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This 2023 has not been a great year for startups or the investors who threw billions into their funding. In previous years, venture capitalists and angel investors eagerly funded tech startups, especially those tagged with hot phrases like ‘blockchain’ or ‘AI.’ This led to soaring valuations and an abundance of ‘unicorn’ companies.

  • Funding Shift: A shift in the economic climate, marked by high-interest rates and a banking crisis impacting Silicon Valley, has resulted in a funding shortage for early-stage companies and exit opportunities for late-stage companies. Investors are now finding better returns in less risky markets. For instance, the Bloomberg US Aggregate bond index recorded a 4.5% return in November, its best performance since 1985.
  • Global Loss: Startup funding has suffered globally, with annual funding for 2023 on track to hit its lowest since 2015, according to PitchBook data.
  • Lower Valuations: Lack of funds and exit opportunities is causing distress among startups. About 20% of startups have raised money at lesser valuations than before, per equity management company Carta. The situation is so dire that it’s being referred to as an ‘extinction-level event’ for startups.
  • Staying Strong: Despite the grim outlook, some promising signs are on the horizon. AI and biotech funding remain strong, IPOs are gradually picking up, and Europe’s venture scene is showing positive fundraising activity.

Venture capitalists are sitting on a substantial amount of ‘dry powder’, or uninvested capital, according to PitchBook. However, 2023 has been a rollercoaster for venture capital managers and investors, and not necessarily in a positive sense.

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