling with the aftermath of the funding boom that characterized 2021. Despite the decline in tech stocks and a subsequent slowdown in the IPO market since the onset of 2022, the industry has demonstrated resilience. The valuations established in 2021 proved unsustainable in 2023, as even promising companies faced challenges, resulting in flat and down rounds.
In the face of this adversity, startups from the previous year displayed remarkable adaptability, navigating a challenging funding environment by tightening their belts and strategically focusing on unit economics. The inevitable layoffs across the tech sector in 2023 further underscored the need for resilience.
Investors responded judiciously, deploying capital with a discerning eye and raising the bar at each stage of investment. Michael Cardamone, a seasoned seed investor at Forum Ventures in New York, notes a notable shift: “You can secure higher ownership as a fund than you could in 2021.” He emphasizes that the current funding landscape predominantly favors funds, making it more challenging for startup founders.
The United States, being the largest startup investment market, reflecting about half of all venture funding, mirrored global trends. In 2023, funding to U.S.-based startups totaled $138 billion, marking a 37% decrease year over year. Despite these challenges, the current climate offers opportunities for strategic investors to assert their influence and navigate the market with confidence.
Despite the overall downturn in most industries, AI emerged as the standout performer, showcasing significant growth. The global funding for AI startups surged to nearly $50 billion last year, marking a remarkable 9% increase from the $45.8 billion invested in 2022. Leading the pack in 2023 were foundation model companies OpenAI, Anthropic, and Inflection AI, collectively securing an impressive $18 billion in funding.
Noteworthy increases in investment were also observed in the insurtech, semiconductors, and battery tech sectors throughout 2023.
Amidst the challenging landscape, two industries demonstrated resilience, outperforming broader market declines. Although manufacturing and cleantech startups experienced a decline year over year, the downturn was limited to less than 20%, positioning them as notable exceptions in the economic landscape.
Web3 and consumer tumble
Web3, after its notable surge throughout 2021 and into 2022, underwent a significant downturn in 2023, witnessing a sharp 73% decline from $28 billion to $7.6 billion.
Prominent sectors such as financial services experienced a substantial decrease of over 50%, while e-commerce and shopping faced a downturn of 60%, and media and entertainment saw a decline of 64% year over year.
Q4 tapers off
Despite the challenges faced in Q4 2023, global venture funding reached $58 billion for the quarter, reflecting a 24% decrease compared to the previous quarter and a 25% decline from the same period last year.
In Q4, seed funding reached a substantial $7 billion, demonstrating resilience despite a modest decrease of just over 20% compared to the previous year’s $9 billion.
The seed stage stands out as the most dynamic funding phase, witnessing the establishment of numerous new companies. In light of the increased difficulty in securing Series A funding, companies displayed a greater inclination towards securing follow-on seed funding.
In 2023, early-stage funding experienced the most significant decline among all funding stages. During the fourth quarter, early-stage funding amounted to nearly $23 billion, showing a slight decrease compared to the previous quarter and a notable 32% year-over-year decrease from the $33 billion mark.
In Q4 2023, late-stage funding accounted for a solid 25% of the peak volume observed in Q4 2021, demonstrating resilience in the investment landscape.
Despite a year-over-year decrease of nearly 20%, Q4 funding still reached an impressive $28.6 billion. Notably, funding dynamics in this period experienced fluctuations, with substantial investments directed towards AI, semiconductor, battery, and clean energy companies throughout 2023.
The entrepreneurial landscape has evolved with an influx of funding in recent years, but as funding markets become more stringent, the layoffs witnessed in 2023 are anticipated to transition into a scenario where more companies may close in 2024.
2023 saw increased discipline in the venture markets. Looking ahead to 2024, without a notable uptick in exits, founders can anticipate continued challenges in a market where funders hold the reins.
This report exclusively utilizes data sourced directly from Crunchbase, relying on officially reported information as of January 3, 2024.
It’s important to recognize that data delays are most evident in the early stages of venture activity, with notable increases in seed funding amounts typically observed post the conclusion of a quarter or year.
All funding values are presented in U.S. dollars, unless explicitly stated otherwise. Crunchbase employs the prevailing spot rate at the time of reporting financial events such as funding rounds, acquisitions, IPOs, and other relevant activities. It’s worth noting that even if these events are added to Crunchbase after the initial announcement, foreign currency transactions are converted at the historical spot price.
Glossary of funding terms
We’ve implemented a revision in our reporting approach for corporate funding rounds starting January 2023. Moving forward, corporate rounds will be incorporated only if a company secures equity funding within the spectrum of seed through a venture series funding round.
In the realm of seed and angel funding, encompassing seed, pre-seed, and angel rounds, Crunchbase will also encompass venture rounds of unspecified series, equity crowdfunding, and convertible notes valued at $3 million or less (USD or its converted equivalent).
For the early-stage category, which includes Series A and Series B rounds, along with other round types, Crunchbase’s coverage extends to venture rounds of unspecified series, corporate venture, and other rounds exceeding $3 million, yet remaining below or equal to $15 million.
Late-stage funding encompasses Series C, Series D, Series E, and subsequent-lettered venture rounds following the “Series [Letter]” nomenclature. This category also includes venture rounds of unspecified series, corporate venture, and other rounds surpassing $15 million.
Regarding technology growth, it pertains to a private-equity round raised by a company that has previously undergone a “venture” round, essentially covering any round from the previously defined stages.