Hello, and welcome back to Equity!
Equity is the podcast about the business of startups, where we unpack the numbers and nuance behind the headlines. In this episode, we’ll be discussing what happened in venture capital during Q2 2023.
A lot, and not very much
The TechCrunch+ crew has been busy trying to make sense of the data. To help us out, we brought back Kyle Stanford, PitchBook’s venture guru, to join us on the podcast.
How did American venture perform in Q2 2023?
Welcome to the new normal, and why that’s actually bad news. In this segment, we’ll be discussing the trends and numbers from Q2 2023.
The New Normal: A Closer Look
As we’ve been saying for a while now, venture capital is entering a new era. This "new normal" has brought about significant changes in the industry. But what does that mean exactly?
Venture capitalists are facing challenges due to changing market conditions, increased competition, and shifting investor priorities. As a result, they’re having to adapt their strategies to stay ahead.
The data shows that:
- Deal volumes have decreased: The number of deals closed has dropped compared to previous quarters.
- Funding amounts have also decreased: While the average deal size is still relatively high, the overall funding amount has decreased due to fewer deals being done.
- Later-stage transactions are struggling: Larger rounds and later-stage investments are becoming increasingly difficult to secure.
What does this mean for venture capital?
The slowdown in venture capital activity is a concern for several reasons:
- Impact on fundraising: A decrease in deal volumes and funding amounts can lead to a decline in fundraising opportunities, making it harder for venture capitalists to raise capital.
- Limited growth prospects: With fewer deals being done, the overall growth potential of the industry may be impacted.
How are seed deals faring?
Seed deals have been relatively stable compared to later-stage transactions. However, this segment is also experiencing challenges:
- Increased competition: More venture capitalists are competing for seed deals, driving up valuations and making it harder for startups to secure funding.
- Higher expectations: Investors are becoming more cautious, leading to higher expectations from startups in terms of growth prospects and scalability.
Later-stage transactions: The struggle is real
Later-stage investments are facing significant challenges:
- Fewer large rounds: The number of larger rounds ($100 million+) has decreased significantly.
- Increased scrutiny: Investors are being more selective, leading to increased scrutiny for startups seeking later-stage funding.
Exits and fundraising
The slow pace of exits is having a ripple effect on the industry:
- Impact on fundraising: A decrease in exit opportunities can lead to reduced fundraising prospects for venture capitalists.
- Increased pressure: Startups are facing increasing pressure to achieve growth milestones to attract further investment.
Any green shoots popping up?
While the overall picture is gloomy, there are some positive trends emerging:
- More focus on sustainability: Venture capitalists are increasingly focusing on sustainable and socially responsible investments.
- Growing interest in AI: The growing importance of AI is attracting more venture capital investment.
The data behind it all
You can access the underlying dataset we used for this episode [here](link to dataset).
That’s all for today’s episode! We’ll be back on Friday with a news roundup, so stay tuned!
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