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Tech Startup Funding Falls to 4-Year Low

Rocketship And The Data-Driven World Of Investing

Startups had a rough 2023, with the value of venture investments hitting a four-year low.

As Bloomberg News reported Thursday (Jan. 4), investors spent the last year funneling money into artificial intelligence (AI) firms, though other tech companies struggled.

The report, citing data from PitchBook, said that venture capitalists (VCs) invested $170.6 billion in the U.S. in 2023 across 15,000 deals, a value that is roughly 30% lower than the prior year. It was part of a global trend, with investors worldwide pumping $345.7 billion into startups, a 35% drop from 2022 and the lowest level since 2017.

“Everything is trying to find a balance,” Kyle Stanford, venture capital analyst at PitchBook, told Bloomberg News.

While VC funding is typically reserved for companies with a good chance of massive growth, there are now around 54,000 U.S. companies with venture backing, which Stanford says is “too many,” per Bloomberg.

According to the report, fundraising for VCs also dropped last year, down about two-thirds year over year in the U.S. and by nearly half worldwide. American venture funds raised $66.9 billion in 2023, while globally funds took in $160.9 billion.

PYMNTS noted this trend late last month in a report on the increasing number of FinTech bankruptcies.

“The lifeblood of the FinTechs — VC funding, and we might liken it to the pandemic-era relief funds that shored up so many small and medium-sized businesses (SMBs) in years past — has been anemic at best,” that report said.

“And the public markets are hardly offering respite. Though the FinTech IPO Index, as tracked by PYMNTS, has rebounded in 2023, only five of the nearly four dozen FinTechs in the Index trade above “busted” status (above their offer prices).”

As funding declines, more and more startups are laying off workers and even closing their doors, as recent reports have shown. A report last month by The New York Times said that approximately 3,200 venture-backed firms in the U.S. went out of business in 2023. 

Those companies had raised $27.2 billion, and the 3,200 figure was likely on the low side, as many businesses had shut down with little public notice.