The State of VC Investment in 2023: What Startup Founders Need to Know

As of Q1 2023, venture capital investment has stalled, with the fallout from the startup industry’s exit slowdown continuing into the new year. Exits dropped off a cliff in mid-2022 and have failed to pick back up, leaving significant amounts of capital tied up in late-stage unicorns. US VC firms raised $11.7 billion across 99 funds in Q1, the lowest total capital raised since 2017 and a 73% drop relative to 2022. The decline in VC funding follows a historic drop in 2022, with global venture funding totaling $445 billion, down 35% from 2021, according to Crunchbase.

The economic environment has changed significantly in the last year, with the rules of the VC game also changing. Sequoia crystallized this shift last spring with its “Crucible Moment” memo, in which it warned its portfolio companies to cut unnecessary expenses and generally hunker down. VC firms are struggling to secure capital commitments for new funds, and the outlook for first-time fund managers is particularly tough.

What it means for founders

The current slowdown in VC investments presents a challenging landscape for startup founders who are seeking to secure the necessary funding to scale their businesses. They may need to explore alternative sources of funding, such as debt financing or non-dilutive funding options, like grants or revenue-based financing. Additionally, founders may need to be more cautious in how they deploy the capital they do raise, as investors are likely to be more selective and demanding when it comes to return on investment. For many founders, the focus has shifted to building sustainable businesses with clear paths to profitability, rather than chasing rapid growth at all costs.

Founders seeking alternatives to traditional VC funding can turn to Veloz Group, which offers a unique solution. Veloz specializes in making founder-friendly acquisitions of startups and growth companies, providing access to capital to meet financial obligations, and technical expertise to enable continued growth, even during challenging periods. Veloz operates in both the US and Europe and strives to retain institutional knowledge and work with existing teams whenever possible, allowing founders to remain as shareholders. A partnership with Veloz provides exit opportunities that can give peace of mind to teams that are uncertain about how to maintain their growth trajectory.

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