The U.S. venture capital market has seemingly found a new normal: Trends around the number of deals and amount of dollars invested in startups so far this year appear to be stabilizing.
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For every quarter in 2023, the U.S. market saw just over 4,000 deals being closed, and the total value of funding rounds settled around the $40 billion to $45 billion range, according to data from PitchBook and NVCA.
While these numbers pale in comparison to the records set in 2021 and 2022, we’re at least seeing signs of settling into a new routine this year.
But what does that routine look like? This morning, we’ll map out what appear to be the key trends of the venture capital market for startups in the U.S. (If you are located elsewhere in the world, don’t worry. We have notes coming on other regions.)
A slower pace of change
First, the critical chart:
Image Credits: visualization by Miranda Halpern, created with Flourish
If you want to be a pedant, you might note that the market is actually more variable quarter-on-quarter from Q3 2022 to today than it was back in, say, mid-2019. You’d be correct, but we’re not trying to say that we have entered the most unvaried VC market ever. We simply want to note that since the last venture boom, VC investment patterns aren’t changing as fast as they used to.
Now that we have the semantics out of the way, let’s look at the top five trends you should know.
We continue to see fewer angel and seed funding rounds
For about the past 12 months, this section of the American venture capital market has seen a consistent decline in the value and number of deals, per PitchBook data. However, PitchBook noted in this new report that “annualized seed deal value” so far in 2023 is greater than what we had back in 2020, before things got cooking in 2021.
Most importantly, seed valuations are still trending higher: They rose from a median of $10.4 million in 2022 to $10.9 million so far in 2023. This implies that while we are seeing fewer seed/angel deals, the deals being closed are very competitive and founders are doing a good job of securing a good price for their work.
Less impressive early-stage startups, on the other hand, are likely dying on the vine.
Late-stage deals are still rolling downhill
On the other end of the venture spectrum, the value of late-stage dealmaking in the United States is on pace to hit a four-year low, per PitchBook. The median and average late-stage deal size is trending downward in 2023 as well, as are pre-money valuations for late-stage startups. Less money, lower prices, and smaller rounds make for a tough brew.
Exits have died
Since 2022 began, the total value of startup exits in the United States has fallen from low to de minimis. PitchBook counts just $12 billion in total exit volume through Q2 2023, compared to $777.2 billion in calendar 2021 and $75.7 billion in 2022. That’s one sharp drop followed by another. Two declines in a row mean that capital has all but stopped cycling through the startup ecosystem, and venture distributions are slim. This dynamic could be harming venture capitalists’ ability to raise new funds.
CVC is an outlier, like always
Corporates do what they want to in any market, which makes their venture capital efforts interesting. But it’s even more fascinating today because a host of companies are throwing buckets of money at AI-powered tech.
Data tells us two things: CVC’s share of deal flow dipped to 24.4% through Q2 2023 compared to 26% in all of 2022, per PitchBook. However, corporates’ venture arms invested more this year — total deal value participation climbed to 64.1% so far this year from 49.6% in 2022.
For late-stage startups, this is the rare, quasi-good news that we can spot.
Nontraditional investors are running for it
If things don’t change, we will again see fewer nontraditional names investing in angel and seed, early-stage and late-stage deals in 2023. If you had hoped for someone from outside the venture ecosystem to swoop in and take advantage of low prices, you’re out of luck.
In summary: Around $40 billion is flowing into U.S. startups each quarter, and while seed deals are showing signs of life, we’re going to see few things change in the near term. Perhaps lower inflation will lead to more economic confidence and therefore more aggressive investing in the private markets. But until exits pick up again, that seems unlikely.
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