6-7-2023 (SAN FRANCISCO) Venture capital funding globally has dropped by almost half in the first six months of 2023, according to data from research firm PitchBook. The 48% decline in investment to $173.9 billion and the 19% drop in deal numbers comes despite huge interest in artificial intelligence (AI) startups sparked by the success of OpenAI’s ChatGPT.
Investors have poured more than $40 billion into AI startups in the past six months, including a $10 billion investment by Microsoft in OpenAI and $1.3 billion in funding for rival Inflection AI. However, by region, Latin America saw the biggest drop with an 86% slump, while the US and Europe fell 65% and 69% respectively.
Investors cite higher interest rates, the current IPO drought, and a lack of other exit opportunities as reasons for their lack of enthusiasm. The absence of oversized deals that had previously pushed deal values to records is also contributing to the decline.
“Funding activity has fallen across all stages, with the first seed round logging the biggest drop with a 44% decline in the number of deals in the US,” said PitchBook. However, some investors believe that a moderate pickup in demand could emerge in the second half of the year as more companies run low on cash and need to come to market to finance their plans.
Many firms that secured funds in 2021 are still sitting on a considerable amount of money and feel little need to come back to a market that expects much lower valuations, according to investors. However, they added that a moderate pickup in demand could emerge in the second half of the year.
“More companies will have run low on cash and will need to come to market to fully finance their plans,” said Mary D’Onofrio, a partner at Bessemer Venture Partners.
The decline in venture capital funding highlights the need for investors and startups to be cautious and vigilant during these uncertain times. It also emphasizes the importance of diversification and the need for startups to explore alternative sources of funding.
