Global startup funding fell off in 2023, dropping to a five-year low according to Crunchbase. Yahoo Finance anchor Rachelle Akuffo is joined by Crunchbase News Senior Data Editor Gené Teare to discuss the venture capital (VC) pullback across sectors.
“This is the first year where the whole… was down, it down around $285 billion, a 40% decline year-over-year,” Teare says, later adding: “What was interesting to us is that financial services is a huge sector — there’s a lot of interest in financial services, in digital payments — and that was down 50% year-over-year.”
Teare goes on to comment on how companies are viewing investing and spending on generative AI models.
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Editor’s note: This article was written by Luke Carberry Mogan.
Video Transcript
RACHELLE AKUFFO: Well, 2023 was a lackluster year for global startup funding falling to its lowest level in five years according to a new report from Crunchbase but how much of this falls on the regional banking crisis or are other factors spooking investors? To break down the numbers, Gené Teare, Crunchbase News Senior Data Editor is here.
Thank you so much for joining us this morning. It’s tough because it feels as if there was this very high bar in 2021 for this sort of funding, so put this in context as to how 2023 went and the expectations for 2024.
GENE TEARE: Sure. So Rachelle, great to be here. So I think it’s no surprise that venture was down in 2023, and this is the first year where the whole portfolio was down. It was down. It was around $285 million, a 40% decline year over year and if you look at the market peak in 2021 was around $600 billion.
2022, earlier on in the year, Q1 was still strong, Q2 venture started coming down. That was north of $400 billion, and this, as you said, is the lowest we’ve seen in the last five years. So very slow year for the venture equity funding environment.
RACHELLE AKUFFO: And Gené which aspects have really seen the greatest inflows in terms of venture capital and which ones have you seen the biggest pullback on?
GENE TEARE: Yeah, so we’ve seen the biggest pullback in– across the board, most sectors were down and what was interesting to us is that financial services is a huge sector. There’s a lot of interest in financial services and digital payments, and that was down 50% year over year. And then we saw a lot of consumer also down.
So we saw e-commerce was down significantly. I think over 60%. We also saw media entertainment down significantly. So a lot of the consumer sectors, but most sectors were down, including Web3, I think, was down the most. This is cryptocurrency and blockchain. That was down more than 73%. So a real fall off in Web3 funding.
RACHELLE AKUFFO: And of course, we’ve been talking about AI for the better part of more than last year but as you look at the spending, how are companies really viewing this? What are they looking for when they’re trying to put some investments to work on something, especially generative AI, still very early days for this technology?
GENE TEARE: Yes. And so I think AI was the one bright spark. I think it is the sector, which is sort of excited the whole venture industry. That is an industry that is going to– generative AI is going to play out over the next 2 to 5 to 10 years in venture, and so I think this was the one area of excitement in the industry, and we did see that industry go up where it was around– last year, it was around 46 billion went into AI. This year it was 50 billion.
So not a massive increase, but an increase nonetheless, and it is an indication of the excitement. And we’ve seen a lot of those dollars go into those foundation model companies, around 18 billion went into the top three, including OpenAI, Anthropic and Inflection AI. We saw a lot of dollars go into machine learning operations so it’s sort of managing your AI workflows. There was a lot of money there.
And then there’s a lot of interest in how that plays out on the application level for consumers where consumers get the benefit. So we looked at Figma, Adobe. There are lots and lots of consumer plays in AI and those tend to be incumbent companies who are adding AI into their stack to provide productivity or better solutions for their business and consumer users.
