U.S. VC funding hit lowest level in 6 years in Q3 | A story told in charts

12.10.2023 - 05:23 / venturebeat.com

Venture capital funding in the U.S. fell to its lowest level in six years in terms of venture deal value and the lowest level in deal count in three years during the third quarter.

The Venture Monitor report from the National Venture Capital Association showed U.S. VC activity fell to its lowest deal value level since Q2 2018.

“The last 18 months have seen a level of tumult in the economy that would have been unimaginable just a few years earlier, but amid stormy seas, VC remains well positioned to ride the waves,” the report said.

While generative AI exploded this year, geopolitics — not even counting the latest war in Israel and Gaza — inhibited the enthusiasm, with the stock market showing that investors are cautious.

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Deal counts are on track to have the lowest year since before the pandemic in 2019. Overall, the market remains under considerable stress, the report said. More companies are taking bridge, continuation, or down rounds; inside rounds are at multiyear highs; and there are fewer rounds with a new lead investor obtaining a board seat than at any time in at least a decade. Investors and founders alike are optimizing for stability and cash flow to meet the challenges of the current market.

However, the ecosystem remains well capitalized, and additional sources of liquidity from federal programs like the Inflation Reduction Act and the CHIPS and Science Act are becoming available.

Meanwhile, the stock market’s low multiples in price/sales ratios for public companies are causing IPOs to dry up. Current estimates place the number of companies waiting to go public at 75, and while exit activity is expected to be modest in the near future, the impending listings of household names like Stripe, Chime, and Reddit could portend a more robust liquidity environment.

And pre-seed and seed deal counts in the U.S. have hit a 12-quarter low, or the lowest since 2020. On the front end of the market, the relative share of pre-seed to early-stage deals dropped consistently over the
past year.

In comparison, late-stage and venture-growth deals have been on a relatively flat trend over the past
several quarters. There has also been a marked decrease in megadeals over the past year, with deals over $100 million making up 48.5% of deal value in Q3, a far cry from their 60.0% of deal value in Q4 2021.

Seed deal counts themselves are on track to fall below pre-pandemic numbers.

Deals are still concentrated in regional hubs across the U.S.

Female founders are finding the market to be particularly difficult.

Q3 exits