In 2023, startups in the United States received $170.6 billion in investments from venture capitalists. This amount is almost 30% less than the $242.2 billion they got in 2022. This decrease in funding happens as the market for venture capital faces challenges with changing company values and rising interest rates. These details come from the latest PitchBook data released on Thursday.
Even though there was a lot of excitement and big deals in artificial intelligence, the total investment in startups is still going down. It's a significant drop from the peak in 2021 when startups in the U.S. raised a record $348 billion.
Last year in the U.S., AI startups became a major focus for investors, receiving one-third of all the money put into startups. This surge in interest was mainly because of the popularity of OpenAI's ChatGPT and the rush by many startups to develop similar AI technology.
Training large language models, like what AI labs do, costs a lot because it needs so much computer power. But these AI projects, especially the big ones like OpenAI and Anthropic, played a key role in the investment world last year. Even in a year when investors were more careful with their money, these AI leaders got a lot of attention. In fact, 10% of all the money invested in startups in 2023 went to these two companies, according to data from PitchBook.
In the last three months of the year, there was a small increase in business deals in the startup world. A total of 3,934 deals were made, giving people hope that the market might start to become more stable.
There was also a noticeable change in how much startups were valued. In 2023, 20% of startups got less money than they did in their previous funding rounds. This is a big jump from 8% in 2022 and shows that the estimated value of many mature companies is being adjusted.
Ken Smythe, the founder of Next Round Capital, which invests in private companies, shared his insights. He said that AI companies and some software businesses are still getting high values. But other areas, like food and grocery delivery and less popular consumer businesses, are seeing a big drop in value. In some cases, they are worth 95% less than in their last funding round.
Many startups, known as 'unicorns' because they are valued at over $1 billion, might look for more money this year. These 723 companies are using up their cash and might need to raise capital again.
It's not sure if they'll be able to get this money. Venture capital firms, which give money to these startups, have over $270 billion that they haven't used yet. But, these firms are also raising less money than before. In 2023, they only got $67 billion, which is 60% less than the previous year and the lowest in six years. This decrease could make it harder for startups that need cash.
David York, a managing director at Top Tier Capital, thinks about half of the venture capital fund managers will need to find more money in the next 1 to 2 years. He said that while investment institutions are still putting money into their best-performing managers, they're not investing as much as before. So, there's less money available for startups.
FAQs
Q1: Why did the funding for US startups decrease in 2023?
The decrease was due to challenges in the venture capital market, like changes in company values and rising interest rates.
Q2: Were AI startups popular among investors in 2023?
Yes, AI startups were trendy. They got one-third of all startup investments, partly because of the success of things like OpenAI's ChatGPT.
Q3: What percentage of 2023's total startup investment went to AI companies like OpenAI and Anthropic?
About 10% of all the money invested in startups in 2023 went to these AI companies.
Reference
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