Early-stage is the last domino to fall Early-stage is the last domino to fall Deal count and capital invested – two important metrics for the state of the funding environment – continued their downward trend in 2023.
Leadspace Illustration


Decrease in deals


Decrease in capital invested

Compared to 2022, last year saw approximately 10% fewer deals, with capital invested decreasing by about 30% to $171 billion. The decline in activity was even more notable compared to 2021, as the number of deals and capital invested was down 17% and 51%, respectively.

As a whole, 2023 was a slow year for investment. That said, overall numbers were largely in line with 2019 and 2020 before the frenzied environment that began in 2021. The capital raising story in 2022 was bifurcated among the stage categories, as later-stage activity came back to earth from an abnormally active 2021, while pre-seed and seed activity continued its upward trajectory, driven by larger round sizes as new entrants to the seed market continued to drive up valuations.

The story in 2023 was quite different. Last year saw much more uniformity across the industry, as pre-seed and seed activity slowed across all metrics and early- and late-stage activity continued to decline. In addition, a growing number of companies at all stages that had been able to postpone fundraising for a time have had to join the already competitive fundraising market, competing for scarce dollars.

2023 vs 2022
DEAL count
2023 vs 2021
DEAL count

Yet, outside of the exuberance of 2021, venture investment is trending towards a steady increase from pre-pandemic years through 2023.

Venture investment activity continues to be lower across the board in comparison to 2021’s outsized advances, but the longer-term trend exhibits consistent and steady increases in activity. Although the number of mega rounds (those sized $100 million and above) in 2023 was about half the number from 2022, the roughly 600 mega rounds is about double the figure from 2017, proving that capital is still plentiful for high-performing companies.

The lower velocity of deals and capital invested in 2022 and 2023 was in many ways a stark reversal of the underlying drivers for 2021’s fast pace of activity. In 2023, we saw:

  • less virtual dealmaking as investors and operators moved back to in-person work,
  • longer due diligence processes, and
  • longer time between financings after many companies raised more than enough capital for their short-term operations in 2021 period.

Several longer-term trends at play continue to drive investment activity, particularly at the later stages. These include:

  • companies staying private longer, inviting more private capital to fuel their growth,
  • large amounts of dry powder from traditional VCs, driving up competition and valuations, and
  • increased participation (though lower lately) from non-traditional investors like cross-over funds, private equity funds, corporate VCs, family offices, and sovereign wealth funds.
Trend: Seed continues to be critical capital

The strong performance of investors focused on companies at their earliest stages of formation is garnering more notice.

Seed-stage investing has evolved dramatically over the last decade and continues to mature post-pandemic, with many new players joining a professionalized set of seed-focused investors. This broad group of early investors is funding innovation at its earliest stages, enabling the creation of market-making companies.

Over the last two years as the venture industry watched valuations drop and financings become much more challenging for startups, the seed space was less affected than companies at later stages. Seed-stage investing is naturally less sensitive to the macroeconomic environment than those later stages, and this was reflected in more modest drops in deal value and volume in 2022 and 2023. The market finally caught up for seed in the fourth quarter of 2023, when both the number of deals and the median value of deals hit their lowest points for the year. But even at that annual low, the stage still showed resiliency, as deal values remained above pre-pandemic levels.

This echoes sentiments found in the 2024 Seed Crush Survey conducted by TrueBridge, which queried the top seed managers in the U.S. Despite 39% of elite seed managers indicating that the biggest difference between current deals and those a year ago is that valuations have come down dramatically, about 10% responded that high valuations are still one of the greatest risks to the market, indicating that values could have further to fall before the seed stage feels truly balanced. 

Another reason values may still be overpriced? Competition in the space is increasing. Seventy-four percent of managers are seeing increased competition from new seed firms and solo capitalists, angel investors, traditional Series A firms, and multi-stage funds. In a low-exit environment, many investors have the patience to invest in companies that are young and far enough away from an exit to have time to see how the markets play out.


Seed managers see increased competition

Indications are that investors are indeed showing extreme patience. They are deploying capital more slowly and looking for stronger teams, more traction, and founders with more grit who are determined to succeed in a tough fundraising and sales environment. And they are finding them – 57% of the top seed managers shared that the quality of their deal flow has increased compared to the boom years of 2020/2021.

"Founders are leaner and more efficient and know the bar is higher. More independent thinking and creating is coming back."

Seed Crush Survey Respondent

Are any other issues top of mind for seed investors? Preparing companies to raise Series A rounds is the resounding answer. Successfully raising post-seed capital in today’s environment requires significantly more traction and time than at any point in the last decade. One Seed Crush Survey respondent shared that, “The need for startups to scale before their Series A in a tough environment means that the path to that A round is murky, at best.”

Increased competition, leveling valuations, and a risky Series A environment aside, what will the seed space look like in a few years? It’s likely that the flight to quality will continue - venture investors will look to back the most resourceful and truly disruptive founders, limited partners will look to fund the top tier of elite managers, and the best founders will have their pick of venture investors. The space will remain dynamic and exciting, with high-risk investments generating handsome returns for patient investors.