TLDR:
- Global startup funding in 2023 reached its lowest level in five years, with a decline of 38% compared to the previous year.
- Early-stage funding saw the largest decline, followed by late stage and seed funding.
- AI startups were the only sector to see an increase in funding, with total investment reaching close to $50 billion.
- Web3 and consumer sectors experienced significant declines, with Web3 funding falling by 73%.
- The fourth quarter of 2023 marked the lowest point for global venture funding.
A slower final quarter in 2023 contributed to a lackluster year for global startup funding. According to Crunchbase data, venture capital investors held back, resulting in a decline of 38% in global startup investment compared to the previous year. This decline marks the lowest level of venture funding in five years. In total, startup investment in 2023 reached $285 billion, down from $462 billion in 2022.
Funding declines were seen across all stages, with early-stage funding experiencing the largest decline of over 40% year over year. Late-stage and seed funding also saw significant declines of 37% and just over 30% respectively. However, it is important to note that overall funding in 2023 was down by less than 20% compared to pre-pandemic years of 2018 to 2020.
The decline in global startup funding is reflective of the performance of the US, which is the largest startup investment market. Funding to US-based startups in 2023 totaled $138 billion, down 37% year over year. The venture markets in the US and globally are still grappling with the funding boom of 2021, with the fall in tech stocks and a slowdown in the IPO market since the beginning of 2022 impacting the industry. Valuations set in 2021 did not hold up in 2023, leading to flat and down rounds for promising companies.
While most industries experienced downturns in funding, AI startups were the exception. Global funding to AI startups reached close to $50 billion in 2023, a 9% increase compared to the previous year. The largest fundings in 2023 went to AI companies such as OpenAI, Anthropic, and Inflection AI, which collectively raised $18 billion. Other industries that showed resilience despite market declines include insurtech, semiconductors, and battery tech.
The Web3 sector, which experienced significant growth in 2021 and 2022, saw a sharp decline of 73% in funding in 2023. Financial services, e-commerce and shopping, and media and entertainment were among the sectors that also experienced declines in funding. The fourth quarter of 2023 marked the lowest point for global venture funding, with quarterly funding totaling $58 billion, down 24% compared to the previous quarter and 25% year over year.
Despite the challenging funding environment, seed funding remained the most robust stage for new companies. Early-stage funding declined the most in 2023 compared to other funding stages. Late-stage funding also saw a decline, reaching only 25% of the volume of the peak in Q4 2021.
Overall, the venture markets became more disciplined in 2023, with investors deploying capital more sparingly. The challenging funding environment is expected to continue into 2024, making it tough for founders in a funder’s market.
