Downturn in Venture Capital Funding in 2023

The year 2023 witnessed a significant slowdown in venture capital (VC) funding, as evidenced by lower total capital raised, decreased deal volume, and smaller median deal sizes and valuations compared to the peak levels of 2021-2022.

• Later-stage funding rounds, such as Series B and C, were impacted more heavily than early-stage rounds, likely due to their proximity to public markets and IPO expectations.
• Despite the broader stock market's recovery (S&P 500 up 25%), the venture capital sector has been slower to regain momentum.

Top VC Firms Lead Fewer Deals in 2023

An analysis of 15 prominent venture capital firms, often referred to as "brand name investors," revealed a significant drop in the number of Series A, B, and C rounds they led in 2023 compared to the previous year.

• These top VC firms led 476 rounds in 2022 but only 152 rounds in 2023, a staggering 68.1% year-over-year decline.
• This decrease was more substantial than the 43.2% drop observed in the broader venture capital market.

Series A Funding in 2023

Series A funding rounds, typically the first significant institutional investment for startups, experienced the following trends:

• Number of Rounds: 1,889
• Median Round Size: $12.05 million
• Rounds led by the top 15 VC firms in 2023: 86
• Rounds led by the same firms in 2022: 292 (-70.5% year-over-year)

Series B Funding in 2023

Series B rounds, intended to support growth and scaling of more established startups, saw the following activity:

• Number of Rounds: 766
• Median Round Size: $26.61 million
• Rounds led by the top 15 VC firms in 2023: 50
• Rounds led by the same firms in 2022: 129 (-61.2% year-over-year)

Series C Funding in 2023

Series C rounds, typically providing later-stage funding for more mature startups, exhibited the following trends:

• Number of Rounds: 258
• Median Round Size: $50 million
• Rounds led by the top 15 VC firms in 2023: 16
• Rounds led by the same firms in 2022: 55 (-70.9% year-over-year)

Reasons for Reduced Activity by Top VC Firms

While there could be various theories to explain the disproportionate decrease in deal activity by the top VC firms compared to the broader market, there is no single definitive reason, as these firms do not act in concert with one another.

Implications for Startup Founders

The primary takeaway for startup founders is that while venture capital deals are still happening, the most well-known VC firms are less likely to lead or participate in them. Founders should continue pitching to these top firms but also work diligently to identify other VC firms that might be more active and receptive to funding their companies during this challenging market environment.