Last yr, startup funding levels were at a five-year low, valuations dropped dramatically and little hope was offered to IPO candidates. But is that every one within the rearview mirror now?
That’s definitely the hope of many investors and startup entrepreneurs we talked to recently, who say that even when things don’t return to normal in 2024, they’re not less than looking forward to a yr of relative calm and predictability.
With that in mind, let’s take a have a look at what’s happening within the startup world in seven charts based on recent events Crunch Base data.
2023 ends with the worst end in five years
Venture funding has declined significantly since 2021, when it broke records.
Last yr ended particularly poorly, with $58 billion in total enterprise spending within the fourth quarter, the bottom quarterly amount spent in a yr that itself saw the slowest rate of enterprise investing since 2018, in accordance with Crunchbase data.
Still, many investors we spoke to expect 2024 to be a yr of stabilization, with valuation declines and year-over-year declines over the past two years largely taking hold out there.
Even cybersecurity will not be unscathed
Cybersecurity was once considered almost recession-proof. After all, hackers will break in, and businesses and folks must protect their digital information.
But even cybersecurity funding has been hit by the company downturn, with just $8.2 billion invested in space startups globally last yr, the bottom level in five years, in accordance with Crunchbase. That’s almost half of the $16.3 billion invested in 2022 and down greater than 64% from the record $23 billion invested in 2021.
“When it comes to cybersecurity financing in 2023, we saw the consequences of exceptional growth in 2021, with bloated valuations and unusual financing rounds, as well as investor caution in light of market conditions.” Schreiber’s offersenior partner and head of the Israeli office of a cyber investment company YL ventureshe told us recently.
Seed funding stays quite solid
Are you on the lookout for a vivid place?
It seems that seed financing did quite well through the economic downturn. Crunchbase data shows that while startup funding globally declined by 35% in 2022, seed investment within the U.S. actually increased by 10%.
Seed investment within the US fell 31% last yr, but even then the decline was much less severe than at other stages of financing.
Investors we talked to also report that the seed market remains to be quite energetic.
Our data shows that the median and average size of rounded seeds has increased significantly over the past decade.
That said, seed startups that raised funds in 2021 now on the lookout for fresh money should expect valuations to return down or not less than stay flat, investors say.
“The reality is that almost everything that was done back then – let’s call it 2021 – was mispriced,” he added. Jenny Lefcourtgeneral partner at Seed Investor based within the Bay Area The capital of freestyleTell us.
And the bar to lift the seeding round is maybe higher than ever before.
“Especially most first-time founders and the vast majority of founders in general – they need to gain significant traction to be able to raise in the same round that they were previously able to raise,” he said Michał Kardamon seed investor from New York Forum events. “And there are a lot fewer of these rounds taking place.”
Web3 and the metaworld are losing their luster
Web3 – a somewhat murky concept revolving around cryptocurrencies, blockchain and the decentralized Internet – was popular just a couple of years ago.
Not any more. Startup investors spent lower than $7 billion on Web3 startups in 2023, in accordance with Crunchbase. That’s significantly greater than the $33 billion they pumped into the sector in 2021.
The situation is comparable after we have a look at financing startups related to the Metaverse – one other sector that investors went crazy about just a couple of years ago.
Despite the recent hype Applelatest Vision Pro headset, startup investors appear to have lost interest – not less than temporarily – in virtual reality, augmented reality and Metaverse-related technologies.
As Crunchbase data shows, space investment in 2023 dropped to just below $2 billion. This is dramatically down from the greater than $5.7 billion invested every year in 2021 and 2022.
All eyes are on artificial intelligence
So where will the VC money go as a substitute? You guessed it: artificial intelligence. Startups using artificial intelligence of their firms raised nearly $50 billion in 2023, making it the most important sector to see growth in 2023, in accordance with Crunchbase data.
However, investors say things usually are not expected to stay as hot in 2024.
“Even now, you can see that some startups are dealing with some legal ramifications.” Don Butlermanaging director w Thomvest Ventures, Tell us. “I think some of this will lead to a cooling off when it comes to investment, particularly in early-stage AI.”
M&A buyers are playing a waiting game
With funding scarce and IPOs becoming increasingly rare, surely someone is scooping up all of the startups desperate for money and liquidity, right?
Not in accordance with Crunchbase data, which shows that in 2023, the variety of M&A deals for venture-backed startups globally fell by almost a 3rd year-over-year. In the US, this number has reached its lowest level in 10 years.
What do startup buyers expect? Investors we spoke to say many buyers have the money but are likely waiting for valuations to fall farther from 2021 highs.
“I think in three to nine months things will start to improve as valuations continue to decline,” he added. Umesh Padwalthe managing director at Thomvest told us.