Global Startup Funding Hits 5-Year Low at $285 Billion in 2023
The year 2023 concluded with global startup funding reaching its lowest point in five years, totaling $285 billion, according to a recent report from Crunchbase. This figure represents a significant 38% decline from the previous year’s $462 billion, marking a continued trend of caution among venture capital investors.
Venture Capital Investors Remain Cautious Amid Funding Decline
Notably, the final quarter of 2023 was particularly slow. The report showed that quarterly funding in Q4 totaled $58 billion, down 24% quarter-over-quarter and 25% year-over-year, and overall deal volume was down 15% quarter-over-quarter and 33% year-over-year[^1^]. This cautious approach from venture capital investors reflects their hesitancy to invest amidst uncertain economic conditions and increased market volatility.
Funding Decreases Across All Stages of Startup Funding, Reports Crunchbase
Crunchbase’s report also highlighted the deep funding decreases across all stages of startup funding[^1^]. Angle and seed funding, which consist of seed, preseed, and angel rounds, totaled $30.1 billion in 2023, down around 31% from $43.9 billion the previous year. Seed funding emerged as the most resilient stage with new companies funded, as raising a Series A round became more challenging. Early-stage funding, which includes Series A and B rounds, saw a reduction of more than 40% year over year to $103 billion. Late-stage funding, encompassing Series C, D, E, and later-lettered venture rounds, also fell by 37% to $131.6 billion last year. The technology growth stage, which includes private equity rounds for companies that have previously raised venture capital, also experienced a downturn, with investments falling to $20.7 billion from 2022’s $29.4 billion[^1^].
AI Investments Surge While Web3 Funding Plummets in 2023
Despite the overall downturn in startup funding, certain sectors like artificial intelligence (AI) bucked the trend. Crunchbase’s report showed that global funding for AI startups surged to nearly $50 billion in 2023, a 9% increase year-over-year[^1^]. The largest investments went to leading foundation model companies like OpenAI, Anthropic, and Inflection AI, which collectively raised $18 billion last year. Other industries such as insurtech, semiconductors, and battery technology also saw increased funding.
However, Web3, after seeing a surge in activity during 2021 and into 2022, had a 73% decrease in funding in 2023, dropping from $28 billion to $7.6 billion[^1^]. The leading sectors that saw a more than 50% decrease year over year include financial services (about 50%), e-commerce and shopping (60%), and media and entertainment (64%).
Startups Brace for More Closures in 2024 Amid Challenging Funding Landscape
In 2023, startups faced a challenging funding landscape as the venture capital markets reckoned with the 2021 funding boom. Investors became more conservative and set higher bars for each stage of investments, leading to a tightening of budgets and increased focus on unit economics[^1^]. As a result, the tech sector experienced a significant rise in layoffs during 2023.
Given the recent increase in the number of companies receiving funding and the tightening of the investment market, Crunchbase anticipates that the layoffs seen last year will lead to more company closures in 2024[^1^]. Founders can expect another challenging year in a market that favors investors over startups.
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Reference:
[^1^]: [Crunchbase report on global startup funding in 2023](https://news.crunchbase.com/venture/global-funding-data-analysis-ai-eoy-2023/)
Analyst comment
Negative news: Global Startup Funding Hits 5-Year Low at $285 Billion in 2023. Analyst prediction: Venture capital investors will remain cautious, leading to more funding declines and a challenging funding landscape for startups, resulting in more layoffs and company closures in 2024.
