Sure, there may be upbeat signs, like the mounting AI buzz and some resurgence in the IPO and M&A markets. But when it comes to the actual funding tallies, the totals are unequivocally trending lower.

How far down? For the second quarter of 2023, investors put $31.8 billion into seed- through growth-stage rounds for U.S. and Canadian startups, according to preliminary 附近上门 data. That鈥檚 by far the lowest quarterly total in more than three years.

For perspective, we chart out quarterly investment totals, color-coded by stage, for the past 10 quarters below:

Funding was down at every stage both quarter over quarter and year over year, with the most pronounced decline at later stages (Series C and beyond). In addition to putting less money to work, investors completed the lowest number of deals in two years, as shown in the chart below:聽

Still, there were some large financings in the second quarter, including a $450 million Series C for generative AI platform , and a $401 million Series D for gene therapy startup .听

Also, seed- and early-stage dealmaking saw relatively modest quarter-over-quarter declines, so the pipeline of fundable companies remains pretty robust.

For a more detailed sense of how the quarter and first half of the year played out, we break things out by stage below. We also take a look at exits, both M&A and IPOs, and contemplate where things are likely to go from here.

Late stage and technology growth

We鈥檒l start with late stage, which typically gets the largest share of investment.

For Q2, North American startups pulled in $15.3 billion in late- and technology growth-stage financings1, per 附近上门 data. That鈥檚 a drop of 48% quarter over quarter and 54% year over year.听

The declines look less steep when we consider that the Q1 total included a huge and unusual transaction: the $10 billion -backed round for , which calls itself a 鈥渃apped profit company governed by a nonprofit.鈥� Without that deal, Q1 and Q2 totals would be much closer together.

Round counts also ticked up slightly in Q2. This indicates investors are slightly more open to consummating deals, albeit at valuations often far below the 2021 peak.听

For the bigger picture, we lay out total investment and round counts over five quarters below:

Investors also didn鈥檛 shy away from big rounds. Besides the two aforementioned financings for Anthropic and ElevateBio, other large funding recipients included drone operator ($330 million ), construction equipment marketplace ($290 million , and AI software provider ($270 million ).

Early stage

As venture investment contracted over the past several quarters, declines have been more pronounced at the late stage than the early stage. This seems logical, given that late-stage valuations are more driven by public market comps and the state of the IPO market. Early-stage investors, by comparison, have longer time horizons and are less impacted by the immediate exit environment.

Given that, it wasn鈥檛 surprising to see that early-stage investment was relatively flat, with $13.5 billion invested in Q2, down just 2% from the prior quarter.

Year over year, however, the comps look less favorable. Second-quarter early-stage investment was down 47% from the same period in 2022. Round counts followed a similar pattern.听

For a look at the dynamics over the past five quarters, we chart out early-stage investment totals and round counts below:

As usual, a handful of outsized rounds boosted the quarterly totals. For Q2, there were at least 22 early-stage rounds of $100 million or more.听

The largest funding recipient was AI cloud infrastructure startup , which raised $441 million across two rounds. Next up were two RNA medicine companies: ($300 million ) and ($270 million )

Seed

Turning to seed and angel stage, we see that investment fell in Q2, hitting the lowest quarterly level in years.

Overall, investors put $3 billion into North American investments at this stage, down 39% year over year and 13% quarter over quarter. Round counts also declined, although current Q2 tallies remain preliminary.

For a broader view, we charted out seed and angel investment totals and round counts for the past five quarters below:

Not all sectors are seeing a decline in seed funding. Per 附近上门 data, a number of areas remain hot for recently founded companies, including generative AI, esports, and tools for finding and filling jobs.听

We鈥檙e seeing some jumbo-sized seed rounds as well. In Q2, the standout was a $50 million seed financing for , a developer of AI technology for health care.

Exits

In terms of investment returns, the second quarter wasn鈥檛 a red-hot period for either startup acquisitions or public offerings. However, some good-sized exits did happen. Below, we look at the highlights.

IPOs

While the IPO market remained quiet in Q2, a few companies did manage to carry out market debuts.

The biggest offering came from , a venture-backed Mediterranean-inspired eatery chain that saw shares spike after trading commenced in late June. The Washington, D.C.-based company recently had a market cap of more than $8 billion.

, a Durham, North Carolina-based provider of emissions-free power from natural gas, also carried out a sizable offering. The company completed a SPAC merger in June and had a recent market cap around $860 million.

To flesh things out, we put together a list of five funded companies聽that completed public listings in Q2:

M&A

The second quarter also was a reasonably busy period for venture-backed M&A, with multiple 10-figure acquisitions and several in the hundreds of millions.

, a Culver City, California-based game studio, inked the largest deal. In April, , a game developer owned by , announced plans to acquire the 12-year-old company for $4.9 billion.

Next up, announced in late June that it is acquiring , a provider of generative AI tools for developers, in a transaction valued at around $1.3 billion. The same week, announced its purchase of , a digital banking technology platform, for $1 billion in cash.

For a quick rundown of big startup M&A deals for the quarter, we used 附近上门 data to assemble a list of the top nine:

Summing up and looking forward

Overall, with the exception of a few big exits and unicorn rounds, it wasn鈥檛 the most upbeat quarter for startup funding. Total startup investment is only about one-third what it was at the peak in Q4 of 2021.听

One consolation, however, is that when things go down, that sets a lower bar to clear for subsequent quarters. In Q3 of 2023, for instance, North American startup investors will have to do just $33 billion worth of deals to qualify as a sequential 鈥渦p鈥� quarter.听

Future uncertainties notwithstanding, this seems like an entirely realistic benchmark to hit. And remember: If the IPO market comes back, we should start seeing large pre-IPO rounds getting done too. Those have been largely absent since market debuts dried up over a year ago.

So, maybe this is the bottom. Coming from someone who was quite premature forecasting a peak a few years ago, I wouldn鈥檛 put great faith in such a prediction. Durations of market cycles are notoriously hard to pin down.听

But still, a hit public offering from a high-profile unicorn or two could do a lot to spark a startup funding rebound.听

Sometimes, it doesn鈥檛 take much to tip investors鈥� mindset from frugality to FOMO.听

Illustration:

In total, investors put $36.1 billion to work across all stages in Q4, per 附近上门 data. That鈥檚 a whopping 63% decline from a year ago (a remarkably bubbly time for startup funding) and a 10% drop from third-quarter 2022.

Declines were sharpest at the late stage, as the shuttered IPO market and shrinking tech valuations muted investor appetite for large follow-on rounds. However, funding was down both year over year and quarter over quarter at every stage.听

For perspective, we lay out funding by stage over the past 12 quarters below:

Even with dealmaking down, there were some sizable rounds and exits that did get done in Q4. For the full year, meanwhile, 鈥檚 record-setting $20 billion acquisition proved high valuations can persist. Overall, however, both funding and exit numbers point to a down market.

For more detail, below we break things out by stage, as well as highlight top M&A deals and public market debuts.

Late stage

We鈥檒l start at late stage, which remains the largest area for funding, albeit by a smaller lead than in past quarters.

For Q4, late-stage and technology growth investment totaled $18.7 billion. That鈥檚 a decline of聽 67% from the same period a year earlier and a drop of 3% from Q3. It鈥檚 also the lowest total of the past five quarters, as illustrated by the chart below:

Round counts also declined in Q4, with 272 disclosed late-stage and tech growth deals, the lowest total in at least five quarters.

Still, big investments did get done. One standout was , the defense industry technology developer, which landed $1.5 billion in a December Series E round. Other large deals included a $450 million Series E for , a developer of iron-air batteries, and a $330 million Series E for , a provider of mobile and virtual health care.

The Q4 totals top off what has been a downward-trending year. For all of 2022, investment in late-stage and tech growth rounds totalled $124.6 billion. That鈥檚 a 43% decline from 2021, when $217.8 billion went into such deals.

Early stage

Early stage is also down.听

For the fourth quarter, $14.4 billion went into early-stage rounds (Series A and B), a 59% decline from year-earlier levels and a 16% drop from Q3 tallies. It was also the lowest total of the past five quarters, as illustrated by the chart below:

Deal counts contracted as well, hitting the lowest quarterly level in more than two years, per 附近上门 data.听

Even so, we did see a number of large early-stage deals. , a precision medicine startup, pulled in $261 million in an October Series A round. Other big Q4 round recipients were biopharma startup , with $168 million in Series A funding, and decentralized finance upstart , with $165 million in Series B financing.

Early-stage financing was also down for the full year, with $84 billion in total investment in 2022, down from $117.9 billion in 2021.

Seed stage

North American investors also pulled back at the seed stage.听

For Q4, seed, pre-seed and angel investment totalled $3 billion. That鈥檚 down 37% year over year and a drop of 18% from the prior quarter.

Below, we look at how the just-ended quarter stacks up relative to the past five:

In some ways, the recent seed-stage decline is harder to explain than the drops we鈥檙e seeing at late stage. At this most nascent stage of startup development, investors aren鈥檛 really concerned about the current state of the IPO and M&A markets, as a potential exit is years away.听

Nonetheless, seed investors do care about whether there鈥檚 a steady supply of Series A capital to fund the next phase of growth. So, from this perspective, the decline in early-stage investment could be a catalyst for lower seed funding.

Notably, quarterly seed funding totals actually hit their all-time peak in Q1 of 2022, boosted by some big Web3-related rounds. That pushed total seed funding for 2022 to $17 billion, which is actually up about 4% from 2021.

M&A

Acquisition activity slowed in Q4, with no purchases that came close in size to Adobe鈥檚 jaw-dropping Figma deal the prior quarter.

The largest announced deal involving a private, venture-backed company was 鈥檚 $1.46 billion acquisition of , a cloud-based platform for managing the lifecycle of assets and equipment. At the time of purchase, however, ServiceMax was 15 years old and majority-owned by private equity firm .

Several younger startups sold for smaller sums, including , a car repair and maintenance platform being acquired by for $190 million, and , a hardware and software system for data centers, which sold to , also for $190 million.

For more deals, we put together a list of the top seven venture-backed M&A transactions below:

Public offerings

The new offerings market was quiet in Q4, but a few funded companies still made it to market.

One standout was , a car-sharing marketplace that went public via SPAC in December, wrapping up a merger deal that set an initial valuation for the company of $1.2 billion. Shares have fallen steeply since.

Meanwhile, , a startup focused on gene editing, made its debut in October, with shares actually up a bit from the initial price. Several other biotechs also went public, though offerings were on the smaller side. We aggregated a list of seven Q4 offerings, across all sectors, below:

Down is a relative term

While funding was down year over year in 2022, it was still a strong year by historical standards.

Per 附近上门 data, last year actually had the second-highest total funding in the past 10 years. It鈥檚 only in comparison to the rollicking 2021 investment climate that things are looking sharply down.

For perspective, below we chart venture dollar volumes by stage since 2013:

Of course, it鈥檚 worth keeping in mind that 2022 started on a stronger note than it finished, with Q4 showing the lowest funding by a wide margin. So, if the pattern continues, it appears likely that we鈥檝e still got further down to go.

Methodology

The data contained in this report comes directly from 附近上门, and is based on reported data. Data reported is as of Jan. 4, 2023.

Note that data lags are most pronounced at the earliest stages of venture activity, with seed funding amounts increasing significantly after the end of a quarter/year.

Please note that all funding values are given in U.S. dollars unless otherwise noted. 附近上门 converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events are reported. Even if those events were added to 附近上门 long after the event was announced, foreign currency transactions are converted at the historic spot price.

Glossary of funding terms

Seed and angel consists of seed, pre-seed and angel rounds. 附近上门 also includes venture rounds of unknown series, equity crowdfunding and convertible notes at $3 million (USD or as-converted USD equivalent) or less.

Early stage consists of Series A and Series B rounds, as well as other round types. 附近上门 includes venture rounds of unknown series, corporate venture and other rounds above $3 million, and those less than or equal to $15 million.

Late stage consists of Series C, Series D, Series E and later-lettered venture rounds following the 鈥淪eries [Letter]鈥� naming convention. Also included are venture rounds of unknown series, corporate venture and other rounds above $15 million.

Technology growth is a private-equity round raised by a company that has previously raised a 鈥渧enture鈥� round. (So basically, any round from the previously defined stages.)

Illustration: Dom Guzman