Trending Topics

Global venture capital (VC) funding has experienced a significant decline in 2023 as investors adopt a more cautious approach, resulting in lowered valuations for unprofitable start-ups and publicly listed tech companies. 

According to data from Crunchbase, global VC investment plummeted to $64.6 billion between April and June 2023, representing a staggering 49% drop compared to the same quarter in the previous year. The decline in the latest six-month period was even more substantial, with a 51% decrease compared to the corresponding period in 2022 and a 10% decrease compared to the second half of 2022.

The decline in global VC funding can be seen as part of a correction phase for the technology industry, following a period of over-expansion and record levels of capital deployment during the Covid-19 pandemic. Notably, the decline is most pronounced for later-stage start-ups. In the second quarter of 2023, investments in late-stage companies amounted to a total of $31 billion, marking a sharp decline of 54.3% compared to the same period last year. This decline surpassed the fall observed for both early-stage companies (-44.5%) and angel-seed-stage start-ups (-38.8%).

David Sacks, the general partner of Craft Ventures, expressed concerns about the situation, stating, "There's a huge crunch in late-stage financing. It's only going to get worse over the next 18 months," during an episode of the All-In podcast, which he co-hosts with fellow Silicon Valley entrepreneurs and investors Chamath Palihapitiya, Jason Calacanis, and David Friedberg.

Interestingly, despite the decline in VC investment, artificial intelligence (AI) companies continue to generate hype. Crunchbase data reveals that AI companies attracted nearly one-fifth of the total global VC funding in the first half of 2023. Major funding rounds for AI companies have been led by corporate investors such as Microsoft, Google, and Nvidia, with the latter being the manufacturer of chips used for training large language models that underpin generative AI tools. In a recent development, data management and analytics specialist Databricks agreed to acquire generative AI start-up MosaicML for $1.3 billion in June.

Gené Teare, the senior data editor of Crunchbase, remains optimistic about the future, stating, "We are at the beginning of this. All of these [AI-based] technologies are going to impact almost every software and hardware company. I think there is a lot more funding to come into the sector."

Source: FDI Intellegence (2023)