Last week, we published our latest deep dive "The Crypto Creed." Guest writer Kyla Scanlon shared her view on the history of crypto, the original idea of improving systems, and how speculation disrupted that vision. She unpacks the question: "Where do we go from here?" Take a look!
This week, we wanted to reflect on the funding environment so far this year. Global startup funding dropped to $76 billion in Q1 2023, a decrease of $86 billion compared to the same quarter in the previous year. However, compared to Q4 2022, total startup investments increased by 1%. Deal volume has been declining since Q1 2022, an indication of the tech industry’s continued struggles amidst high interest rates and economic uncertainty in 2023. Last quarter, funding was down across all funding stages from between 44-54% year over year. Investors at each stage scaled back as they took increased time to assess new investment opportunities and provide guidance to existing portfolio companies. As a result, investors have a record amount of dry powder but are deploying capital slowly.
While quarter-over-quarter funding was stagnant, OpenAI’s $10 billion raise in January and Stripe’s $6.5 billion round last month are the largest rounds raised by private venture-backed companies since 2019, before the COVID-19 pandemic began. 3 of the largest 10 deals so far this year were AI startups, including Anthropic’s $300 million Series B round and Adept’s $350 million Series B. In Q1 of this year, 16 companies went public in the US. That’s just 4 more than 12 in Q4 of last year. M&A and SPACs have declined by 4% and 38%, respectively, from Q4 2022 to Q1 2023.
Series A valuations are rebounding from recent lows, and the round sizes continue to get smaller, per Carta. The median pre-money valuation has risen to $40 million, but the median deal size has dropped from a high of $12 million to ~$7 million. On the other hand, Series B and C valuations have stopped falling, having leveled out at median valuations of ~$85 million and ~$170 million, respectively. However, similar to Series As, the median round size of Series D and later rounds has kept shrinking as everyone faces a cash-strapped environment.
While we are experiencing a tough funding environment, it is important to remember that great startups can still be built through resourcefulness, creativity, and strategic decision-making. Founders today must excel at stretching every dollar in a constrained funding environment and finding ways to generate revenue early on. They must also clearly communicate their vision to investors, customers, and partners. Ultimately, successful startups are built by teams who can stay focused on their goals, make informed decisions with limited resources, and execute to bring their vision to life.
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