NXTGEN

2023 / VCs DOWN BUT CERTAINLY NOT OUT

Following our deep dive into the effects of the VC downturn across different regions in 2023, we examine Global, US, African, and Latam deals concluded over the past year.

2023 was certainly a trying and taxing year for the Venture Capital (VC) industry. This is evident in the chart below, extracted from KPMG’s Venture Pulse Q4 2023 report, where global VC investing continues to drop quarter-on-quarter and declined to the lowest level in Q4 2023 since Q2 2019 and before that, Q3 2017.

All Stages Suffered

It is easier to assume that earlier-stage rounds would be less affected by the downturn than later-stage, where Initial Public Offering (IPO) markets were closed mainly in 2023, but this is not the case. While Series C+ deals saw a 40% decline in 2023, Series A deals were also 38% down. Angel/Seed (-29%) and Series B (-27%) rounds faired only marginally better.

Down Rounds Eventually Surfaced

The pressure exerted from substantially lower investment into startups led to more deals having to be done at either flat pricing from the previous round or the dreaded down round. Cumulatively, this accounted for almost a quarter of all deals in 2023, the highest level since before 2016. KPMG notes that this dam wall only broke late in 2023, as many companies were trying to use internal and bridge funding rounds (between existing investors) to limit the use of a down round for much of 2023, but that changed in Q4.

Deal Sizes Have Been Cleansed From The 2020-21 Boom

As a result of what would have been a re-set in valuations in 2023, as well as a higher risk aversion for many investors and a closed IPO market, the global median deal size for more mature VC deals has now retracted to levels that are similar to or lower than 2020, when the boom started. The earlier in the VC lifecycle, the better off the median deal sizes have performed, and the more protected investors have been from the fallout. The data suggests that a base is now being set for a recovery, particularly in the later-stage deal sizes. When deal sizes increase, valuations inevitably increase simultaneously.  

The US Represents Half of All VC Investing

Different regions were impacted differently by the downturn over the last two years. The Americas (which includes the US, Canada, and Latin America) remains the largest region for VC investment, making up 53% of total deal value, with the US having 50% of that on its own. This means that trends in the US strongly drive the overall global picture. Asia (27% market share) is larger than Europe (18%), with the remaining 2% from the rest of the world (mainly Africa). 

In parts 2 and 3 of our discussion, we examine trends more intently in Asia, LatAm, and Africa—all regions in which we plan to invest in the future.