State of
the venture
State of
the venture
Back to Basics in 2023

Venture capital investors attempted to settle into a new normal in 2023, following the shifting tides in 2022 and the deflation of the pandemic-fueled bubble. Yet uncertainty persisted throughout the year, making the adjustment for investors choppy. This uncertainty that hung over the industry stemmed from many realities beyond and adjacent to the venture industry. The ongoing war in Ukraine, a new military conflict in Israel, and the strains between China and Taiwan kept geopolitical tensions high. A looming recession (that never came to be), rising interest rates that reached 15-year highs, and sustained inflation over 6% somehow resulted in a soft landing for the U.S. economy. A major banking disruption from the failure of Silicon Valley Bank resulted in new best practices for the venture industry instead of a broader banking contagion. The IPO window peeked open but closed quickly, disappointing investors and the long line of IPO-ready companies. The public markets rallied at times and ended the year with meaningful gains thanks to tech titans like Meta, Amazon, Apple, Microsoft, and Google, but the markets were quite volatile in the interim periods.

Amidst this choppiness, venture capital deal-making, fundraising, and exit activity were all down. Venture investors struggled with how to underwrite and value private companies. Investors raised the bar for new investments and kept their purse strings tight. We saw a flight to quality across the ecosystem, where only the best founders, ideas, companies, and funds raised capital.

Amidst a broad decline in funding for venture-backed companies, the fintech sector took it the hardest and fell further out of favor, with banking in particular seeing an annual funding drop of 72% in 2023. Founders faced with slowing demand set lower growth targets for 2023. And the private markets suffered high profile and widespread write-downs, as well as some epic failures and shutdowns.

AI, on the other hand, took center stage as investors funded companies in the hot sector with abandon.

The rapid advances and potential in AI fueled optimism across the industry. While AI proved to be a bright spot in venture, it also represented a holdover of past exuberance, resulting in high valuations, FOMO behavior, and companies pivoting to become or masking as AI businesses. We go deeper into the AI phenomenon and opportunity in this year’s report.

“The pace of innovation [in 2023] was both exhilarating and exhausting, with new models and frameworks emerging weekly.”

Ashu Garg, Foundation Capital
2023 also marked ten years since Aileen Lee at Cowboy Ventures coined the word “unicorn” to describe private tech companies reaching $1 billion in enterprise value. Over that time, the number of unicorns grew from 39 to 532 in the U.S. and over 1,200 globally. The unicorn factory of the last decade, as Sam Lessin at Slow Ventures described in his widely viewed slide deck, was one that knew how to efficiently package up seed-stage ideas into Series A companies, Series A into Series B companies, and so on until they eventually got packaged up into IPOs. This factory has halted “manufacturing” and we are left trying to pick up the pieces.

“The overall conversation seems to have shifted from building momentum and pure storytelling to creating measurable value for customers…we’re gradually moving from pitches and promises to products and potential profits…the tech ecosystem that is emerging from the wreckage of the crash is going to be slightly smaller and much wiser than it was before.”

Gil Dibner, Angular Ventures

As we closed out 2023, the market remained more rational than prior years, but stopped short of feeling healthy given slow deal activity, a tough fundraising environment, and, again, uncertainty – which may be our new normal in the short term. Investors began 2024 feeling as though the year could be messy and painful as many companies will likely struggle to raise capital and investors will have to face portfolio attrition.

Yet a return to focusing on profitability and efficient growth has positioned many companies well for sustainable growth in 2024, and perhaps even exits. Innovation is ongoing and can thrive in tumultuous periods. The number of talented founders with bold, exciting ideas is indeed encouraging.

“2023 was that lingering feeling, after the venture industry spent 2022 choking on its pandemic-era excess. The panic is subsiding, and the new normal looks a lot more like the old normal. For example, that $170.6 billion in 2023 U.S. venture volume was only 1.4% lower than the 2019 total (and well above 2018).”

Dan Primack, Axios

The flight to quality


Early-stage is the last domino to fall

Trend: AI

AI: In the limelight


The sky isn't falling


The brief glimmer of hope disappeared


Sobering in the short term


The industry will find its new normal