The State of U.S. Early-Stage Venture & Startups: 2Q23
The worst quarter ever for startup dealmaking.
Jul 26, 2023 — 2 min read
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- 2Q23 saw the lowest rate of startup dealmaking in the history of our dataset (dating back to 2013).
- Of the deals that did get done, 2Q23 saw the second-lowest rate of positive activity (i.e., markups) ever observed.
- Median startup valuations declined to levels closer to their pre-pandemic averages.
- The continued lack of fundraising activity and markups has prompted most startups to practice greater financial discipline to extend runway.
- The lack of fundraising activity combined with declining valuations leads us to believe that we’re close to the “bottom” of the market, and that early-stage venture performance won’t get much worse in 2023.
- Read all our findings in our 2Q23 State of U.S. Early-Stage Venture & Startups report, produced in collaboration with Brex.
After nearly a year of turbulence, early-stage venture may have finally found the “bottom” of the market in 2Q23. Dating back to 2013, 2Q23 was the slowest quarter ever observed in our dataset in terms of startup dealmaking, with only 5.25% raising a round or exiting. This rate of dealmaking exceeds the previous low of 6.1% set last quarter (1Q23), making the first half of 2023 one of the worst fundraising environments we’ve observed for startups.
Additionally, 2Q23 saw the second-lowest rate of positive activity (i.e., markups) ever observed, increasing downward pressure on median valuations across the startup ecosystem. These datapoints suggest a market in the midst of a challenging transition, as startups that thrived during the bull run of 2021-22 struggle to adapt to the new macroeconomic reality.
Our belief is that this transition, which started with the public market drops in 2022, has likely reached its low-point for early-stage venture. While we predict a full-fledged “recovery” likely won’t take place until early 2024, we anticipate venture activity may improve in the third and fourth quarters, albeit still at a level below historical pre-pandemic norms.
This quarter, for the first time ever, we’ve partnered with spend management platform Brex to share their proprietary data on startup spending activity. Taken together, our combined datasets offer unprecedented and timely access into how capital flowed into and out of startups in 2Q23. Key datapoints in this quarter’s report include:
- Markups
- Investment activity
- Average valuations
- Median valuations
- Most popular early-stage markets
- Funding to female founders
- Most popular investment instruments
- Investment volume by round
- Average startup spend
- Startup spend frequency
- Spend by locale
- Spend by expense category
- AI spend
- Startup formation by locale
Disclaimer
All data referenced in this material is current as of 7/1/23, unless otherwise mentioned. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision and does not constitute an offer of any kind. Past performance is not indicative of future results. The content speaks only as of the date indicated. We undertake no obligations to update them in the future. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.
