This suggests continued wariness about prospects given concerns about restraints on generative AI and that potential impact on the tech sector. JL
Gene Teare reports in Crunchbase:
Global funding in the first quarter reached $76 billion, a 53% decline from the first quarter of 2022, including a $10 billion investment in OpenAI - largely from Microsoft - and $6.5 billion for Stripe. Without those two, Q1 venture funding would have been down even more - to $60 billion. Every funding stage was down 44%-54% year over year, not (just) late-stage. Investors in private companies still hold record amounts of dry powder - $580 billion as of the end of 2022 - in line with the amount available in 2021. (But) investors deployed capital at a slower pace and deal counts have shifted downward at each stage.Venture and growth investors in private companies continued to scale back their investment pace in the first quarter of 2023, Crunchbase data shows.
Global funding in the first quarter reached $76 billion — marking a 53% decline year over year from $162 billion in the first quarter of 2022. That’s even including a reported $10 billion investment into OpenAI — largely from Microsoft — and a $6.5 billion round for payments giant Stripe. Without those two large deals, Q1 venture funding would have been down even more dramatically, close to $60 billion.
Every funding stage last quarter was down 44%-54% year over year, a clear signal that the slowdown is not confined to late-stage funding. Investors across each stage scaled back as they took time to assess new investment opportunities while guiding existing portfolio companies.
The collapse of Silicon Valley Bank on March 10 was an added shock to a weakened funding environment. The bank had more than 20,000 startup depositors with $5 million or less in revenue.
The impact was not limited to U.S. startups, either: SVB was also the bank of choice for startups around the world, sourcing funding from U.S. venture firms. Investors and founders scrambled to secure funds to meet payroll as a swath of startups faced possible closure through lack of funds.
Deep pockets
Despite the slowdown, investors in private companies still hold record amounts of dry powder, with around $580 billion as of the end of 2022, according to an estimate by James Ephrati of Lightspeed Venture Partners. This is in line with the amount of dry powder available in 2021, but investors that year were plowing the money rapidly into startups.
Despite the record funds raised by investors, they continued to deploy capital at a slower pace in first-quarter 2023. Quarter-over-quarter funding was flat, despite two of the largest fundings in these recent peak years raised this past quarter. OpenAI’s $10 billion raise in January and Stripe’s $6.5 billion round last month make up the largest fundings to private venture-backed companies since 2019 — before the pandemic.
Deal counts have shifted downward at each stage with a more dramatic shift as of Q3 2022.
Let’s look at the particular impact of the slowdown on each funding stage, which operate with different classes of investors.
Seed
In the first quarter of 2023, seed funding totaled $6.9 billion, down 44% year over year — a signal that even at the earliest funding stages, investors are pulling back.
That’s significant because seed funding was by far the least-impacted funding stage through the 2022 reset. In the first half of 2022, seed funding increased each quarter based on a year-over-year comparison. It was only in the fourth quarter of 2022 that global seed funding amounts trended down year over year by more than 25%.
Many multistage investors pivoted away from late-stage but kept their seed practices open, informed by the 2008 crisis when some of the most critical companies — including Square, Airbnb, Uber, WhatsApp and Slack — were started during that period. That downturn, after all, coincided with two major technology trends: the growth of cloud computing and the advent of smartphones.
This time around, the promises of artificial intelligence are capturing investor attention. This tech will impact many layers of the technology landscape, with opportunities for new and established companies. AI companies that raised at seed include large language models company Fixie.ai, code platform CodiumAI and biotech MoleculeMind.
Early
Early-stage funding totaled $25.6 billion in Q1, down 54% year over year.
The year-over-year pullback in early-stage quarterly funding in 2022 started in the third quarter and has continued to decline.
Of the two funding stages which make up the bulk of early-stage funding, Series B shows a larger decline compared to Series A year over year by amounts, medians and averages.
Late and large
Late-stage funding totaled $43 billion, a dramatic fall from $93 billion in Q1 2022, but up from $34 billion in Q4.
The billions of dollars raised by OpenAI and Stripe made up 22% of all venture capital raised this past quarter, and 38% of late-stage financings.
Slowdown deepens
The reset in 2022 has deepened across all funding stages quarter over quarter and year over year — outside of the blips from a few multibillion-dollar, late-stage financings. Sectors that were down in the first quarter include e-commerce, blockchain and cryptocurrency.
But artificial intelligence remains a bright spot, with large fundings in Q1 2023. Companies tagged with AI accounted for 19% of investment dollars last quarter, with the investments in OpenAI and hundreds of millions invested in the likes of Anthropic, SandboxAQ and Adept AI, according to Crunchbase data.
The slowdown is having a variable impact on different regions. More to come in the next week on how different geographies are impacted by the big reset in venture capital.
Methodology
The data contained in this report comes directly from Crunchbase, and is based on reported data. Data reported is as of April 3, 2023.
Note that data lags are most pronounced at the earliest stages of venture activity, with seed funding amounts increasing significantly after the end of a quarter/year.
Please note that all funding values are given in U.S. dollars unless otherwise noted. Crunchbase converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events are reported. Even if those events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historic spot price.
Glossary of funding terms
We have made a change to how we include corporate funding rounds in our reporting as of January 2023. Corporate rounds are only included if a company has raised an equity funding at seed through a venture series funding round.
Seed and angel consists of seed, pre-seed and angel rounds. Crunchbase also includes venture rounds of unknown series, equity crowdfunding and convertible notes at $3 million (USD or as-converted USD equivalent) or less.
Early-stage consists of Series A and Series B rounds, as well as other round types. Crunchbase includes venture rounds of unknown series, corporate venture and other rounds above $3 million, and those less than or equal to $15 million.
Late-stage consists of Series C, Series D, Series E and later-lettered venture rounds following the “Series [Letter]” naming convention. Also included are venture rounds of unknown series, corporate venture and other rounds above $15 million.
Technology growth is a private-equity round raised by a company that has previously raised a “venture” round. (So basically, any round from the previously defined stages.)
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