2023 was a particularly difficult year for VC investment globally given the significant economic challenges, geopolitical tensions and conflicts, and ongoing concerns related to the valuations of VC-backed companies. Both annual global VC investment and the total number of VC deals globally fell to levels not seen since 2019 as VC investors continued to show an abundance of caution with respect to their dealmaking activities.

Down rounds coming out of the shadows

Over the course of 2023, startups in many regions of the world worked hard to avoid down rounds — such as by undertaking significant cost-cutting measures, conducting inside rounds, or by obtaining bridge financing in order to extend their financial runway. Much of this activity occurred under the radar as companies focused on raising add-ons to existing rounds. During Q4’23, this trend shifted somewhat, with more companies announcing actual down rounds at lower valuations. This trend will likely continue until the exit market properly reopens. In addition to down rounds, Q4’23 also saw more companies shutting down — a trend that will also continue as companies fail to attract fresh investment.

Startups adjusting growth plans to focus on profitability

Over the course of 2023, economic conditions and increasing pressure from investors had startups adjusting their growth plans and turning their attention to strengthening their paths to profitability. In Q4’23, VC investors continued to pressure companies within their portfolios to become more efficient and to adjust their business plans to focus more intensely on achieving profitability.

There has also been increasing recognition over the last few quarters that some startups simply cannot survive in the current environment. Many sectors that saw rapid acceleration under pandemic conditions have been decimated by the rapid shift in economic conditions, including high levels of inflation and rapidly rising interest rates that have not yet begun to come down. Companies focused on last mile delivery and buy-now-pay-later offerings have been particularly hard hit. Already, some companies, including unicorns, have disappeared — with more likely to become extinct as they fail to attract new funding.

Investors continue to flock to AI-focused solutions

AI continued to be a bright spot for the VC market globally, with VC investors around the world keenly interested in AI-focused companies. During Q4’23, two companies raised $1 billion plus funding rounds, including US-based Anthropic ($2 billion) and Metropolis ($1.7 billion). Generative AI solutions were particularly hot, with growing interest particularly from corporates.

AI-solutions related to autonomous vehicles slowed down somewhat during Q4’23 as investors began to really understand the level of capital contribution and capital spend required to make and create a true autonomous vehicle. This has led to some consolidation in the autonomous vehicle space, in addition to partnerships between autonomous vehicle manufacturers and AI-mobility platforms. As these partnerships continue to be solidified, it will likely become very difficult for other players to break into the space unless they have significant capital or a very unique solution. Autonomous solutions for niche areas — like agtech — however, continued to attract VC investment.

Additional IPOs fail to materialize in Q4’23

In Q3’23, three major startups listed in the US, including UK-based Arm and US-based Klaviyo and Instacart. While there was strong hope that these IPOs would kickstart a new, if measured, march of IPO exits, additional IPOs failed to materialize in Q4’23. This has likely eroded the likelihood of a major recovery in the IPO markets before the second half of 2024. Although a number of mature startups in the US have prioritized their IPO readiness so that they will be well-positioned to IPO when the time comes. The IPO exits that did occur in Q3’23 could help drive more attention to the M&A space, providing more certainty around valuations. This could help improve alignment between the valuation expectations of buyers and sellers and, in turn, lead to an upswing in M&A deals.

Trends to watch for in Q1’24

Looking forward to Q1’24, VC investment globally is expected to remain relatively depressed given the ongoing conflicts in the Ukraine and the Middle East, the stubbornly high inflation and interest rates, and the expectation of three major elections during 2024, including the European Union parliamentary election, the US presidential election, and the UK general election.

Given how uncertainty has saturated the VC market globally over the past eighteen months, however, any signs of stability could lead to a sudden shift in investor sentiment. Interest rates in particular will be a key factor to watch.

AI will likely remain the biggest ticket for VC investors globally, followed by cleantech. Healthtech is also expected to remain attractive to VC investors across the Americas, the Asia-Pacific, and Europe.

Venture pulse global

AI deals will not completely reverse the drop in VC investment that we have seen in 2023 but will definitely help mitigate some of the challenges. What I am most looking forward to is the impact that AI will have on non-AI companies as they prioritize cost and profitability. I sense it will be helpful but it could be game-changing.

Conor Moore
Global Head,
KPMG Private Enterprise

KPMG International

  • VC investment declines slightly to $74.9 billion across 7,572 deals

  • Down rounds persist — increasing as a percentage of all deals

  • B2B and Healthcare remain resilient

  • Venture fundraising remains muted year over year

  • US companies raise 6 of the top 10 deals globally

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