The global venture capital market is in a slump.
There was some hope that the potential halo effect of several long-awaited tech IPOs in the United States trading well and slowing interest rate hikes could spur VCs to be freer with their checks, but venture investment trends instead dipped, per preliminary data from PitchBook.
The Exchange explores startups, markets and money.
Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.
It isn’t entirely surprising — web3 investment is similarly not doing well. And in most of the world, it’s currently harder for startups to raise capital than it has been in years.
There are exceptions as always. Venture investors love to remind anyone who will listen that good companies can always raise, which is true enough. We might add startups building in the AI realm to that subset, too, as they are raising money in a manner and speed that’s at odds with wider trends.
But it’s not all bad. Numbers are perking up from recent lows in one continent: Europe.
Today we’re going to start with the bad news and then try to find hope in Europe’s penchant for bucking trends.
Yet another quarter of declines
Venture deal volume has fallen every quarter since Q2 2022 across the world, and the trend shows no signs of reversing. Moreover, the third quarter’s decline is quite sharp if we only take into account what PitchBook refers to as “actual deal count”: Q3 2023 saw 7,434 deals compared to the previous quarter’s 9,563 deals.
But there’s always a lag in how deals are reported, so it makes sense to assume that some have flown under the radar. To address that gap, PitchBook has an estimated deal count for the last few quarters. So if we add up the actual and estimated deal counts, we find that more deals were closed in Q1 2023 than in Q4 2022, albeit by a thin margin. What doesn’t change, however, is that Q3 2023 was the second consecutive quarter in which deal counts declined. It also had the fewest deals since Q3 2020.When including estimated deal count, there’s a smaller gap between the second and third quarters of this year: Q2 had 11,170 deals and Q3 had 10,095. Still, both those quarters saw notably fewer deals than Q1 2022, when we had a record tally of 15,483 deals.
This slowdown becomes even more obvious when you look at the capital involved. Per PitchBook, total venture investment around the world amounted to $73 billion in Q3 2023, compared to $105.9 billion a year earlier. That’s also 65% less than Q4 2021’s record of $213.4 billion. You’d have to go all the way back to Q4 2018 to find a lower dollar volume than what we saw last quarter.
And capital is not being used for acquisitions, either. As PitchBook VC analysts Kyle Stanford and Nalin Patel noted, “exits remain difficult . . . on a global basis.”
We feel that is a somewhat pessimistic take, since M&A in Q3 accrued $81.1 billion, which is much higher than Q1’s total of $40 billion and Q2’s $53.3 billion. But, the analysts point out that Q3’s total exit value “remains well below the highs of a couple years ago and continues to pressure the global deal-making environment.”
Taken together, all this data predicts a future that’s fast turning bleak. Thankfully, there are some parts of the world where winter hasn’t set in — at least not yet.
Can Europe keep it up?
This year has been brutal for startups in most regions. Nine months into 2023, venture investment in North America ($126 billion) is just half of what we saw in 2022 ($255 billion).
The narrative is similar around the world: After raising $116.1 billion in 2022, European startups had raised $47.3 billion through Q3 2023; Asian startups also raised just $65.3 billion in the first nine months of 2023, compared to $140.6 billion in the entirety of last year; Latin American startups had raised only $2.3 billion in September, compared to $9.7 billion in 2022.
Yeah, that’s bad, but we can spy some good news if we compare quarterly numbers. Here’s Europe’s venture capital results thus far in 2023:
- Q1 2023: $13.8 billion
- Q2 2023: $16.2 billion
- Q3 2023: $17.3 billion
That’s one heck of a positive trend, especially in this climate. Is it enough to help Europe post a better number in 2023 than it did last year? No chance. But compared to other regions, it’s a stunningly good trend.
For example, capital raised by North American startups declined from $53.7 billion in the first quarter to $38.7 billion in the second, and $33.6 billion in the third. The only other region to show an increase this year is Latin America, but only because it recovered from a nearly complete collapse in capital availability in the first quarter, when local startups raised $600 million.
As you’ve guessed by now, we are once again seeing the global venture capital market shrink. When will the trend reverse? Well, after seven quarters of consecutive declines, venturing a guess feels as risky as the prospect of catching a falling knife, so we’ll hold off. What we can say is that if things persist at this pace in Q4 2023, we’ll have seen two straight years of declines in VC investment around the world.