Source: Pitchbook

The USA venture capital world is adapting to the new domestic and global economic changes. He first quarter of 2023 was not very promising, with the lowest amount of capital raised since 2017, and a 73% drop in fundraising comparing to 2022.

VC- backed companies raised a total of $37 billion in Q1 2023 for 2856 deals.

Not everything is so gloomy, investors are staying positive, and they seemed to focus more on seed- stage and early-stage ventures.

The seed-stage funding wasn’t impacted in 2022 as much as the late-stage. Micro funds are giving a boost to the seed-stage activity. The average deal-size for seed companies in Q1 of 2023 was $3 million, up from $2.6 million in 2022. The pro-valuation for this kind of startups are also higher at $13 million in the first quarter of 2013 comparing to a median of $10.5 million in 2022.

The investors are bullish on AI startups, which are the VC’s favorites this year.

The capital demand-to-supply ratio for early-stage and venture-grow is 1.6x and 1.3x respectively. In comparison, late-stage ventures are struggling: for every $3.2 demanded by the founders, there is $1 available.

According to PitchBook Venture Monitor, there are approximately 219 companies in the IPO backlog and startups with higher cash- burn rates are even more dependent on non-traditional investors, like corporate VC’s, PE firms and hedge funds.

The number of late-stage VC deals over $50 million declined in the first quarter of 2023. There were 55 such ventures, representing only 7.7% of the total deals, comparing with 14.6% during the same period of last year.

Y-Combinator ended its late-stage focused fund in March 2023 to concentrate on its accelerator.

Mega deals, which means venture deals over $100 million were at their peak in 2021 before falling off in mid 2022. There were 50 mega deals that closed in Q1 2023, 18 in early-stage, 19 in late-stage and 13 in venture-growth.

The biggest closed mega-deal of 2023 so far was Stripe, the online payments platform company based in San Francisco with a $6.5 billion Series I from investors such as Andreesen Horowitz, Baillie Gifford and Founders Fund. Keeping things in perspective, Stripe lost $45 billion of its once $95 billion valuation of March 2021.

“Companies will be built on fundamentals rather than liquidity momentum” said Greg Dewarpe, funder and CIO af VC firm A/O PropTech. Despite the gloomy mood in the US venture capital world, there is a consensus that the best companies will be funded.