2023 was a sobering year for the startup ecosystem.
Entering the year, we had predicted total deal value would be down 40% to around $150B. The year ended around $170B - and if you remove the $17B in strategic corporate financings of OpenAI and Anthropic - our estimate for overall startup fundraising was remarkably accurate.
We expect this trend to continue in 2024 as the ecosystem continues to stabilize and we enter an election year. The Pitchbook graph below illustrates how quickly funding has returned to pre-pandemic levels.
Of particular interest is the data on the number of venture firms that invested in the first three quarters of 2023. Pitchbook reports that 38% fewer firms were active – making 2 or more deals, including follow-ons, in that time period) when compared to a similar period in 2022. This is a remarkable reversal and we expect the number of active investors to continue to decline to 2018 levels in 2024.
Pre-seed, Seed and Series A
Pre-seed and seed deal value saw a drop in 2023 - falling from $24.2B in 2022 to $14.6B. This is not entirely surprising as the larger investors who had entered the early-stage market in 2022 began their inevitable retreat. While this is a large decline, the numbers are still larger than pre-pandemic levels and we expect to see stabilization. Valuations, on the other hand, continued to increase as investors grew more discerning, but the funded deals were of a higher quality, and hence, deserving of a better valuation.
Series A startups exhibited slightly different behavior. Overall deal value fell below 2018 levels to $39.5B and we expect that this will remain constant or a slight increase in 2024. Valuations also saw a slight decline in 2023.
Artificial Intelligence and Machine Learning
AI and ML startups continued to be all the rage in 2023. Early-stage AI startups captured a large part of the market (close to 40%), and increased the percentage of dollars received from investors in 2023 (36.7%).
That said, the deal counts decreased in all areas related to AI - semiconductors, autonomous machines, horizontal platforms and vertical applications suggesting there were more dollars chasing a smaller number of deals.
2023 was a very eventful year at Cervin. We closed a new fund, welcomed new team members and portfolio companies, and participated in funding rounds for existing companies. Here are some highlights from 2023:
In September, we announced the close of $162 million in fresh capital for us to invest in early-stage enterprise software, data + AI, cybersecurity, infrastructure and DevOps startups.
We have always believed that our investment team’s experience as operators and entrepreneurs gives us a unique platform to help portfolio companies navigate the early legs of their journey. In the current environment, the value of our operators’ perspective seems obvious. We are glad that we maintained a rigorous and disciplined investing approach even through frothy times. Our advice to our portfolio companies has never changed - to maintain “disciplined entrepreneurship” as a core tenet of how to build and scale businesses.
We are thrilled to have raised this new capital, and for the opportunity to continue to work with amazing startup founders.
This time every year, VCs and business leaders reflect on the past year and plan for the new year. Our team sat down and discussed our predictions for the next 12 months to inform our strategy and plan for 2024. Needless to say, 2023 was a tumultuous year and 2024 looks to be an exciting year that will require adaptability and flexibility.
The Cervin team is pleased to share our 2024 predictions focused on macro economic and enterprise tech trends that impact us. To read more, visit our blog.