Global Venture Funding Falls Again In November, Early Stage Cos Especially

These remain difficult times for startups, especially new ones, as venture investors become more skeptical, selective - and realistic. 

Macroeconomic considerations aside - and which are improving, the issue is growing concentration in the tech sector. The harsh truth is that Big Tech is getting bigger, making it more challenging for early stage startups to convince funders of a future offering 'excess returns.' JL   

Gene Teare reports in Crunchbase News and Luisa Beltran reports in Yahoo Finance:

Global venture funding  fell 16% from the $23 billion invested in November 2022, which was already down two-thirds from November 2021. Early-stage funding declined 34% — an indication that venture investors continue to scale back when investing in younger startups. Seed funding slowed more than 15%. In contrast, late-stage funding increased by  7%. Health care and financial services companies raised the largest amounts. AIs' biggest fundings went to companies in the AI infrastructure sector. “Deals are taking much longer to close, which favors investors. 2024 is (going to be) a down round year. It’s a great environment for companies with sustainable economics."

Crunchbase: Global venture funding reached $19.2 billion in November 2023, down marginally month over month, Crunchbase data shows. Funding fell around 16% from the $23 billion invested in November 2022, which was already down by two-thirds from November 2021. 

Early-stage funding declined the most year over year — falling 34% — an indication that venture investors continue to scale back even when investing in younger startups. Seed funding slowed more than 15%. 

In contrast, late-stage funding increased by around 7% compared to November 2022. 

All told, venture funding to U.S. companies in November reached close to $9 billion — slightly less than 50% of total global funding.

Health care and financial services companies raised the largest amounts last month, with more than $3 billion invested in each of those sectors. 

Artificial intelligence companies raised $2.4 billion in total in November. The biggest fundings went to companies in the AI infrastructure sector: Germany-based Aleph Alpha and Silicon Valley-based Together AI.  

The creation and destruction of value were on full display last month. 

The trial of Sam Bankman-Fried delivered a guilty verdict on Nov. 2, a year after the collapse of FTX, the cryptocurrency exchange he founded, which at its peak in early 2022 was valued at $32 billion. 

OpenAI also faced what looked like an existential threat with the  firing of Sam Altman and more than 90% of employees threatening to quit. That threat ultimately didn’t come to pass, as Altman was rehired within a week. OpenAI was most recently valued at $29 billion earlier this year, with a secondary offering in the works for employees that is expected to place the value of the company at around $80 billion. 

Other large valuations in November included Blockchain.com raising funding at a $7 billion valuation, half of its previous valuation. Israeli-based Next Insurance raised strategic capital at a flat valuation from its 2021 funding at around $4 billion —  viewed as an indication of strength in this funding environment. 

M&A activity picked up last month. Pet care marketplace Rover agreed to be acquired by Blackstone Group for $2.3 billion. Rover went public via a SPAC merger in 2021 at a value of $1.4 billion. 

Palo Alto Networks also said it intends to acquire Israel-based cybersecurity company Talon Cyber Security for $625 million.

Yahoo: Global venture funding slowed in November to $19.2 billion, a 16% drop from the $23 billion raised for the same time period in 2022, according to data from Crunchbase. Funding in November 2022 was already slow, down 67% from 2021. The $19.2 billion raised in November also represents a near 7% drop from the $20.6 billion collected in October.

The biggest drop in VC funding occurred in early-stage funding, which declined 34% year-over-year to $7.6 billion, while seed funding fell by more than 15% to $2.5 billion. In contrast, late-stage funding grew by around 7% to $9.2 billion, the report said.

Funding to U.S. companies in November totaled nearly $9 billion, a little less than 50% of total funding. Sectors that raised the most in November include healthcare and financial services with more than $3 billion invested in each of those sectors.

Artificial intelligence remained very popular, with AI companies collecting $2.4 billion last month. The biggest rounds last month belonged to Aleph Alpha, a German startup, which raised $500 million from investors including Bosch Ventures, Hewlett Packard Enterprise and SAP. Together AI also collected $102.5 million in a round led by Kleiner Perkins.

Brian Smiga, a cofounding partner of Alpha Partners, said the first six months of 2023 was a desert for rounds led by top-tier VCs. This slowly increased during the second half of the year Smiga said. (New York-based Alpha Partners focuses on mid-mid-stage investing and expansion rounds alongside earlier investors.) Compared to last year, the number of VC deals rose in 2023, while the quality of transactions increased dramatically, Smiga said. “Deals are taking much longer to close, which favors investors,” he said.

Smiga expects 2024 to continue the trend of companies raising rounds at lower valuation. “2024 is a down round year,” he said. “It’s a great environment for companies with a sustainable moat and economics, but bad for everyone else.”