In 2023, the venture capital industry in the U.S. faced a continued downturn, with deal activity slumping from the highs witnessed two years prior. According to a report by Pitchbook and the National Venture Capital Association (NVCA), a mere 15,766 deals were completed in the U.S. during the year. More significantly, a meager $170.6 billion was invested in companies, approximately half the amount seen in 2021.
This alarming decline underscores the scarcity of capital available to private companies, challenging the free-flowing nature of venture capital.
The struggles extended to U.S. exits, which only returned $61.5 billion to investors in 2023. Large tech initial public offerings (IPOs) were notably scarce, despite the abundance of privately held unicorns. This inability to return money to investors has disrupted the capital influx into venture capital, according to the initial details of the report.
While 2022 witnessed a record year for closed funds, 2023 saw a significant drop, with just $66.9 billion committed to VC funds in the U.S. This represents the lowest total since 2017 and is likely to impede any potential rebound in dealmaking in the upcoming year. Although dry powder remains high, investors have adopted a more cautious approach when deploying capital to new portfolio companies.
Interestingly, media deal sizes for EU-based startups remained at or reached new all-time highs across all stages of venture capital. However, Europe’s dealmaking landscape continued its descent, with Q4 deal counts hitting the lowest total since Q3 2018. Valuations in the market remained historically high, despite the slowdown in dealmaking.
Globally, exit activity remained subdued throughout 2023, with Asia markets realizing the highest exit value during each quarter. The $143 billion generated in Asia contrasts sharply with North America’s meager $66.6 billion generated through VC-backed exits. Fundraising sluggishness in 2023 further contributes to the low capital availability within the venture market moving forward, making it the lowest year for global VC fundraising since 2015. The $160 billion raised by VCs during the year pales in comparison to the over $200 billion raised in 2021. As the venture market continues to search for a new normal, the decline in deal counts across all regions suggests a challenging landscape ahead.
