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.
Notably, the final quarter of 2023 was particularly slow. The report showed the 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
Crunchbase also found that the funding decreases were deep across all stages of startup funding:
- Angle and seed funding, which consists of seed, preseed and angel rounds, totaled $30.1 billion in 2023, down around 31% from $43.9 billion last 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. Compared to other funding stages, it experienced the largest decline in 2023.
- Late-stage funding, encompassing Series C, D, E and later-lettered venture rounds, also fell by 37% to 131.6 billion last year. Funding levels at this stage varied with large investments going to companies in AI, semiconductors, batteries, and clean energy sectors.
- 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.
Reflecting global patterns, the United States, as the largest startup investment market with about half of all venture funding, also saw a notable reduction in investments. In 2023, funding for U.S.-based startups declined by 37% to $138 billion.
AI investments booming, Web3 plummeting
Despite the overall downturn, certain sectors like artificial intelligence (AI) bucked the trend.
Crunchbase’s report showed global funding for AI startups surged to nearly $50 billion in 2023, a 9% increase year-over-year. 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 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. 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%).
2024 outlook: more company closures
In 2023, startups faced a challenging funding landscape as the venture capital markets are still reckoning from the 2021 funding boom. Investors were becoming more conservative and setting higher bars for each stage of investments, Crunchbase noted.
As a result, companies were tightening budgets and focusing more on unit economics and 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 anticipated that the layoffs seen last year would lead to more company closures in 2024.
It also expects the year 2024 to be another challenging year for founders in a founders market.