In 2023, the US witnessed a decline in the value of venture capital deals, reaching levels reminiscent of 2019, revealing a tumultuous year for startups.
Significant investments flowed into artificial intelligence startups throughout the past year while the broader industry faced challenges. Initial data from research firm PitchBook, released on Thursday, indicates that venture capitalists injected $170.6 billion into the US in 2023, spanning around 15,000 deals. This marks a roughly 30% decrease from the deal value recorded in 2022.
Globally, the venture capital industry experienced a decline in 2023. Investors allocated $345.7 billion to startups worldwide, marking a 35% decrease from the previous year and representing the lowest investment level since 2017.
Venture capital plays a crucial role in the global business ecosystem. The support from VCs has been instrumental in fostering transformative companies such as Amazon.com Inc., Google, and OpenAI. The processes of raising and investing venture dollars significantly influence growth and innovation.
But spending has fallen precipitously since the pandemic boom times of 2021. “Everything is trying to find a balance,” said Kyle Stanford, venture capital analyst at PitchBook. Stanford noted that the venture capital industry is in a readjustment phase following recent peak years. Despite VC dollars typically being directed toward companies with a high potential for substantial growth, there are around 54,000 venture-backed companies in the US, a figure he deemed “too many.”
In terms of fundraising, the VC landscape experienced a decline last year. Funds raised by US venture investors dropped by nearly two-thirds compared to 2022, while globally, there was an almost 50% decrease. US venture funds secured $66.9 billion in 2023, while global funds raised amounted to $160.9 billion.
The entire year’s decline was more pronounced than the fourth quarter, signalling challenges that began in late 2022. In Q4, US venture deals amounted to $37.5 billion, a slight decrease from the $39.8 billion recorded a year earlier. Globally, venture deals in the quarter totalled $76.6 billion, down from $94 billion in the same period the previous year.
One positive aspect amid the challenges was the performance of Latin American VC firms. In the region, though deal value dropped by more than half to $4 billion from the previous year, VC fundraising experienced a growth of over 40%, reaching $2 billion. An exciting addition to the Latin American scene last year was Bicycle Capital, a firm initiated by former SoftBank Group Corp. executives Marcelo Claure and Shu Nyatta, which unveiled a $500 million Latin America fund.
