No Mere Reversion to the Mean. Data on the Second Year of the Startup Slump
Data from Carta shows 2023 was another brutal year for startup fundraising
Last year, 2022, was a tough year for the startup industry, but at least we had some hope that things were just reverting to the mean. The pandemic had been a bonanza for the tech industry with much of humanity trapped at home on their devices 24/7. We hoped coming into 2023 that perhaps venture capital funding could merely go back to its more normal pre-pandemic frenzy.
That’s not what happened.
Instead, the downward trend continued this year.
As of November, startup funding observed by Carta totaled just $47 billion this year, compared to $84.1 billion back in 2019.
Artificial intelligence hype provided some narrative air cover for an otherwise painful year in the startup industry. If you weren’t raising money for a speculative foundation model company or seizing on the mania for GPUs, then you were probably in a tough spot.
Late stage financings in particular suffered. Capital invested via Series E and later stage financings were down by 92% from Q1 2021, according to data from Carta.1
The second year of the startup slump meant that more startups had time to accept reality.
At first some founders believed that investors were overselling the downturn, playing Chicken Littles to get more favorable fundraising terms.
As time pressed on, it became clear that startup valuations weren’t improving. This year more startups raised down rounds.
Even among Series A rounds — 16% were down rounds this year, compared to just 8% last year.
And nearly one-third of Series D funding rounds gave the company a lower share price than the round before it.