Global Venture Funding In July Was Second-Lowest This Year As Seed Startups Are Hit Hard  

Global venture funding in July 2023 was the second-lowest monthly total since the reset began more than a year ago, Crunchbase data shows. With the slowdown now in its fourth or fifth quarter, it increasingly looks like the startup ecosystem is undergoing a top-to-bottom reset, from seed through late-stage startups and all the way to the investors that back them.

Global venture funding in July 2023 totaled $18.6 billion — down about 20% month over month, and 38% compared to the $29.8 billion invested in July 2022.

While that’s not the lowest monthly total we’ve seen this year, it’s close: Total funding per month so far in 2023 has ranged from a low of $18 billion in February to a peak of $33 billion in January, per Crunchbase data.

All funding stages — seed, early and late — in July 2023 were down close to a third compared to a year ago.

Notably, seed and early-stage funding hit its lowest amount in a single month since we began tracking the downturn in July 2022. That’s a scary sign for the startup ecosystem as a whole, since earlier funding stages had remained relatively insulated at the start of the downturn.

Now, even those fledgling companies are struggling to raise their early rounds of funding — and we’re also seeing those companies that do raise seed and early-stage rounds struggle to graduate to the later stages.

The seed funding ecosystem is also the most exposed due to the large number of new players and the inherently risky nature of seed-stage investing. After all, it’s widely believed that even in a normal market, 50% to 90% of startups fail.

Startup valuations reset

When the public markets started their downward slide in December 2021, it took the private funding markets a full quarter before registering the need to scale back on valuations.

By the second quarter of 2022, the amount of late-stage funding to startups had come down significantly. Investors signaled they would pivot away from investing in highly valued companies and focus on companies at the earliest funding stages who were years away from exiting.

But, as many startups have seen sales slow in this post-pandemic world, and raising later-stage funding became more difficult, even the previously robust early-stage funding environment started to tighten as well.

By the third quarter of 2022, early-stage funding fell. In the fourth quarter, it became obvious seed funding wasn’t safe either.

The protracted slowdown has continued into 2023. That has given way to concerns that the handoff between investors at each stage is broken as startups find it much more difficult to raise follow-on funding.

Seed- and early-stage startups face a reckoning if they are not able to raise funding on a two-year cycle. As investors cut back, startups funded during the market peak face closure at greater rates.

Arguably, for years the whole seed-stage funding ecosystem grew massively because there was a strong exit market at the end of the pipeline.

Seed investor Sam Lessin predicts that the seed ecosystem will go into “time out” for at least 18 months — if not longer — “until the inventory of dramatically over-marked late-stage private deals got worked through / washed out / expired on the line.”

That could cause the entire seed funding ecosystem to die off temporarily, before being reconstituted, he predicts. That’s because “run-of-the-mill public tech companies just aren’t worth that much it turns out — and if the bulk of so-called unicorns can’t get public / or do and are disappointing, the whole model of seed investing starts to look way way less attractive as an asset class.”

The blush came off unicorn valuations some time ago. And last month, new unicorns hit the lowest count since we started tracking new unicorn counts at the beginning of 2020.

Largest sectors

Perhaps surprisingly, funding to AI companies did not stand out as a sector this past month.

Funding to AI companies was around $2 billion — about 11% of all venture funding — in July. Health care and biotech companies raised around $3.8 billion, renewable energy around $3.1 billion, and financial services companies raised $2.9 billion this past month.

Methodology

Funding rounds included in this report are seed, angel, venture, corporate-venture and private-equity rounds in venture-backed companies. This reflects data in Crunchbase as of Aug. 4, 2023.

Note that data lags are most pronounced at the earliest stages of venture activity, with seed funding amounts increasing significantly after the end of a quarter.

Please note that all funding values are given in U.S. dollars unless otherwise noted. Crunchbase converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events are reported. Even if those events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historic spot price.

Glossary of funding terms

As of January 2023, we have made a change to how we include corporate funding rounds in our reporting. Corporate rounds are only included if a company has raised an equity funding at seed through a venture series funding round.

Seed and angel consists of seed, pre-seed and angel rounds. Crunchbase also includes venture rounds of unknown series, equity crowdfunding and convertible notes at $3 million (USD or as-converted USD equivalent) or less.

Early-stage consists of Series A and Series B rounds, as well as other round types. Crunchbase includes venture rounds of unknown series, corporate venture and other rounds above $3 million, and those less than or equal to $15 million.

Late-stage consists of Series C, Series D, Series E and later-lettered venture rounds following the “Series [Letter]” naming convention. Also included are venture rounds of unknown series, corporate venture and other rounds above $15 million.

Technology growth is a private-equity round raised by a company that has previously raised a “venture” round. (So basically, any round from the previously defined stages.)

Illustration: Dom Guzman