Report: Startups Contend With ‘Bloodbath’ As Funding Dries Up

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The world’s tech startups could be facing a cruel summer as the funding crunch persists.

As Bloomberg News reported Monday (April 24), experts believe these companies will increasingly begin to run out of money as the market downturn persists, with some venture-backed firms forced to raise funds at lower valuations.

“We haven’t had a compression in values like this in more than 20 years,” Cameron Lester, global co-head of technology media and telecom investment banking at financial services firm Jefferies, told Bloomberg. “It’s an absolute bloodbath.”

According to the report, citing data from Pitchbook, more than 400 companies haven’t raised new money since 2021, while 94% of tech unicorns — startups valued at $1 billion or greater — are unprofitable.

“Some of these companies remind me of Scottish nobility that haven’t raised money in seven generations,” said Mathias Schilling, co-founder of venture firm Headline. “They sit and drink champagne while it rains through the roof.”

The report also cites research from Preqin that notes that down rounds approached five-year highs in the latter half of 2022. Pitchbook also says around 7.5% of U.S. venture funding rounds were down rounds, a figure it projects will increase.

Some companies have already raised funds under those circumstances, such as payments processor Stripe, which last month raised $6.5 billion in a round that valued the firm at $50 billion, down from the $95 billion it reached in 2021.

The company has slashed its internal valuation three times since last year, with the most recent reduction — 11%, — happening in January. The lower internal price is different from the valuation determined by investors.

As PYMNTS noted earlier this month, March’s collapse of Silicon Valley Bank — which provided funding and/or banking services to a host of venture-backed companies — sent shockwaves through a sector that was already contending with a funding downturn.

“Just over a year ago, the startup funding landscape was basking in the glow of a sizzling 2021 and hoping to carry the momentum into the new year,” PYMNTS wrote recently. “However, at the beginning of 2023, funding for startups has considerably slowed down, almost to a crawl.”

VC funding plunged 65% year over year in the last three months of 2022, with the amount of new funds raised during the period reaching the lowest total for a fourth quarter since 2013.