Venture capital investments fell in 2023
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U.S. venture capital investing was way down in 2023. Everyone suspected it, but now there's official data via the annual Venture Monitor report from PitchBook and the National Venture Capital Association.
By the numbers: VCs disbursed $170.6 billion to 15,766 U.S. startups last year, compared to $242.2 billion for 17,592 companies in 2022.
- Red arrows persist the deeper you dive into the data. Fundraising and exists both dropped — as did valuations, except for seeds. Deal counts were weaker across company stage, including for crossover rounds, as were tech deals, life sciences deals, and corporate venture capital.
- Q4 the year's slowest quarter with less than $40 billion of activity. That's fairly typical, but the figure fell short of any of the prior three fourth quarters.
The big picture: You know that feeling when you choke on something, then get it down but still feel the lingering effects for a while?
- 2023 was that lingering feeling, after the venture industry spent 2022 choking on its pandemic-era excess.
- The panic is subsiding, and the new normal looks a lot more like the old normal. For example, that $170.6 billion in 2023 U.S. venture volume was only 1.4% lower than the 2019 total (and well above 2018).
Bull case: There are green shoots everywhere, including the most meaningful platform shift since AOL was sending everyone CDs in the mail.
- Generative AI companies will keep soaking up headlines and dollars in 2023, but broader VC returns should come from other sorts of VC-backed startups applying AI to offerings in everything from health care to energy.
- Fundraising also is poised to increase, thanks both to a reverse denominator effect borne of last year's stock market boom and the Fed's expected rate cuts.
Bear case: As always, the macro shocks we can't anticipate (war, weather, etc.).
- What we do know, however, is that the exit market needs to improve. And quick. Particularly IPOs, usually give VCs their longest homeruns.
- Part of this is about greasing the flywheel. VC firms are able to translate big wins into new funds, which then get plugged into more startups. But another part is about salvaging value from past funds, as a lot of companies that raised mega-rounds in 2020 and 2021 are nearing the end of their capital runways.
The bottom line: Venture capital is harder now than it was just a few years back, but the industry has suffered through much more dire conditions. If 2024 volume remains somewhat stable to 2023, then it should be taken as a win.
