Gené Teare, a well-known analyst of the global venture capital market, joins the podcast to discuss the Q3 2023 venture capital market as a whole. They also cover stage-level health, venture capital flows around the world, and the decline in unicorn births. They analyze data, highlight struggles faced by investors and startups, and discuss the resilience of the European market.
Venture capital funding in Q3 2023 has experienced a downturn, with early stages, particularly seed funding, being the hardest hit, reflecting a cautious climate in the industry.
The exit market has seen a decline in performance, but there are signs of potential improvement in the M&A market as companies explore acquisition options due to the challenging exit environment.
Deep dives
Venture capital market trends
Venture capital funding in Q3 2023 has experienced a downturn, with Q3 being the second lowest quarter for venture dollars raised. Early stages, particularly seed funding, have been the hardest hit. This cautiousness in investment reflects a more realistic and cautious climate in the venture industry, characterized by investors holding back and focusing on efficiency. Despite the overall decline, AI remains a significant sector, making up around 14% of all venture funding. While the number of new unicorns has significantly decreased compared to previous years, the current downturn is seen as an overcorrection following the excessive valuations of 2021. Despite the decline, there are still companies that retain market interest due to being strategic or having the potential for outsized returns.
The macro picture of venture capital in Q3
Venture capital has been in a downturn for several quarters, resulting in cautious investment strategies. The decline in funding is due to a variety of factors, including uncertainty about the sustainability of the market and concerns over portfolio companies struggling to sell and generate returns. While the early stage and seed stage deals have been significantly impacted, the late stage market in Europe and China has shown some resilience, particularly in strategic sectors like semiconductors, electric vehicles, and sustainable battery tech.
Liquidity challenges and potential for M&A
The exit market has seen a decline in performance, with many companies going public below their IPO prices. However, there are signs of potential improvement in the M&A market, with companies exploring acquisition options due to the challenging exit environment. Value has decreased, making companies more attractive, and strong revenue-generating companies might be more open to being sold. The IPO market is expected to recover gradually, but with cautious pacing, as companies continue to test the public markets.
The future outlook for venture capital
While the venture capital market is currently facing challenges, there are signs of potential recovery and opportunities for growth. The M&A market could become more active, providing an alternative for companies seeking exits. As companies focus on building stronger fundamentals and demonstrating profitability and growth, more companies may consider going public in 2024. Despite the overall cautiousness in the market, there is optimism that the venture capital landscape will regain momentum in the coming years.
This week Gené Teare from Crunchbase and Crunchbase News joined the podcast. She's a well-known analyst of the global venture capital market, and was instrumental to Crunchbase's early life and remains one of its more tenured staffers.
So, what did the three of us get into? Here's the rundown:
The big picture: What should we think about when we consider the Q3 2023 venture capital market as a whole. (More on Latin America here, Canada here, and global data here from TechCrunch+.) Here's Gené on Q3 data as well.
Stage-level health. Which level of startup maturity is seeing the most capital? The least?
And, venture capital flows around the world. As always, where venture dollars land is nearly as important as their total number for any particular period.
Equity is back on Friday with our weekly news roundup. Chat then!
Credits: Equity is produced by Theresa Loconsolo with editing by Kell. Bryce Durbin is our Illustrator. We'd also like to thank the audience development team and Henry Pickavet, who manages TechCrunch audio products.
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