Worried investors drive VC financing for startups down 55%

American companies garnered $37 billion from venture capitalists in the first quarter of this year,The lowest sum in 13 straight quarters, according to statistics from research company PitchBook and the National VC Venture Capital Association.
Investors have lowered both the amount and quantity of checks they write. The first quarter had the lowest number of agreements, less than 3,000, in more than five years.

VC financing to startups plunged by more than half in the first quarter from the year before, a clear sign of the toll that a downturn in the IT sector has placed on emerging enterprises.

American companies garnered $37 billion from venture capitalists in the first quarter of this year, the lowest sum in 13 straight quarters, according to statistics from research company PitchBook and the National Venture Capital Association. Investors have lowered both the amount and quantity of checks they write. The first quarter had the lowest number of agreements, less than 3,000, in more than five years.

“The entire market is exercising considerably greater caution towards investment,” said Kyle Stanford, a venture capital analyst at PitchBook. “It’s not going to be simple for firms to get financing even if they’re expanding at a rate they established in their previous round.”

The abrupt collapse last month of Silicon Valley Bank, an industry institution that sponsored or supplied services to almost half of the venture-backed companies and many venture firms, sent a new wave of fear through the community that may have delayed its pace of investment for years to come. The business has suffered under increasing loan rates and a continuing slump, defined by plunging values and hundreds of layoffs.

Financing to digital businesses has declined at the same time that investors have found it tougher to earn money by sponsoring entrepreneurs. Exit activity, encompassing initial public offerings and sales to other firms, dipped to $71.4 billion in 2022, the first occurrence of a fall below $100 billion in six years, the PitchBook data indicated.

Stanford said he expected the dramatic slowdown in exits to cause issues for more mature firms this year, which will require more capital, even after cost-cutting measures such as layoffs. “Companies are attempting to prolong their runways,” he remarked. Venture companies may not be able to sustain all the unicorn startups that require money to keep functioning, he added, especially since interest in the industry has cooled from atypical startup investors such as private equity firms and hedge funds.

During the following year, several firms might struggle or possibly shut down if the slump endures. Andrea Lamari, the general partner at Manhattan Venture Partners, said the sector is keenly monitoring the bigger economy and its influence on innovation. “There has not been this amount of uncertainty in over a decade regarding what the macro environment effect would be for startups,” she added. “It’s as though everyone’s waiting for the next shoe to drop.”